If there’s one lesson incumbent banks have learned during their years of slow progress in digital transformation, it’s that you can’t work alone. Trying to develop bespoke systems and work on large scale transformation projects using solely in-house teams has led to delays and failures in these programmes across the board. Banks are waking up to the fact that ecosystems, networks of interlinked companies working together to deliver expanded value propositions to their customers, will be integral to their future success. Globally, 90% of banking execs agree that ‘ecosystems will change the bank-customer relationship in the future’. And 90% agree that ‘ecosystem-related initiatives will be the main driver of future value-creation in the banking industry’.
Banks have different options in terms of the role they’ll play in the customer-facing ecosystems of the future, from 3rd party ecosystem participant to open banking platform and marketplace orchestrator. The participation in an ecosystem offers obvious benefits such as deepening customer relationships and generating new revenues. Digital-first banks are already building ecosystems and expanding their value proposition beyond core banking.
Leading Neobanks have already begun to leverage relationships with other fintechs in wealth management, insurance, lending, payments and FX to broaden the range of services they offer to their customers through a single platform. For example Monzo’s in-app integration with TransferWise, making sending international transfers from your bank account cheaper and more convenient.
Challengers have two distinct advantages when it comes to developing ecosystems. Firstly, their tech stacks have been designed for the era of open banking. Secondly, collaboration and partnership is more in their nature as opposed to the risk averse culture at many incumbent banks. A PWC study of German banks revealed that in 50% of challenger partnerships, partners receive direct access to the bank's infrastructure, whereas only 24% were granted access in incumbent partnerships.
In addition to trying to develop a more collaborative culture, banks have to get access to the right platform capabilities. 42% of banking execs say ‘developing the technology platform’ is the biggest challenge faced by their bank in orchestrating an ecosystem.
How can a digital investment platform help in banking ecosystem development?
A digital investment platform with a modern, open architecture enables banks to connect to their ecosystem via APIs and seize open banking opportunities and forge fintech partnerships. Legacy systems will find it difficult to support ecosystems because of the need to manage multiple partners, along with different types of interactions. This is most likely to be too much for complex IT estates developed in a piecemeal fashion over decades.
API-enabled architecture is preferable to support ecosystem development as they support seamless integrations. A good digital banking platform should enable banks to easily integrate with ecosystem partners to offer value-adding services through open APIs. Examples of these integrations include integrating with accounting software, which is becoming increasingly common in SME banking.
For retail banking, the possibilities are even broader, opening up a world of options such as remittances, insurance, wealth management, lending, payments and FX.
Business and retail customers alike are looking to their banks to provide these integrations and make strides towards the integrations they see in the rest of their lives, such as universal sign-ins provided through the likes of Google and Facebook. As the demand is there, it is up to incumbent banks to rise to the challenge and meet it, before the digital-first banks access enough data and provide a compelling enough value proposition to make further incursions into market share.
If you’re interested in exploring how a digital investment platform can support your business in future value creation, we’ve produced a guide to the technology that will help you develop your understanding.
