With the rise of Open Banking, the role of banks has evolved – from integrators to part of an ecosystem-driven business model. The ramifications of this change are profound, and every bank (and service provider to banks) should be thinking about what this new reality will look like and how they plan to succeed in it.
Financial services are part of a larger experience, and the role of banks is not immediately obvious to customers. Although banks are not likely to reverse the Open Banking transformation, the question that remains is how will open platforms allow for reciprocal value creation between platform players and ecosystem players?
As with other platforms (credit card systems, telephone networks), value increases with breadth, depth, and interconnectedness – and success becomes increasingly challenging for those who decide to go at it alone.
From the perspective of banks, “ecosystem banking” is perhaps a more useful concept than “Open Banking,” if we refer to Open Banking as a regulation, they need to advantageously position themselves among a host of other players. In many cases, their collaborators will also be their potential competitors, and banks need to carve out the right footprint to grow and protect their share of this evolving market.
There are three fundamental competencies that will let banks succeed in the “ecosystem banking” world:
- Companies can design a compelling user experience. Customers are drawn to and trust brand products that rely on hyper-personalization to address an important need, whether that is at a fair price, at the right time, or that is reached through a great user interface, and backed by reliable customer support. Open Banking enables UX improvements for enterprise customers as well as retail customers.
- Companies can aggregate and enrich data to generate customer insights. Rich data sets will be the “coin of the realm” in ecosystem banking, because it is through data that companies will be able to individualize and optimize their products, manage fraud, reduce friction, and create a first-rate customer experience. For Canada, aggregating and enriching customer data—including data from other banks—will allow banks to build competitive, personalized product offerings and new value propositions.
- Companies can create “must have” infrastructure. Consumer-facing brands get a lot of attention, but infrastructure plays can be massive winners. Even if banks are unable to make infrastructure plays on their own, they will be able to create valuable infrastructure and drive customer retention by transforming themselves via fintech and software partners that can help them re-envision how they use and monetize their data.
Compliance as an enabler of monetization
Banks are often apprehensive about new Open Banking regulation, and for good reason. Succeeding in this new ecosystem requires significant shifts in mindset, and even organizational structure, as digital transformation impacts employee roles across the bank. To remain competitive, banks will need to adopt the agile, “fail fast” DNA of technology startups.
As they accelerate their technology adoption, banks will need to inject new homegrown capabilities (often rewiring current capabilities to meet future needs rather than starting from scratch), while also driving innovation with partners. Finally, they will need to make sure these strategies cohere into competitive business models.
As they explore new business models, banks must frame compliance with Open Banking regulations as an enabler of new monetization opportunities. Compliance should be viewed not as the end of the ecosystem banking journey, but the beginning.
In a recent engagement with an SME-focused UK bank, compliance became an occasion for a much more holistic digital transformation. The bank leveraged Open Banking compliance as an opportunity to build new digital capabilities, like biometric account access, and improve loan origination speed through automation. They are working with partners and third parties in the Open Banking ecosystem to expand internationally and drive monetization outside of core banking services.
They are also finding that an API-driven ecosystem creates new opportunities to build business services and monetize data with business support services partners. All of this effort was harmonized with a cloud platform that delivers new cost-saving efficiencies.
Ecosystem banking brings both competition and opportunity.
While the banks that rest on their laurels are likely to get caught off-guard, the banks that take a proactive approach to orchestrating third-party services will find that ecosystem banking allows them to accomplish incredible things for their customers and not only maintain but increase their market share.
Anmol Grover is global practice head, Open Banking at Wipro