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"Identifying Key Success Factors and Challenges for Service Innovation in
the Indian Banking Sector "- A Critical Review
1. Ms. Neha Choudhary, Ph.D Scholar, Department of Management, Birla Institute of
Technology, Mesra, Ranchi- 835215 (India)
Neha Choudhary is a PhD Scholar in Marketing at Birla Institute of Technology, Mesra, Ranchi.
She holds a Master of Business Administration (MBA) and a Bachelor of Business
Administration (BBA), specializing in Marketing and Human Resource Management. Prior to
her academic pursuits, she gained professional experience as an Assistant Manager at HDFC
Bank, where she worked for two years. Currently, she serves as an Assistant Professor at Amity
University, Ranchi. Her research interests encompass Services Marketing, Logistics and Supply
Chain Management.
2. Dr. Anand Prasad Sinha, Assistant Professor, Department of Management, Birla
Institute of Technology, Mesra, Ranchi- 835215 (India)
Anand Prasad Sinha is currently working as an Assistant Professor in Department of
Management, BIT Mesra, Ranchi. He joined as a Sr. Research Associate since 2002 in
Department of Management, BIT Mesra, Ranchi, assisted Govt. Sponsored Project on
Department of Scientific and Industrial Research (DSIR) Ministry of HRD, Govt. of India. He
has attended and presented paper in national and international conference and several national
and international research papers published in reputed and indexed journals to his credit. His
areas of expertise are Marketing Management, Service Marketing, Technology Management, and
Business Research. Dr. Sinha currently has taken an additional responsibility as an Associate
Dean, Research Innovation & Entrepreneurship from 2023 to till date.
3. Dr. Somnath Mukherjee, Assistant Professor, Department of Management, Birla
Institute of Technology, Mesra, Ranchi- 835215 (India)
Dr. Somnath Mukherjee is an Assistant Professor in the Management Department of Birla
Institute of Technology (City Centre, Ranchi, India). He is a professional with rich industry and
academic experience. He has been engaging with MBA and BBA students both in the class as
well as guide to their Research projects, as also PhD students. He also has the experience
Handling Govt. of India funded Research project. His areas of expertise are brand management,
marketing of services, and CSR. He is well known as an excellent professor and has done some
remarkable publications in his field.
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Abstract
Purpose: The purpose of this research paper is to explore the perspective of service innovation,
its evolution over time, and the dimensions and factors proposed by various scholars.
Specifically, the study focuses on understanding the imperatives of service innovation in the
rapidly changing banking industry and the challenges faced through an extensive literature
review including financial and technological innovation.
Design/Methodology: The research paper employs a literature review methodology to gather
relevant information on service innovation typologies, concepts, influencing factors, and impact.
Through a comprehensive search of academic databases, research papers, and reputable sources,
the study collects diverse insights related to service innovation and its various dimensions.
Findings: The research reveals that service innovation significantly contributes to the growth
and development of various sectors, including the services industry. Despite its widespread
occurrence, service innovation remains an under-researched topic within academia. The study
highlights the paradigm shift in the banking sector, where digital-only banks have emerged as a
result of innovations. By reviewing existing literature, the research identifies key imperatives of
service innovation in the banking industry and sheds light on the critical factors driving service
innovation in India.
Practical Implications: The paper offers practical implications for decision-makers and
managers operating in the Indian service industry. By understanding the identified imperatives
and critical factors of service innovation, organizations can overcome barriers and effectively
implement service improvements. This implementation is crucial in enhancing their competitive
advantage in the market. The practical insights provided by the study can guide businesses in
adopting innovative strategies to stay relevant and successful in a rapidly changing market
landscape.
Originality/Value: The originality of this research lies in its focused analysis of the Indian
service industry, particularly in the context of service innovation. The value of this study lies in
its compilation and synthesis of diverse sources, providing comprehensive insights that can be
beneficial for organizations aiming to innovate their services and achieve a competitive edge.
Keywords: Service Innovation, Banking sector, Financial Innovation, Technological Innovation
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1.0 Introduction
The banking sector is very competitive on a global scale. Small banks in particular struggle in
this environment to keep up with the competition. They mostly adopt some new activities as a
result to strengthen their competitive capacities. Otherwise, surviving in this hostile environment
might be quite challenging. They create fresh inventions to achieve this goal and set themselves
apart from their competitors (Berraies & Hamouda, 2018). Some of these banks produce new
goods and services within this context, while others invest in enhancing their alternative
distribution channels. For example, new credit cards that provide various options might be highly
beneficial for these banks to increase their competitiveness. People who frequently travel by
plane may be interested in credit cards that offer incentives for airline tickets in this situation
(Esmaeilpour et al., 2016). In addition to this, offering other financial services like online
banking and alternative teller machines (ATMs) may help to boost client satisfaction. Innovation
in the banking industry is challenging, though. The primary important feature of the banking
sector is that many various factors should be taken into consideration at the same time while
creating innovations (Hu & Xie, 2016). For instance, it is important to comprehend client
expectations and design innovations around them. Otherwise, clients won't choose the goods and
services that fall short of their expectations, which has a negative impact on the profitability of
the banks.
Innovation has long been acknowledged as a vital catalyst for growth and development across
various industries, with the services sector being no exception. Within this realm, service
innovation has emerged as a critical driver of organizational success, fostering competitiveness
and ushering in transformative changes. Despite its profound impact, service innovation remains
an under-explored subject within academic research, leaving a gap in understanding the diverse
perspectives and dimensions it encompasses.
As a means of addressing new societal and commercial challenges, a growing number of nations
have begun to support innovation in general as well as service innovation in particular (de
Carvalho et al., 2018; Jones & Basso, 2017; Gallouj et al., 2015; Gallouj &Windrum, 2009),
while businesses pursue various innovation strategies to increase their competitiveness in the
market (Hidalgo & D'Alvano, 2014; Li et al. Services may protect organizations against
downturns or times of commoditization since they are linked to longer-term and more steady
income streams (Cusumano et al., 2006).
Service innovation has gained enormous popularity over the last several decades and has been
praised as the cornerstone of an organization because continually changing consumer tastes
compel organizations to innovate (Forcadell et al., 2019; Manohar et al., 2019). Service
innovation, in the opinion of Mahmoud et al. (2017) and Manohar et al. (2019), paves the way
for the development of cutting-edge methods and strategies for change promotion. Despite its
high risk and substantial financial cost, innovation increases consumer engagement (Forcadell et
al., 2019; Manohar et al., 2019; YuSheng & Ibrahim, 2019).
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In many different nations, the importance of the service sector has increased. It was responsible
for around 61% of global GDP in 2018 alone (World Bank, 2020). India's thriving service
industry is a stunning example of how modern economic growth models can beat long-
established ones. India has the fastest-growing service sector, which accounts for more than half
of the country's GDP. This industry grew by 10.8% in the first half of 2021-22, and according to
preliminary predictions, the service sector's gross value added (GVA) will expand by 9.1% in
FY23. Government officials have designated the financial services sector as one of the most vital
service sectors. It contributes to the onshoring of India-related financial services, a portion of
which is now rendered from global financial centers (IBEF, 2023).
Thus, this review paper endeavors to address this knowledge gap by shedding light on the multi-
faceted realm of service innovation, its historical evolution, and its implications for the rapidly
changing banking industry. By drawing from extensive literature and a systematic synthesis of
diverse sources, the study aims to offer valuable insights for decision-makers and managers in
the Indian service sector, enabling them to comprehend the crucial factors that drive service
innovation and leverage it to their advantage.
2.0 Objectives of the Study
• To Understand the different perspectives of Service Innovation
• To Examine the Evolution of Service Innovation
• To identify the various dimensions and factors of Service Innovation.
• To investigate the scope and purpose of service innovation in the banking industry.
3.0 Literature Review
3.1 Defining Service Innovation
Academics, businesses, policymakers, and people have all paid close attention to service
innovation in general. This increased focus is a result of shifts in the way innovation is
traditionally thought of. However, managing innovation is a complicated process rather than a
straightforward undertaking (Martha, K. 2011). The innovation of services is a multifaceted
phenomenon. This implies that service innovations can take on a range of forms and be linked to
different stages of a service-dominant firm's value-creation process. Service innovation,
according to the European Commission (2012), includes "new or significantly improved service
concepts and offerings as such, regardless of whether they are introduced by service companies
or manufacturing companies, as well as innovation in the service process, service infrastructure,
customer processing, business models, commercialization (sales, marketing, delivery), service
productivity, and hybrid forms of innovation serving several user groups." Service innovation,
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according to Gallouj (2002) and Sebastiani and Paiola (2010), should be increasingly centered on
the distinctiveness and customer-serving skills of individuals. This suggests that despite how
advanced technology is, physical contact is still preferred since interpersonal relationships are so
crucial.
Service innovation, a pivotal aspect of organizational growth and development, has garnered
increasing attention from scholars and practitioners in recent years. Although innovation has
traditionally been associated with product-based industries, the services sector has emerged as a
fertile ground for transformative advancements and novel approaches (Sundbo & Gallouj, 2000).
Understanding service innovation necessitates a clear and comprehensive definition, which has
evolved as researchers and academics delve deeper into its intricacies.
A general definition of service innovation is the development and use of new or considerably
enhanced service offerings, procedures, and business models that benefit clients, businesses, and
society at large. Unlike product innovation, which predominantly revolves around tangible
goods, service innovation pertains to intangible aspects, such as delivery, experience, and
customer interactions (Snyder et al., 2016).
Early conceptualizations of service innovation primarily revolved around incremental
improvements in service offerings or process efficiencies. However, contemporary perspectives
have expanded to encompass radical and disruptive innovations, leading to the emergence of
entirely new services and business models (Miles, 2008; Sundbo, 2009). Furthermore, service
innovation extends beyond technological advancements, incorporating novel methods of service
delivery, customer engagement, and co-creation.
Additionally, the digital revolution has been a significant driver of service innovation, enabling
the advent of digital-only banks, virtual consultations in healthcare, and e-commerce platforms.
Digitalization not only enhances the efficiency and accessibility of services but also enables
data-driven insights to optimize service delivery and personalize customer experiences (Valencia
& Layman, 2021).
The banking industry stands out as a prime example of how service innovation has
revolutionized traditional business models. The rise of digital-only banks has disrupted the
conventional banking landscape, catering to a tech-savvy generation with streamlined processes
and personalized services. These banks leverage cutting-edge technologies to enhance security,
accessibility, and convenience, thus challenging the supremacy of brick-and-mortar institutions
(Biswas et al., 2021).
Thus, service innovation constitutes a multifaceted domain encompassing novel service
offerings, processes, and business models that cater to the dynamic needs and expectations of
customers. As the services sector continues to evolve, understanding service innovation becomes
imperative for organizations seeking to stay relevant, competitive, and resilient in an ever-
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changing market landscape (Thakur & Hale, 2013). Embracing service innovation can yield
tangible benefits, fostering growth, and empowering businesses to thrive in the digital age.
3.2 Different Perspectives Factors in Service Innovation Research
In terms of both nature and character, service innovation is fundamentally distinct from product
innovation. In this perspective, the theoretical underpinnings of innovation studies are questioned
(Drejer, 2004), and it is argued that new, service-specific theories and concepts should be
introduced to better comprehend and evaluate service innovation (Barras, 1986; Hipp & Grupp;
Tether, 2005). Many academics claim that studies on innovation have neglected to take into
account the unique characteristics of services and the significant contributions that services
provide to commodities (Gadrey et al., 1995).
The majority of research (Gallouj, 2002) employs the assimilation strategy and focuses on how
new technology affects service innovation, contrary to what early studies (Tether, 2005;
Toivonen & Tuominen, 2009) believed. The assimilation approach can be used to examine and
analyze service innovation using the same theories and methodologies developed for traditional
product innovation research, without translation or modification (Evangelista, 2000; Miozzo &
Soete, 2001).
On the other hand, according to the demarcation approach (Coombs & Miles, 2000), service
innovation is fundamentally different from product innovation in both nature and character. In
this perspective, the theoretical foundations of innovation studies are questioned (Drejer, 2004),
and it is argued that new, service-specific theories and concepts can be employed to understand
and analyze service innovation (Hipp & Grupp, 2005; Tether, 2005). Numerous scholars assert
that studies on innovation have forgotten to take into consideration the special qualities of
services and the important contributions that services make to products.
The assimilation and demarcation approaches to service innovation are also criticized by the
synthesis viewpoint (Gallouj & Savona, 2008; Coombs & Miles, 2000). The fundamental tenet
of this viewpoint is that theories of service innovation need to be sufficiently inclusive to cover
both manufacturing and service innovation (Coombs & Miles, 2000) and need to offer an
integrative viewpoint that is not just focused on technological advancements.
Even if each of these viewpoints unquestionably contributes to the development of the vast field
of service innovation research, one could contend that the differences in how the concept is
defined and how service innovation is interpreted result in misunderstanding.
3.3 Evolution of Service Innovation
Three distinct phases are shown by research on service innovation, which are divided by content
and perspective. Each stage corresponds to a time in the development of service innovation
research when the themes and viewpoints had a particular makeup. The content of the three
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phases that have been discovered also points to certain patterns that define prevalent perspectives
on service innovation (Carlborg et al., 2013).
Formation phase: 1986 – 2000
Services marketing began at a very low level in the 1980s and quickly advanced to become a
branch of marketing research (Fisk et al., 1993). Because of this, marketing was viewed as a
traditional activity that was focused on commodities rather than services in the early phases of
services marketing research (Fisk et al., 1993). This definition also fits the initial phase of the
study on service innovation, which challenged the prevalent, product-centric concept of
innovation and questioned the idea that R&D and technological innovation were somehow
related to one another.
Maturity phase 2001 – 2005
The involvement of customers, including their purposeful or unintended actions in the innovation
process—a hitherto understudied topic—was a major focus of this phase. consumer involvement
was initially used to describe planned and controlled user participation (Alam, 2002), but
eventually expanded to include different types of consumer interaction and learning (Matthing et
al., 2004).
Multidimensional phase: 2006– 2020
The multidimensional phase of the evolution, which started in 2006, focuses on more
multidisciplinary research and reflects the changing perception of service innovation as a
multidimensional, all-encompassing concept that may also include products. This new
perspective sees service innovation as playing a crucial role in empowering businesses and
giving firms a competitive edge (Ulaga & Reinartz, 2011; Yaşlıoğlu et al., 2013; Snyder et al.,
2016; YuSheng& Ibrahim, 2019)
3.4 Identified Dimensions of Service Innovation
The parameters of service innovation have changed throughout time as a result of service
innovation's evolution. The authors have proposed a six-dimensional model of service
innovation, or more specifically, the areas of a corporation where this type of innovation can
occur, based on prior literature on the dimensions of service innovation (den Hertog, 2000; den
Hertog et al., 2010; Yaşlolu et al., 2013; Coutelle-Brillet et al., 2014; Hanif &Asgher, 2018).
One or more (re)new(ed) service functions that are new to the organization are produced as a
result of these service dimensions, either alone or most usually in combination. Through these
new service roles, a variety of services or products are supplied, needing substantially new
organizational, technological, or human capabilities.
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Figure 1: Six-Dimensional Model of Service Innovation Dimensions
The first dimension is the New Service Concept, also named the service offering (Frei, 2008).
The value that the service provider and client together produce is described by the service
concept or offering. A novel approach to organizing a solution to a customer's problem or need is
frequently innovation.
The second dimension is the New Service Process, which takes into account customer
engagement and their contribution to value creation. The advent of ATMs and the use of mobile
phones for banking are examples of different eras of electronic banking where the "customer-
interface dimension" is predominately present. Although most of the time expressed differently,
the client interface interaction also made a significant appearance in the literature on service
marketing and service innovation (Edvardsson & Olson, 1996; Zeithaml & Bitner, 2003;
Gallouj& Weinstein, 1997; Miles, 1996).
New Business Partners, or the players who collaborate to produce a service innovation, make
up the third dimension. More and more, new services are created by combining the services
provided by a group of providers, which may include both members of the value chain and other
players in the greater value network. This adds value and appropriates it. Chesbrough (2003),
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Gawer & Cusumano (2002), Huston &Sakkab (2006), Jacobides et al. (2006), and Tee &Gawer
(2009) are a few examples.
New Revenue Models make up the fourth dimension. Only a small percentage of new service
concepts are effective service innovations since it takes models to allocate costs and revenues in
the right ways, especially for services that require numerous players to create. To put it another
way, many innovative service concepts fail because the way that expenses and income are
distributed is not the same. A lot of creativity may be needed to create the ideal revenue model
for a novel service idea (Paallysaho & Kuusisto, 2008; Chesbrough, 2006; Johnson et al., 2008).
The New Delivery System, comprising its personnel, organization, and culture, is the subject of
the fifth dimension. The concept of a service delivery system is said to have first surfaced in den
Hertog et al.'s (2010) study and has since been referenced in other textbooks. It alludes to the
service company's internal organizational structure. For service personnel to adequately perform
new occupations as well as create and provide novel services, appropriate management and
organization are required. For instance, new services might need new organizational structures,
(inter)personal skills, or teamwork qualities (Choudhary et al., 2025).
New Technologies make up the sixth dimension. This dimension focuses on the discovery that
ICTs have made a wide range of service enhancements feasible, including electronic government
and e-health, sophisticated multi-channel administration, service customization, the introduction
of the concept of self-service, virtual project teams, and others (Nag et al., 2023). A significant
share of innovation investments in the retail sector goes towards new ICT systems and logistical
solutions, both at the corporate and decentralized levels (Segers et al., 2007).
Depending on the specific service innovations and businesses, the importance of the dimensions
and how they interact will differ. It is crucial to emphasize that service companies can have a
variety of business models in their portfolio and that they can incorporate several new business
models into a single strategy.
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3.5 Identified various items affecting Service Innovation
Various Items affecting service innovation with the help of literature support are mentioned
below:
Table: 1 Identified Variables affecting Service Innovation
Identified Variables Definition Literature Support
Service offering
advantage
Superiority, differentiation, and/or value compared to
competing products
Evanschitzky et al.,
2012
Service quality The effectiveness of consumer contact with the company
Storey and Easingwood,
1998
Service innovativeness The level of novelty, uniqueness, and radicalism of the
offered service
Henard and Szymanski,
2001
Technological
sophistication
Perception of the service's technological sophistication Kuester et al., 2013
Proficient operations
and delivery systems
The extent to which the operating and delivery systems
can accommodate client needs and the suitability of the
technology embedded in them
Cooper et al., 1994
Service responsiveness The degree to which a service is viewed as meeting the
needs or wants of the client
Melton and Hartline,
2010
Synergistic strategy Compatibility between the firm's current capabilities and
expertise and the demands of the new service
Evanschitzky et al.,
2012
Market orientation The degree to which an organization is focused on its
internal, rival, and client contexts
Kuester et al., 2013
Innovation strategy Organizational flexibility and receptivity to change Chen et al., 2010
Strategic orientation Corporate strategy's driving force, orientation, and focus
are all strategic.
Evanschitzky et al.,
2012
Efficiency of the
development process
Lower than anticipated development costs or times Melton and Hartline,
2010
Formal/structured
development process
Using rigorous development processes and specific rules Cooper et al., 1994
Predevelopment task
proficiency
Execution of predevelopment tasks by the company,
including idea generating, screening, and business
analysis, with proficiency
De Luca and Atuahene-
Gima, 2007
Marketing research task
proficiency
The skill with which the company carries out research-
related tasks (such as market research, product testing,
and test marketing)
Evanschitzky et al.,
2012
Technical development
proficiency
The ability of the company to carry out
technical/operational development operations
Cooper and de Brentani,
1991
Launch proficiency proficiency with which a company introduces and
publicizes a new service
Kuester et al., 2013;
Customer
integration/input
Customer involvement during development and
consideration of feedback
Melton and Hartline,
2010
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Front-line staff
involvement
The skill level and level of frontline employees'
participation in development
Kuester et al., 2013
External relations Coordination and collaboration during development
between the company and other
organizations
Chen et al., 2010
Team/organizational
climate
The degree to which shared values and standards within
the group or organization influence decision
-
making
Evanschitzky et al.,
2012
Team empowerment The project team's decentralized autonomy in decision-
making
Cooper et al., 1994
Cross-functional
integration
The level of collaboration and interaction among various
departments and team members during the
development
Henard and Szymanski,
2001
Internal communication
Communication and information sharing across
departments during the development
Melton and Hartline,
2010
Knowledge integration
mechanisms
Structures and procedures that make sure knowledge is
captured, analyzed, interpreted, and integrated during
development
De Luca and Atuahene-
Gima, 2007
Project size Size of the project Evanschitzky et al.,
2012
Innovation culture A setting that encourages employees to be innovative Kuester et al., 2013;
Absorptive capacity The method by which a business assimilates new
knowledge values it, and uses it to carry out
development operations.
Cohen and Levinthal,
1990
Senior management
support
Senior management's level of commitment to a
development programme
Jaworski and Kohli,
1993
Dedicated human
resources
Focused dedication to human capital with the necessary
skills and knowledge to service development projects
Henard and Szymanski,
2001
Innovation resources A commitment of facilities and resources to service
development projects
Chen et al., 2010
Organizational design Organizational design, including compensation plans
and work layout
Evanschitzky et al.,
2012
Firm reputation Confidence of clients in the business Cooper et al., 1994
Firm size Organizational size (number of staff, turnover) Evanschitzky et al.,
2012
Firm age Age of the organization De Luca and Atuahene-
Gima, 2007
Market attractiveness The market's attractiveness is a result of its anticipated
potential and the level of market competition.
Kuester et al., 2013;
Market turbulence The rate of change in consumer preferences Jaworski and Kohli,
1993
Environmental
uncertainty
The uncertainty that the company is currently
experiencing in its overall operational environment.
Evanschitzky et al.,
2012
Source: Compiled by authors
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3.5.1 Management of innovation process
The technique of managing innovation in the complex process of service innovation requires the
management and coordination of multiple interorganizational activities and interactions at
various organizational levels (Singh and Markeset, 2008). The management and control of the
activities engaged in the innovation process, as well as the monitoring and evaluation of the
actions taken in the form of process management criteria, must be accomplished through the
development and implementation of a defined set of procedures. Cooper and Edgett (1996),
Alam and Perry (2002), Alam (2006), and Menor and Roth (2007) all emphasized the
significance of developing an innovation process in service organizations and financial
institutions and offered relatively similar phases, steps, and activities for establishing a
successful innovation practice
(Choudhary et al., 2022).
The findings show that both the management of the innovation development process and the
management of the innovation utilization process require the creation of systematic processes,
procedures, and methodologies. Unpredictable changes are certainly a part of the banking sector,
just like they are in any other organization. Therefore, the organization must continually develop
its innovation management structures and procedures to maintain the effectiveness of the latter.
4.0 Service Innovation in Banking Sector
Service innovation has been hailed as the foundation of an organization and has seen tremendous
growth over the past several decades (Forcadell et al., 2019; Manohar et al., 2019). It has had a
profoundly transformational impact on the financial sector, changing conventional banking
procedures and opening doors for more adaptable, customer-focused, and technologically
sophisticated organizations. The emergence of digital-only banks and the adoption of cutting-
edge technology have ushered in a new era in banking that will improve client satisfaction
overall and advance financial inclusion. Service innovation continues to be a crucial engine for
continued development, competitiveness, and relevance in the dynamic financial services sector
as banks traverse an ever-changing market (YuSheng& Ibrahim, 2019).
The number of branches and clientele in the banking sector has grown dramatically in recent
years. The banking sector stands out for its cutting-edge products and exceptional customer
involvement (Chauhan et al., 2019; Kaura et al., 2015). Since it allowed the private sector and
foreign banks to enter the Indian market, globalization had a substantial influence on the Indian
retail banking industry (Kaura et al., 2015; Manohar et al., 2019). By 2050, India is anticipated to
have the third-largest domestic banking industry (IBEF, 2023). A double-digit rise in bank credit
(13%) indicates post-pandemic recovery; private, new banks are gaining market share.
The banking industry has been undergoing a remarkable transformation fueled by service
innovation, revolutionizing the way financial services are delivered and experienced by
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customers. Service innovation plays a pivotal role in reshaping the landscape of the banking
sector, leading to a paradigm shift from traditional brick-and-mortar banks to digital-only
banking models.
4.1 Financial Innovation
In the current banking environment, financial innovation is essential for a bank to survive.
Financial innovation's importance is well recognized. The importance of financial products and
services has been emphasized by several esteemed academics, most notably Miller (1986) and
Merton (1992). Innovative concepts may be found in a wide range of fields and media. For
instance, banks have taken use of innovation in product development. Innovations have been
essential in eradicating financial exclusions and enhancing the supply of individualized banking
services ever since the early phases of financial modernization. The phrase "financial innovation"
is frequently used in the banking sector. It is currently used to define any alteration to the scope,
scale, or manner in which financial services are provided.
According to John Finnerty, financial innovation "involves the design, development, and
implementation of innovative financial instruments and processes, as well as the formulation of
creative solutions to financial problems." A few examples of innovations in the banking and
financial sector include ECS, RTGS, EFT, NEFT, ATM, Retail Banking, Debit & Credit Cards,
Free Advisory Services, Utility Bill Payments, Fund Transfers, Internet Banking, Telephone
Banking, Mobile Banking, Selling Insurance Products, Issuing Free Cheque Books, Travel
Cheques, and Many Other Value-Added Services. The National Strategy for Financial Inclusion
(NSFI) 2019-24 outlines India's financial inclusion policies' vision and key objectives, with a
focus on improving digital financial inclusion, promoting financial literacy, and strengthening
the country's grievance redressal mechanism (IBEF, 2023).
The Reserve Bank of India has launched its first global hackathon, "HARBINGER 2021 -
Innovation for Transformation," with the theme "Smarter Digital Payments." These innovative
products are expected to add value to the payments ecosystem by including the underprivileged
through non-mobile payment solutions, preventing digital payment fraud through smart-secure
alternate authentication methods, and analyzing social media posts in real-time
(Choudhary et al.,
2023).
4.2 Technological Innovation
As per India Brand Equity Foundation Report (IBEF, 2023):
• These banks are no longer the only ones specializing in technology-oriented business
models; nearly all banks are using technology to enhance and broaden the delivery of
financial services and goods.
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• The extension of financial services has recently seen notable gains in efficiency,
productivity, quality, inclusion, and competitiveness, particularly in the field of digital
lending.
• The Reserve Bank and the Reserve Bank Innovation Hub (RBIH) collaboratively
conceptualized the digitalization of agri-finance. This will make it possible to deliver
Kisan Credit Card (KCC) loans in a hassle-free, entirely digital manner.
• FinTechs and neobanks are gaining ground, according to the EY 2021 NextWave Global
Consumer Banking Survey, which examined consumers' primary financial interactions.
• When it comes to the crucial necessity for securing consumer data, where incumbent
banks have a trust advantage, that demand seems especially high. For access to banking
licenses and to satisfy other regulatory criteria, certain super applications might also turn
to banks (Nehra et al., 2024).
• Indian Fintech industry is estimated to be at US$ 150 billion by 2025.
• The use of digital payment methods has increased dramatically during the past several
years. As a result, traditional paper-based instruments like demand draughts and checks
today make up a very small portion of both the volume and the value of payments.
• Digital Push: 93% of digital payments (by volume) are done via mobile (2021) and over
1 billion cards are in circulation.
• As per the Union Budget 2023-24, US$ 900 million (Rs. 7,400 crore) digital payments of
US$ 1.5 trillion (Rs. 126 lakh crore) have taken place through UPI in 2022.
• The RBI has started a pilot programme to digitalize KCC lending to increase efficiency,
save more money, and shorten turnaround times. The credit flow in the rural economy is
predicted to change as a result.
• The RBI began a trial programme for central bank digital currency (CBDC) in November
2022.
4.3 Challenges Ahead for Banking Industry
Technology has advanced, which has given the banking industry in India new opportunities as
well as obstacles. It is crucial to reach and maintain high service and efficiency standards while
being cost-effective and producing a sustainable return for shareholders by designing or
obtaining the necessary technology, deploying it properly, and then using it to the maximum
degree feasible. Thus, managing technology is a top priority for the Indian banking sector. Due
to distant and fragmented locations, a large number of individuals in developing countries, such
as India, do not have access to financial services. However, as the quality of services increases
due to the development of information technology and the fierce competition between the
services and products provided by numerous banks, customers who use financial services have
higher expectations. Since international banks started functioning in the Indian market, the
quantity of services supplied has expanded, and banks are now placing more emphasis on
exceeding customers' expectations. Now, banks in India must work to enhance their customer
care to consumers. A system like this would contain modernized branches, improved phone
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Journal of Civil and Environmental Engineering, PAGE NO:87
services, and cutting-edge online banking capabilities that offer the customer a constant good
multi-channel experience. Among the challenges that the banks are now facing are:
• Cybersecurity Threats
• Regulatory Compliance
• Digital Transformation
• Customer Expectations
• Fintech Disruption
• Financial Inclusion
• Profitability Pressures
• Legacy Systems and Infrastructure
• Changing Demographics
• Data Management and Analytics
• Geopolitical and Economic Uncertainty
• Non-Performing Assets (NPA)
Addressing these challenges requires strategic planning, investment in technology, a customer-
centric approach, and a commitment to adaptability and innovation. By proactively addressing
these issues, banks can position themselves to thrive in an ever-changing and competitive
financial landscape.
5.0 Conclusion
This review paper delved into the dynamic realm of service innovation and its profound impact,
with a particular focus on the rapidly changing banking industry. Through an extensive literature
review, the study aimed to understand the diverse perspectives and dimensions of service
innovation while identifying critical imperatives for innovation adoption in the Indian service
sector, with a spotlight on digital-only banks.
Service innovation emerged as a fundamental driver of growth and development across
industries, influencing the services sector's evolution significantly. The banking industry, in
particular, witnessed a transformative shift driven by service innovation, giving rise to digital-
only banks that redefine customer experiences and banking processes. The emergence of these
innovative institutions showcased the agility and adaptability needed to cater to the evolving
needs of customers in the digital age.
One of the key findings of the study was the paramount importance of customer-centricity in
service innovation. Successful banks embraced data-driven insights and employed technology to
personalize services, fostering deeper connections with their customers. This heightened
customer experience not only enhanced satisfaction levels but also contributed to increased
loyalty and long-term relationships.
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Moreover, the paper shed light on the role of service innovation in fostering financial inclusion.
The advent of digital banking models extended formal financial services to underserved
populations, empowering them with access to financial resources and opportunities for economic
betterment.
The findings' practical implications provide significant assistance to decision-makers and
managers in the Indian service industry. Understanding what drives service innovation and
capitalizing on digital transformation can help organizations overcome obstacles and
successfully implement service improvements. Embracing service innovation is critical for
preserving a competitive advantage in today's volatile market scenario.
In conclusion, this review article has advanced knowledge of service innovation and its impact
on the banking sector. The conclusions drawn from a thorough examination of the literature
highlight the importance of innovation in influencing customer experiences, promoting financial
inclusion, and boosting operational efficiencies. Service innovation is still a crucial component
for organizations looking to remain relevant, competitive, and resilient in the dynamic
environment of today's corporate world as the services industry continues to develop. Decision-
makers may successfully direct their organizations toward long-term growth and prosperity by
drawing on the insights acquired from this study.
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