Platformization is changing business models in all industries. Be it retailers with no inventory, taxi companies with no cars or car manufacturers that become mobility providers. Open Banking is the new keyword in the banking industry, pushed forward by regulation like PSD2. It means the creation of not only a platform, but a whole digital ecosystem. Follow this blog series to find out what an open banking ecosystem is and how to get there.
Google, Apple, Facebook, and Amazon are ruling the world of digital businesses. Their digital ecosystems are expanding, their platforms are growing, and their user bases are increasing (see figure 1).
These digital gorillas ousted traditional businesses from power. Former industry leaders and their physical assets are being disrupted by savvy all-rounders and their digital competencies.
After being acquired by Microsoft, the former Nokia CEO Stephen Elop concluded: ‘We didn’t do anything wrong, but somehow we lost’. True, Nokia did not do anything wrong – besides sticking to the script. Businesses who do not keep pace with the technological advancements of today’s world, will lose the customer battle – the winner takes it all.
Own the customer interface or be a commodity
In the banking sector one currently sees disruption taking place. Payment services like Apple Pay, Facebook messenger payments or Amazon Payments already allow their users to make payments in a much more convenient way. You might say the low margins in the payments sector do not really hurt your balance sheet. But it is not the margins you are losing, it is the interface to your customer! You probably cannot remember the last time you went to your electricity or gas supplier. Usually, there is no reason to physically go there. Nevertheless, their services are essential for our everyday life. But being an essential infrastructure does not make customers want to interact with you.
Without the interface, you are reduced to a commodity having to comply with the rules of the digital gorillas’ ecosystems. While your customers remain in the audience with the digital gorillas entertaining them, you suddenly find yourself working behind the scenes. In doubt? Look at telcos: Are they anything more than an ‘as cheap as possible’ commodity which customers utilize to connect their smartphones to the world? As a result, telcos undertake major shifts in their traditional business models, some even acquire banks to strengthen their customer relationship.
Jump on the opportunity
Compared to telcos, banks have a traditional image in the eyes of their customers:
- A Bank is safe – it takes care of my financial assets
- A Bank is trustful – it doesn’t misuse my financial assets
- A Bank is experienced – it knows how to manage my financial assets
Surely, this image is not as clean as it used to be. It suffered greatly during the global financial crisis and many amends had to be made to heal it. But still there is a great leap of faith providing an opportunity for banks to evolve. According to a last year’s VISA study, 84% of European bank customers would entrust their banks to use their biometric data. Biometric data is probably the most sensitive type of data because it directly connects our digital alter egos to our physical ones. That trust is terrific!
Bring in your assets
There is no doubt banks should validate and extend the trust given to them. As data is the new oil, why not extend the banks’ image of a safe place for financial assets to a safe place for data? Why not expand traditional banking services to beyond banking services? Why not involve FinTechs and expand one’s service portfolio? Why play defensively when you can attack?
A bank knows its customers, which is not only in their own interest, but also a regulatory requirement. Banks have the perfect prerequisites to become digital identity providers. Capturing cross-industry KYC processes should not be more than a warm-up exercise. It would not be the first time for financial institutions to take this path. Think about PayPal’s Express Checkout, or have a look at the banking sector in the Nordics, where banks provide everyone a Bank ID as a personal national identifier.
Digital identities are undoubtedly fundamental for most online activities. Yet, they are only the important door opener. Let us think one step further: Banks could for example carefully store their customer’s invoices or contract documents. And this should not just be an additional service offering but fully integrated in the bank’s ecosystem.
The aim should be to become an integral part of the customer’s daily life and be a companion that thinks along with them. With an open banking ecosystem you can link all necessary data to improve your products and services and generate new opportunities for your traditional business model. For 96% of global retail banks, digital ecosystems are an evolution of digital banking (Capgemini World Retail Banking Report 2016). But only 13% of them find their core banking systems capable of sustaining such a digital ecosystem.
For us, this is one more reason to have a closer look on the underlying dynamics of open banking ecosystems and their platforms. Follow this blog for more.
Find out more about this topic: