Banks are undergoing a strategic metamorphosis, redefining growth paradigms by venturing beyond their conventional roles and stepping into new ecosystems. Traditionally confined to cross-selling within core offerings, banks are now exploring diverse avenues to strengthen customer engagement, tap into valuable data, and unlock new revenue streams.
1. Revolutionizing Back-End Assets: A Blueprint for Value Creation
Amid the ongoing battle for the customer-facing front end between banks and fintechs, an alternative avenue for large institutions emerges – transforming into a product- or infrastructure-sourcing factory. Recognizing the limitations of many small and nontraditional institutions in terms of core banking products, infrastructure, and licenses, larger financial institutions can seize the opportunity to create value. By leveraging their robust back-end assets, they can develop a portfolio of white-label products, offer infrastructure as a service, and extend their balance sheet to smaller players. While the classic example lies in banks providing credit-card processing to retailers, the digital era presents a myriad of new opportunities for such services.
Strategic Considerations for Banks:
Banks contemplating this transformative approach should possess a substantial back-end capability that sets them apart. Essential to this strategy is the ability to securely extend these capabilities into diverse environments. Adequate tech talent, particularly in the realm of APIs, is a prerequisite to maintaining the required levels of security while offering products or services to third parties. Beyond merely opening new revenue streams, this approach serves as a valuable means for banks to accumulate fresh data, enhancing their competitive edge in the evolving financial landscape.
Implications for Industry Professionals:
As the financial industry undergoes dynamic shifts, technology talent becomes a critical asset. Investing in robust API infrastructure and talent is imperative for banks looking to embark on a product- or infrastructure-sourcing factory model. Collaborations and partnerships can further amplify the impact of this strategy, fostering innovation and resilience in the face of digital disruption.
2. Unlocking Customer Journeys
While banking is often seen as a means to an end for consumers, focusing on discrete, bank-centered moments leaves considerable untapped value. Banks can unlock this value by engaging customers at different stages of their decision journey. Offering advice on retirement savings, home buying, or providing insights into financial instruments' rates and maturities can enrich the overall customer relationship. This approach is particularly effective for banks with significant market share in products integral to larger buying processes.
Implications for the Future: Navigating with Technology
As banks navigate these avenues for growth, technology becomes a crucial enabler. The use of advanced analytics, artificial intelligence, and machine learning can empower banks to glean actionable insights from customer data, driving personalized recommendations and enhancing overall customer experience. Additionally, blockchain technology can play a pivotal role in creating secure and transparent financial ecosystems, especially in non-banking adjacencies.
Strategic Considerations for Industry Professionals
For industry professionals, embracing these growth avenues necessitates a proactive approach. Banks should leverage emerging technologies to harness the full potential of customer data, ensuring personalized and seamless experiences. Collaborations and partnerships within and outside the financial sector can amplify the impact of ecosystem expansion and financial supermarkets. Furthermore, staying attuned to evolving customer needs and preferences is paramount, guiding strategic decisions and maintaining a competitive edge.
3. Ecosystem Expansion & the Rise of Financial Supermarkets: A Strategic Shift
In this strategic shift, banks are extending into ecosystems beyond their traditional core functions, engaging customers across various touchpoints. This move not only enhances customer engagement but also provides banks with a holistic view of customer needs. As banks venture into banking adjacencies and even non-banking realms, they create their own ecosystems, offering a diverse range of services at lower costs. This strategic shift becomes a powerful growth driver, especially for banks with a substantial market share in core product areas.
In tandem, inspired by digital giants, banks are also embracing the concept of financial supermarkets, curating a blend of internal and third-party offerings. This aggregation model offers customers a one-stop-shop for diverse financial products, simplifying their financial journey. With the integration of recommendation engines, banks can provide personalized suggestions, reducing the risk of disintermediation. This approach proves effective for banks aiming to cater to customers valuing choice and price comparisons, paving the way for growth in segments like investment products or insurance
Strategic Considerations for Banks:
Embarking on the strategic journey of ecosystem expansion and the establishment of financial supermarkets requires meticulous planning and strategic foresight from banks. As they extend beyond their traditional core functions, it is imperative for banks to conduct a comprehensive assessment of their existing market share in core product areas. Banks with a significant presence in these segments are better positioned to leverage this strategic shift for growth. Prior to venturing into banking adjacencies and non-banking realms, banks must evaluate the strength of their current franchises and how well they can complement their existing offerings with new services.
Assembling a diverse range of services within their ecosystems demands a thorough understanding of customer needs and preferences. Banks should invest in advanced analytics and customer-centric technologies to gain insights that inform the creation of a well-curated suite of offerings. This strategic shift necessitates not only the integration of innovative technologies but also a cultural shift within the organization to foster agility, adaptability, and customer-centricity. Collaborations and partnerships with fintechs, startups, or other industry players may become instrumental in enhancing the breadth and depth of services offered within the ecosystem.
Implications for Industry Professionals:
For industry professionals, this strategic shift signifies a need for a multidimensional skill set. Banks should prioritize hiring or developing talent with expertise in analytics, digital technologies, and customer experience. The successful implementation of ecosystem expansion and financial supermarkets relies heavily on the ability to interpret customer data accurately and translate it into personalized and valuable offerings.
Conclusion: Paving the Way Forward
These three avenues for growth herald a new era for banks seeking sustained relevance and growth. By navigating these paths with technological prowess, strategic foresight, and customer-centricity, banks can position themselves at the forefront of an evolving financial landscape.
