A new Efma report shows that retail banks’ innovation performance is improving.

The annual report found that banks identified as high-performers, both large established players and the smaller challengers, have increased their investment in innovation in 2011, have strong support from senior management in this area, have a clear innovation strategy, and a dedicated department to help drive original ideas through their businesses. One hundred and six banks across Europe, Middle East and Africa participated in the research which explored three areas: innovation strategy, performance and organisation.

Whilst there is clear evidence of banks in all regions increasing their level of investment in innovation, it does rank slightly lower as a priority than activities like risk management and cost management. The threat to the industry from disruptive innovation is seen to be high or very high by 65 per cent of banks and is believed to be increasing in all regions, particularly in Western Europe.

The level of innovation is highest in channels, and in particular in the online channel. The innovation level in products is also quite high but this is of less importance for the future. Innovation performance in customer-related activities and in other sales and marketing activities could be improved, with innovation in customer loyalty seen to be quite weak, and innovation in personalisation also weak. Process innovation performance continues to remain low.

Sixty per cent of banks now have some kind of an innovation department, focusing on managing idea generation processes and projects, a higher proportion than when this survey was launched in 2009. A significant minority do not have processes for tracking innovations taking place elsewhere or for testing new propositions against ones already existing in the market.

Patrick Desmarès, secretary general, Efma, says: “The global economy and the banking industry in general are still recovering from the financial crisis of 2008 and 2009 and there are difficult times ahead. Banks need to be prepared to prioritise their investment in innovation in order to deliver better products and services, and an improved customer experience. However, it is encouraging to see that investment in innovation is increasing and banks believe that their level of innovation is improving across a range of activities.”

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