Ecosystem-Enabled Transformation for Banks

New-age customer expectations have evolved significantly after being exposed to a different level of digital capabilities coming from their e-commerce platforms, OTT providers, and cab aggregators. They expect better from their banks.

However, according to the latest World Retail Banking Report, a Capgemini Research Institute survey conducted with bank executives, show that incumbent banks face structural challenges across the entire customer lifecycle. This starts from struggling to identify new customer segments, with 82% of executives saying they find it difficult); to converting prospective targets, with 55% responding that they have challenges providing seamless onboarding experiences, and, finally, to retain existing customers, with 61% not being able to reduce customer churn. A whopping 95% executives blamed their legacy core banking systems for this, citing that these systems did not allow them to effectively leverage data and inhibit customer-centric growth strategies¹.

As a result, traditional banks are finding it difficult to shift the dialogue from a product-centric focus to a customer-centric focus, something that their new competition does particularly well. Consequently, incumbent banks face a great risk of existing customers fleeing to the new, more attractive digital-first banks. To counter these threats and effectively compete, they have no option but to enhance digital capabilities immediately. Banks need to ensure the shift is multi-faceted, with digital being the backbone of their customer experience, operations, and technology strategies.

With the pace of change in the industry now being unprecedented and accelerating even more every year with the emergence of a growing number of FinTechs entering the market, it might not be possible for banks to own all of these changes on their own. As they juggle between their own profitability and operating expenses, traditional banks need to be very selective about which products, systems, channels, and experiences they own — and which ones they work with broader ecosystem partners on. Based on their own context and target market, banks need to design and orchestrate their own ecosystems, which are completely aligned to their desired state.

Working with a broader, curated ecosystem could offer banks several benefits:

1. Access to a broader market with greater distribution channels: several banks such as BBVA USA, Citibank, BMO Harris have partnered with Google in the US to offer digital checking and savings accounts to Google Pay users². This helps them significantly expand their products through channels not owned by the bank.
2. Expanding products on offer: working with ecosystem partners, banks can offer customers a greater number of products, not always limited to banking. For instance, DBS offers its customers options to purchase cars, property, and electricity through its partner marketplaces³. This allows DBS to own more client transactions and know more about their customers, as well as offering them lending products.
3. Integrated ecosystem offerings in a ‘as-a-service’ model: Banks can provide cost-effective, integrated wholesale banking services to their business clients (especially cost-sensitive SMEs), while monetizing their platform. Goldman Sachs offers ‘Transaction Banking as a Service’, which includes payments, treasury automation, and Banking as a Service, to its corporate clients. They also welcome innovation by welcoming FinTechs to collaborate and expand the offerings for their clients⁴.
4. Leverage best-in-class solutions: For their own IT platforms/systems, banks can partner with best-of-breed providers, creating a technology stack that is most relevant for them. This helps them move away from developing and maintaining myriad solutions to meet different evolving needs on their own. At the same time, it allows them to focus on their core business, while ensuring they still have advanced digital capabilities, elevated customer experience, and the ability to launch new products and services with a faster time to market. Core banking system providers such as Temenos⁵ have also now adopted a composable structure with their own marketplaces, making it easier for banks to pick and choose the right FinTechs with the relevant capabilities for their needs. The industry continues to move at a very swift pace, and for banks that have not already started working on their ecosystem strategy, the time to do so is now. Ultimately, the ecosystem could be responsible for the bank’s next wave of growth and benefit their existing customers immensely. However, choosing the right partners and ecosystem model is key. Getting this ecosystem strategy right could well be the difference between the banks that succeed going forward and those who do not.

Sources

1. https://worldretailbankingreport.com/
2. https://techcrunch.com/2020/08/03/google-signs-up-six-more-partners-for-its-digital-banking-platform-coming-to-google-pay/
3. https://www.dbs.com/media/features/at-dbs-we-act-less-like-a-bank-and-more-like-a-tech-company-with-dbs-bank-ceo-piyush-gupta.page
4. Delivering Transaction Banking as a Service (goldmansachs.com)
5. https://www.temenos.com/news/2022/01/18/temenos-announces-composable-banking-services-on-the-temenos-banking-cloud-platform