Macy’s, Sears and Toys R Us are closing stores every single day, and banks are going in the same direction, closing physical “stores” for a presence more in line with today’s consumer needs. Physical presence is no longer relevant for traditional industries whose past business model was based on convenient and well-located stores or branches, and banking is no exception.
However, physical presence is not the only pillar where traditional industries are losing competitive advantage. Having a physical infrastructure to support traditional operations is no longer relevant when disrupting an industry.
Uber is the largest transportation provider in the U.S, yet does not own a single car. Netflix is the largest movie company in the world, yet does not own a single movie theater. Airbnb is the largest hotel company in the world but does have any hotels. Who knows, but maybe the next largest bank in the world will not own a mainframe infrastructure, or even a large number of client deposits to sustain their operations. Digital-economy players shave something in common: a platform-based business model.
Open Banking is transforming the whole industry, regardless of the country or region, including regulation that is being created, customer habits and expectations and, last but not least, banking strategies in order to position themselves in this new world order. This new ecosystem will bring new products and services, new channels, new utilities (aaS) and new platforms.
Having a successful business model and strategy does not require a big infrastructure but it does require innovation. Banks will have to find solutions and strategies for clustering clients based on their behavior on a daily basis. This constant segmentation must take into consideration all the different touchpoints and behavioral transactional data in order to accurately provide tailored solutions to that specific niche.
Customers will not need to visit their banking app, for example, when paying with their credit card on the Amazon website or checking how this purchase will impact their personal finances. Banking experiences need to be pushed into users contextual situations in order to provide real value to customers. This does not mean simply by using push notifications or real-time insights, but also bundling them with a digital or physical experience such as e-commerce, chat, hosting services, or even to hitch a ride home.
DIFFERENT ROLES FOR BANKS IN THE OPEN BANKING SPACE
- Bank as a platform provider (centralizing and processing information)
This will allow banks to own the end-to-end customer experience of traditional and non-traditional touchpoints.
Banks would contribute their capabilities in the fields of security, compliance and, more importantly, data consolidation and enrichment to the platform. FinTech and third-parties, but also the bank, will be able to take advantage of these platform capabilities to provide highly customer-focused solutions.
- Bank as a channel provider (payments and transactional services)
Some banks may want to specialize in customer interface, leveraging their front-end customer experience capabilities, finding it easier to source best-of-breed products either from the bank or from different entities. Banks that act as channel providers will also be able to offer platform solutions from an increasing number of FinTech and industry-wide utilities like money transfers or foreign exchange.
- Bank as a service provider (access new markets and niches)
Unbundling and recombining bank services will allow entities to define entirely new business models.
- Bank as a utility provider (drawing on their positive brand image and data security)
In some cases, banks that are struggling to find a clear affinity with any customer segment or product, may be interested in specialising in back-end processes and infrastructures such as cloud computing, cybersecurity, AML / CTF, account administration or protection from financial crime.
API-based banking platforms bring transparency, automation and simplicity when delivering back-office services such as account opening, multi-currency accounts, accounting, etc… complying with KYC, AML and open banking regulation.