By Scott Hackl is Global Head of Sales, Infosys Finacle

These times belong to the disruptive. Every industry from retail to payments to car services are being challenged by tech-powered companies riding in on lean, mean and innovative business models, and this challenge will only grow.

This realisation is not lost on the banking industry.

Half of the American millennials interviewed in the three year long Millennial Disruption Index (MDI) study believe technology startups will transform the way banks go about their business. Three out of four say a new financial services offering from large tech companies like Google, Apple, PayPal, Amazon or Square would excite them more than something from their bank.

In the seventh edition of the annual Innovation in Retail Banking Study presented jointly by Efma and Infosys Finacle, 72 percent of responding banks rate the threat of disruption to the industry as high or greater. These responses closely echo the sentiments of the MDI respondents by stating that the greatest challenge will come, not from other banks, but from the likes of Google and Apple. Start-up companies are perceived as the next big threat, beating out telcos who were in the second spot in the 2014 edition of the study.

Mobility, advanced analytics and big data are perceived to be the top three disruptive technologies, scoring high or very high in importance by 59 and 57 percent of participants respectively.  Banks believe that mobility’s impact will be felt almost universally within retail banking, and this is reflected in the way they are approaching innovation investments, with 80% of the participants increasing their investments in channels in 2015.

Mobile is king

It’s easy to see why banks would want to invest heavily in mobile advancements. A prominent consulting and advisory services firm predicts that the number of mobile banking users will double to 1.8 billion worldwide by 2019. Mobile is already the largest channel in terms of transaction volume, and is poised for very rapid adoption by new customers. A number of studies have reported that mobile banking is one of the biggest reasons for customers switching banks.

Mobile innovation is also the favourite playground for disruptors – a point that the Efma-Infosys 2015 report underscores, with the majority of innovation case examples involving some element of mobile innovation. Around 65% of the banks also believe mobility to be an area where start-ups will have a high or very high impact. For these reasons, implementing a sound mobile innovation strategy is taking higher priority on the banking industry agenda.

Insight ahead of everything

Advanced analytics, perceived to be nearly as disruptive as mobility, will drive innovation in areas like credit scoring and personal financial management.

Of the various technologies included in the report, more than 50 of the survey respondents believed customer intelligence, social intelligence and real-time analytics were areas where start-ups would have high / very high impact.

A number of banks have already adopted analytics with great success. Among these are India’s Kotak Mahindra, which uses customer intelligence analytics to identify dormant accounts to be targeted for revival. A great example of how real-time analytics can be deployed to improve marketing comes from mBank of Poland, where a real-time marketing platform complete with a web analytics tool, real time engine, and “self-adjusting” context marketing processes a variety of data to dispense advice-like offers and communication in real-time.

Emergence of open APIs

Some years ago, a leading IT industry analyst firm exhorted banks to provide services via APIs, instead of applications. In the Efma survey, open APIs were voted the third most disruptive technology, deemed important/very important by 53 percent of respondents.

Open APIs are ushering in a new approach to innovation at banks by enabling third party developers to innovate on their platforms at the edges, without compromising the security of core systems. APIsare also opening up opportunities for “co-opetition” partnerships, as banks can unbundle some of their functions and allow FinTech start-ups to build applications on them. Germany’s Fidor Bank believes APIs enable them to on-board customers faster and find specialist partners in niche FinTech areas. They also feel that bank APIs offer start-upswith innovative products but limited financial resources a mechanism to seamlessly integrate with crowdfunding platforms and other apps.

The use of open APIs is likely to receive a boost from initiatives like the Open Bank Project, which offers an open-source API for banks that developers can use to create applications and services using transaction data.

Finally, the Internet of Things (IoT) came in fourth on the most disruptive technologies list in the survey. As the IoT envisioned connecting humans, machines and devices in unprecedented ways, it created a new set of possibilities for various industries, including banking. But while banking on connected systems and devices has been discussed, there has been limited tangible progress. On the other hand, start-ups are innovating with wearables and connected devices, especially in the realm of payments, and beacon technology is opening up significant opportunities for connecting with in-store customers. Cryptocurrencies were not expected by our survey respondents to be as disruptive as other technologies (only 31% rated the likely level of disruption as high or very high), although there are nevertheless many banks who believe that the underlying technology of bitcoin, which is the blockchain, could be very disruptive. Banks must capitalise on such opportunities or risk losing out to competition.