Between risk management, regulation and compliance, innovation in banking is essentially an iterated combination of the possible, the practical and the permissible. But then those are the ground rules. And yet 'Culture' trumped 'Regulation' in a bankers' list of the biggest barriers to innovation  compiled by the Efma-Infosys Innovation in Retail Banking Study 2013.

It has long been said that innovation has to become a culture before it can become successful as a program or  practice. And developing a culture of innovation is one of the biggest challenges facing banks in a time when innovation itself has become the key to survival and growth. 

One of the most salient points to emerge from this year's study is that in spite of increasing emphasis and investments on innovation, not many banks have a dedicated department or central resource to drive its agenda. Moreover, in banks that have been successful in developing an innovation culture, the momentum has come from senior management and by involving employees from across functions and business lines.    

The 2013 study attempted to gauge industry perceptions on the growing practice of open innovation. Participating banks were asked to map five possible open innovation techniques on a 1 to 7 scale of increasing effectiveness.     

The option that came out on top, with a rating of 4.2 out of 7, was partnering with IT companies and other suppliers. This approach has a lot of promise and examples like ING's customer experience center in the Netherlands reinforce its utility. Online idea generation and prototyping portals, a concept that has gained popularity in recent times, came in at 4.0 on the effectiveness scale. Non-staff competitions performed below average to register a 3.2. That being said, TEB in Turkey has a popular ongoing non-staff competition with the most recent event generating over 10,000 ideas. The final option, investing in start-ups was least popular even though there is a huge opportunity here, especially for large banks. A good example in this space is that of BBVA Ventures which has launched a US$100m fund for investing in start-ups with the potential to disrupt the financial services industry.

While innovation is never easy in any industry as tightly regulated as banking, it is becoming imperative to embrace and nurture a culture of innovation. Especially considering that most new competition seems to be coming from disruptively innovative technology companies.