Determinants of innovative developmentbanking system

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Determinants of innovative developmentbanking system

Nechyporenko Tetiana PhD in Economics

Vinnytsia Technical Vocational College

Krysak Andriy PhD in Economics

Vinnytsia Technical Vocational College

Musiatovska Ludmila

Vinnytsia Technical Vocational College

In today's conditions, the introduction of innovations is the most important factor of structural economic transformations and the driving force of changes in the banking system. The systematic and effective application of the latest products and technologies in the banking sector in the face of increasing competition is the key to the success of implementing business models and winning and maintaining the relevant segments of the financial market. Institutions that can modernize the product range, develop alternative customer service channels, develop and implement new technologies, carry out the innovation process, have a significant advantage, therefore, a necessary condition for the effective operation of banks is the development and implementation of an appropriate innovation strategy aimed primarily at optimizing the management of resource potential, better satisfaction of existing customer needs, as well as the development and technical improvement of services to adequately respond to new market demands, in accordance with economic changes in a globalized environment.

Theoretical and practical aspects of the innovative development of the banking system, in particular innovative banking services, have been studied by many domestic authors, among whom we highlight the works of I. Balabanov,Vasyurenko, I. Vasyliev, D. Vakhrushchev, O. Zolotova, A. Yepifanov, A. Peresady, S. Yegorycheva, O. Kaminsky, S. Kozmenko, O. Korzachenko,Karcheva, O. Lavrushina, V. Mishchenko, N. Samchenko, V. Prosalova, O. Stepanenko, T. Smovzhenko, Y. Schumpeter, S. Yakovenko and other. However, taking into account the value of the works of scientists, this topic is quite debatable, what determines its choice and relevance.

The purpose of the work is to study the determinants of innovative development of the banking system, reveal the essence of banking innovations and consider innovative technologies at the current stage, determine their impact on the activity of banks. innovative financial market

Currently, the process of informatization of society, manifested at the global level and at the level of individual national economies, contributes to qualitative changes in mediated economic relations. The goal of these changes is the maximum satisfaction of public needs through the generation and use of information resources, scientific knowledge, which can be characterized as economic development. According to Y. Schumpeter, "the appearance of something new, previously unknown, is an innovation" [1, p. 12]. It is the innovative direction of development in accordance with the specifics of the fifth technological system that is a prerequisite for the integration of economic entities into the information economy, covering material production, innovations in the sphere of management, strategic development, marketing, the financial sphere, etc.

The concept of "innovation" (innovation) is interpreted by domestic economic science as "the final result of innovative activity, which was embodied in the form of a new or improved product introduced on the market, a new or improved technological process that was used in practical activities, or in a new approach to social services" [2; 5].

The emergence of banking innovations is due to the continuous movement of entrepreneurial thought, the desire to bypass competitors, information received about banking innovations of foreign countries, as well as periodically arising crises in the banking sphere, which is a reaction to increased activity in the field of innovations aimed at increasing the financial stability of the bank.

Financial and credit institutions are quite actively introducing innovations that change the nature of their activity, features of interaction with clients, and expand the range of services provided by them. Obviously, the effective activity of the banking sector, its continuous development, lies in the ability of banks to adapt to changes in the environment, their persistence in creating and introducing innovative technologies in their activities.

Innovations in the banking sphere are the final result of the innovative activity of the bank, which was realized in the form of a new or improved banking product or service, which was implemented in practical activity [13]. O. Stepanenko definition is considered classic, according to which "innovation is a social, technical, economic process through which the practical use of ideas and inventions leads to the creation of products and technologies that are better in terms of their qualities and, if the innovation is oriented towards economic benefit, profit, its appearance on the market can bring added value" [12, p. 9].

According to O. Kozachenko, banking innovation is the final product of innovative activity implemented in the form of a new banking product or operation" [6, p. 29]. This interpretation does not cover the direction of technology improvement, therefore, taking into account the fact that the market offers a wide range of banking services and products, the technologies used by banks to provide services require more attention, and their safety, reliability, and speed are the key to the effective operation of the bank. Scientist N. Matviychuk defines banking innovation as "a synthetic concept of the bank's activity in the field of innovative technologies, aimed at obtaining additional income in the process of creating favorable conditions for the formation and placement of resource potential with the help of innovations that help customers in obtaining profit" [8, p. 27]. A review of the existing definitions shows their common characteristic - the introduction of banking innovations leads to qualitative changes in the banking sector and contributes to banks' profit. In this context, with regard to the features of the banking system, innovation can be described as the creation of a banking product or service that has more attractive consumer properties compared to what was offered earlier, which contributes to increasing the bank's competitiveness on the financial market. According to S. Kozmenko, innovations in the banking sector include those new processes and models with the help of which credit and financial institutions intend to reach a relatively new level of functioning, as well as improve their positions in the market of banking services [7, p. 15]. Some economists emphasize the growth of the bank's profitability as the essence and main goal of its innovative activity. Thus, L. Sachenok claims that innovations in the field of financial and banking services are conditioned by the need to make a profit in competitive conditions [11, p. 135].

From the point of view of Z. Shmigelska, banking innovations as a collection of fundamentally new banking products and services is a synthetic concept of the purpose and results of the bank's activity in the field of new technologies aimed at obtaining additional income in the process of creating favorable conditions for the formation and placement of resource potential through the introduction innovations that help customers make a profit [4, p. 35]. According to S. Yegorycheva, the most important internal reason for innovativeness is the need to ensure the profitable operation of the bank, and not only in the short term, but also in the long term, which ultimately aims to increase the value of the business [3, p. 53]. Note that domestic scientists, when defining banking innovations, are more inclined to justify this concept in the widest possible context. In particular, O. Stepanenko, L. Sachenok, and A. Nikitina define the innovative development of the banking system as a process of structural improvement of the banking system, which is achieved mainly through the practical use of new knowledge to improve the quality of banking services, increase the level of protection of banking information, increasing the level of competitiveness of banks and, as a result, the banking system as a whole [12, p. 12; 11, p. 135].

It should be noted that such a broad approach to the interpretation of banking innovations is justified if it involves the formulation of a holistic strategy for the innovative development of the bank, which determines the technological changes in the areas of its activity, related to the offer of the latest services and the improvement of the organizational structures of banking institutions in such a way that to obtain maximum competitive advantages in the financial market.

According to the authors, banking innovations should be understood as any changes, innovations in all spheres of the bank's functioning that have a certain positive economic or strategic effect.

The process of introducing innovations into banking activity includes not only technical or technological developments, the emergence of new banking services, the use of modern financial instruments, but also new forms of business and modern methods of working on the market. That is, we are talking about any innovations in all areas of banking activity that contribute to the achievement of a positive economic or strategic effect, in particular, the growth of the client base, the increase of the bank's market share and the reduction of costs [5].

Innovations introduced in the banking business environment have a number of features:

- banking institutions are under the influence of the system of regulation and supervision, which can limit the process of introducing innovations;

- a significant part of banking innovations are solutions borrowed from other spheres of social production, or caused by changes in customer requests;

- the main tool for the protection of intellectual property of the bank's innovative objects is not patent protection, but know-how and copyright;

- banking innovations are based on applied rather than fundamental scientific research, which significantly reduces the level of costs for innovative activities of banks [1, p. 17].

The outlined features indicate both the positive and the risky sides of the introduction of innovative development models, however, in general, they make it possible to form new principles of conducting banking business, create new consumer values for clients and ensure the growth of the bank's competitiveness on the financial market. Note that innovations become innovations only from the moment they conquer the market, so the market environment can be considered a criterion and condition for innovations to become innovations.

Innovations take into account such conditions as freedom and choice, which were not initially available to bank consumers: convenience (at any time and in any place), speed, control and independence. Accordingly, there is a consumer demand for new banking technologies that contribute to the simplification of consumer activities and reduce time spent on conducting routine operations. As a result, banks need to constantly renew their technologies, services, products, management system, improve the qualifications ofemployees andrethinkapproaches to work

motivation [3, p. 55].

The key stimulus for innovative transformations in the banking sector is the specificity of its development in the conditions of globalization and competition, as well as the need to confront high risks of business activity and growing threats of global financial crises. Therefore, a necessary condition for the successful development of banks in modern conditions should be considered the activation of the innovation process, which can be carried out in the following main directions:

1) introduction of innovative banking products and the latest services capable of satisfying the widest range of consumer needs in the financial market, as well as modification of already existing types of banking services with the use of technological innovations;

2) changing the concept of promoting bank products to the end consumer, introducing innovative methods of their sale and the latest marketing strategies, which take commercial banks far beyond the limits of intermediary activities in the redistribution of credit resources and the implementation of settlements;

3) modernization of the organizational structures of the bank and its individual structural divisions, as well as internal control systems in banks, which contribute to increasing the efficiency of the bank's functioning, the speed of management decisions and the formation of an effective banking risk management system [2].

The innovative vector of the development of the banking system, in fact, makes it possible to transform a modern commercial bank from an intermediary in carrying out calculations and a source of credit resources into a high-tech financial institution, ready to comprehensively serve complex commercial agreements and projects with partners in different parts of the world. This determines the wide implementation of product, technological, organizational, management innovations in the banking system.

To date, many innovative technologies have been introduced in banking, among which the main ones are [7, p. 19; 10; 13]:

- contactless payments, which include MasterCard PayPass/Visa payWave, which allows you to make payments by applying a bank plastic card to a terminal or an ATM. The majority of Ukrainian retail chains make payments using PayPass technology;

- identification using biometric technologies, which allow the client to gain access to the account, using the technology of a palm or finger print applied to a special scanner (this is the Japanese banking company TheOgakiKyoritsuBank, Ltd);

- blockchain technology, which is a database that does not have a single control center, that is, all processes that take place in it are not controlled by top management. Blockchain technology functions without intermediaries, and the reliability of concluded transactions is decided by the system and its participants. GoldmanSachs, JP Morgan, CreditSuisse and Barclays are the first global banks that jointly deal with the topic of blockchain technology;

- wireless payments are another innovation introduced by banking organizations, such payments are implemented using NFC technology - a modification of short-range radio communication that allows you to make payments in stores and terminals using your own smartphone. Such universal innovative banking innovations based on the NFC Visa RayWave or MasterCard PayPass system are rapidly developing, both in Ukraine and abroad;

- the Internet banking system is a type of remote banking service that provides access to accounts and banking operations at any time via the Internet (using a computer, tablet or phone). Considerable attention is paid to mobile applications, because the smartphone is the main method for implementing the majority of banking and other settlement transactions. The leader in the Ukrainian market of Internet banking services is the Privat24 system, which was developed by Privatbank and is used quite successfully by many Ukrainians;

- an important advantage of innovative solutions is the ability to carry out bank calculations with constant availability, as well as to be in touch with clients 24 hours a day, 7 days a week, banks provide the opportunity with the help of such online resources as WeChat, Facebook Messenger, Google Hangouts and others. One of the innovations in banking is the ability to receive loan funds and issue a loan using a terminal and SMS request. Currently, a service for issuing cash loans through an ATM is operating in Ukraine, Privatbank has introduced such a system in Ukraine;

- the technology of virtual Internet banks, which in terms of functionality are not inferior to traditional banking organizations. AllyBank, DiscoverBank and First Internet Bank are global banks that apply the virtual banking method to the banking services market, this service is accessible to customers anywhere there is access to the Internet.

In Ukraine, the virtual bank is - MonoBank, the leader among the introduction of innovative solutions in banking is the Chinese Smart City Yinchuan, which does not use money or bank cards, but the bank card is the face of the client. For example, in all city transport, personal identification systems are installed and payment occurs automatically when entering the transport. In Ukraine, such banking organizations as: JSC CB Privatbank, JSC Raiffeisen Bank, JSC Oschadbank, JSC Ukreximbank, JSC Ukrsotsbank, JSC Sens Bank are actively implementing innovative technologies and carrying out innovative development.

The biggest leader in the implementation of innovative technologies in banking activity is JSC CB "Privatbank", which indicates that the products and services implemented by this bank are unique, and the use of remote service is effective.

In general, banking institutions more often use the tool of artificial intelligence, which allows the application of innovative technologies, and as a result, companies can reduce costs as much as possible and improve the quality of services provided. Today, the introduction of innovative technologies into banking activity is limited by factors that are generated by the general laws of the development of the financial market, such as:

- price volatility observed in most market segments;

- lack of information awareness;

- increasing the cost of innovative solutions;

- distrust of customers in innovations;

- an unclear term for the introduction of innovations;

- tax differences;

- increasing the level of risks;

- low degree of development of innovative infrastructure, etc. [10, p. 18].

Innovations used in banking are associated with a large part of risks,

which are characterized by the following features:

- such risks as credit, market, interest, innovation, and liquidity are the main objective risks that affect the development of innovative technologies;

- the need to use risk management, which is considered as a set of tools for risk insurance, which relies on both consumers and banks that have introduced innovations;

- for the conclusion of agreements between counterparties, information on forecasting market behavior, investment opportunities, relation to risk and risk level is considered [12; 14].

The main problems of innovative development of the banking system

are [9]:

- insufficient degree of protection of domestic communication channels, as a result of which risks of loss or damage of consumer data from fraudsters increase;

- a low level of legal regulation of banking innovation technologies, which encourages the creation of risky circumstances and reduces consumers' commitment to remote service;

- lack of constant access to the Internet and constant communication in many settlements;

- low level of technological development of Ukrainian banks, which inhibits the introduction of innovative technologies;

- the cost of introducing innovative solutions, which are used in the modern development of banks, increases, as well as the degree of risks that are created at the same time increases;

- low level of bank staff training and shortage of qualified personnel;

- insufficient level of information awareness of the population.

Banking innovations are, in fact, business processes, the development of

which is carried out along three main vectors, namely:

- creation and implementation of innovative banking products and improvement of existing banking services;

- formation of the latest technologies for the promotion of banking products to the final consumer;

- improvement of organizational and information technology support of banking activity [2].

The economic value of banking innovations in the indicated directions is determined by the growth of profitability, the expansion of the scale of business and opportunities for further capital reinvestment.

Successful banking requires changes and progressiveness, the implementation of innovative activities in the banking sphere should be based on the following principles:

- perspective, which is related to the compliance of innovative activity with the strategic tasks of the bank;

- orientation of banking innovations on customers, which is related to their basic needs;

- anticipation, that is, banking innovations must be innovative and predictable;

- provision of resources, innovative activity requires the availability of certain financial, technical and personnel resources;

- efficiency, innovations should lead to increased profits and increased competitiveness of the bank;

- time constraints, limitations of the terms of implementation of the innovation process [8; 14].

We consider the main areas of innovation in the banking sector [4, p. 38]:

- breakthrough innovations - improvement of existing banking services and products, development of new types of products, services, processes or technologies;

- strategic innovations - development and implementation of innovative marketing strategies;

- technological innovations - innovations related to changes in internal banking processes, provision of services to clients;

- structural innovations - transforming the structure of the bank or changing its individual elements to increase the efficiency of operation.

External factors that determine the directions of innovative development of banks are the globalization of financial markets, which causes the transition to a more homogeneous financial market, the liberalization of national financial markets, which causes the emergence of new competitors who are not banks, and information and communication globalization.

Therefore, innovative banking technologies encourage the creation of prospects for the progressive development of banking activity, however, the innovative development of banks increases competition, which requires the formation and implementation of non-standard innovative solutions. The introduction of innovative banking technologies contributes to increasing labor productivity, reducing costs, effective management of bank resources, and increasing profit from activities, which will ultimately make it possible to strengthen the competitiveness of innovative banking activities. Banking institutions in modern conditions, when forming their own strategy, should consider the innovative vector of development as the most important means of ensuring the stability of their functioning, economic growth and competitiveness, in addition, the effectiveness of the bank's activity depends on its ability to satisfy certain needs of customers. The results of the introduction of such innovations can be manifested in the expansion of the bank's client base, optimization of its branch network and organizational structure, an increase in the share of the financial market, a reduction in the transaction costs of conducting banking operations, as well as in ensuring the stability of the bank's functioning in the long term.

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