Beyond the Traditional Bank: The Race for Ecosystems! 🚴‍♂️

The evolution of the banking sector and new competition on the market

Over the past years, financial services have undergone significant upheavals partly due to the technology, connectivity and data. Fintechs have emerged as key suppliers of financial services, while digital banks have offered a more practical and inclusive access to banking services. All of these changes have been stimulated by several evolutions:

• The emergence of new regulations around Open Banking and Open Finance in several markets throughout the world to make available account and payment data to third-party partners.
• The access to financial resources which has notably enabled numerous Fintechs to launch and position themselves in the banking market. Today, fundraising is slowing sharply following an investment drought, which leads to a valuations’ decrease and offers historical banks the opportunity to organize their transformation.
• The banking sector must face growing new challenges, notably the appearance of a cross-sector competition and the emergence of new actors coming from different sectors such as BigTechs, Fintechs and other non-banking actors.
• The previous evolutions have allowed the appearance of new business models, disruptive compared to traditional banking models, such as Open Banking, Open Finance, Embedded Finance, the platformization phenomenon, ecosystems or even the “Beyond Banking”.

To remain competitive, banks must realign and adapt to specific needs of customers, while going beyond traditional financial services. The banking sector is confronted with a future marked by a fundamental restructuring. Some banks will be able to manage this transition successfully. These ones will be in a position to thrive and develop quickly by adopting the “platformization” phenomenon while taking strategic informed risks in the “Beyond Banking”. By seizing this opportunity, they will be able to create a value estimated at 20 000 billion dollars according to Mckinsey.

• Read more: Core Banking - a fourth-generation based on platformisation

In short, the industry of financial services will continue to see major evolutions, and the historical banks can stay relevant by adapting to new trends, investing in the digitalization and exploiting their position and capital to seize emerging opportunities. Well managed reorganization and transformation will allow them to prosper in this competitive environment in constant evolution.

Banks are losing their competitive advantages

Historically, traditional banks have long been considered as convenient one-stop shops for companies and consumers. However, many of them have failed to adapt their products to the quick rhythm of technological evolution, contrary to other sectors. Offers such as accounts, payments, loans or even savings seem more and more standardized. Consumers express more and more their frustration with the financial segmentation imposed by banks in numerous aspects of their consumption.

We can take the example of home buying, which formerly required juggling in a complex world of real estate brokers, mortgage lenders, insurance companies, construction and renovation contractors, etc. While previous generations tolerated these frustrations, we are now in contact with new ways to reach and connect with consumers. Banks must therefore identify and attract these customers, just like their new competitors.

To remain competitive, most banks will have to adopt cross-sector platforms. These new platforms abolish barriers between traditional industries, thus redefining the customer behavior and transforming the former linear value chains into innovative ecosystems that meet customers needs. This transformation has already reached a critical mass in sectors such as health, media, music or even retail, where diverse actors are interconnected via platforms created by world leader companies.

With this cross-sector platformization, banks now find themselves competing with all organizations that are capable and eager to offer financial services. Technological giants such as Google and Tencent were able to exploit their platforms to offer banking services in a transparent way to millions of customers. This new competition keeps growing exponentially throughout the world. In order to prosper in this new environment, banks will need to rethink their approach, innovate and seize the opportunities offered by these new platforms to remain competitive in the constantly evolving market of financial services.

New business models and new opportunities for banks

The era where banking entities reigned alone as master over financial services is now gone. New actors are ready to emerge on the financial stage. We are convinced that the future of the bank will be the result of a fierce competition between traditional banks and non-banking companies on several key business models: Banking Platforms, Ecosystems, or even Beyond Banking.

These new business models include products and services that banks already offer today, but they are entirely reinvented to meet the diversified needs of customers. This new competition opens a considerable transformation potential. In the coming decades, revenues generated by each of these business models might see a significant growth, up to 3 to 30 their current size. Below is an more detailed explanation of the different business models:

Banking Platforms have become an important business model both in financial services and economy in general. We can distinguish two types of platforms:

1. Transactional Platforms: They act as exchange platforms where buyers and sellers interact, and the platform value comes from transactions themselves. Financial institutions can commit with or host this type of platforms, notably in domains such as loans.
2. Development (or Product) Platforms: This type of platform implies that the financial institution offers its license, its technological infrastructure, its distribution channels and its customer base as a space where partners and / or third parties can connect and develop new offers or improve the global offer for final customers. An example of this in the financial products market is Starling Bank, which can be considered as a complete ecosystem.

• Read more: Contributor or Orchestrator, make your predictions now!

Ecosystems are created through partnerships and collaborations, gathering offers to provide improved and complete value propositions which go beyond what a financial institution could offer independently. Ecosystems usually revolve around a specific industry and imply a more selective selection of closely integrated partners which have a distinctive voice and contribute significantly to the partnership. Contrary to banking platforms, ecosystems are more guided by a target value proposition.

Finally, Beyond Banking emerges from an ecosystem which spreads beyond traditional banking products and services, including sectors such as real estate, mobility, travels, retail, etc. The principal objective is to create a transparent, easy and pleasant banking experience for customers by offering both current banking services to individuals and a variety of non-banking services via a marketplace. This platform would thus become a unique access point to meet different needs, ranging from the purchase of consumer goods to specialized services, the whole tightly linked to customers' banking accounts. 

Value is moving towards ecosystems

The current evolution of value is resolutely moving towards commercial ecosystems, an essential step of digital transformation in the financial services sector. These ecosystems offer products and services developed in partnership with other actors. They have considerable advantages, allowing organizations to penetrate new markets, quickly create new offers and attract new customers. By 2030, it is expected that ecosystems will play a significant role in the generation of banking revenues.

Technological leaders have popularized the concept of ecosystem by offering consumers and companies “one-stop shop” experiences, integrating financial solutions developed by partners within their marketplaces, applications and services. BigTechs, telecommunication providers and even retailers (IKEA has its own bank and acts like an ecosystem orchestrator) already have a strong presence in individuals daily life, which gives them a competitive advantage.

In the years to come, competition for value within ecosystems is likely to intensify. BigTechs and Fintechs are already seeking to capture this value for themselves. Horizontal actors, vertical specialists and niche solutions providers, inside and outside of the financial services sector, are tackling all facets of the banking value chain. Therefore, it becomes wise for banks to consider partnerships with actors from other industries, in order to acquire experience and learn to navigate in its economical functioning. It is important to note that the participation in an ecosystem can continue even after having launched another ecosystem; these roles are not mutually exclusive.

Several ecosystem strategies for banks

For financial institutions, ecosystems can be both an opportunity for exponential growth and an existential threat. Different approaches can help them exploit ecosystems:

#1 An Orchestrator Strategy

In this approach, banks play the role of principal orchestrator and build an ecosystem tightly linked with their traditional core business. They associate with companies from different domains to create an ecosystem gathering their financial products with complementary offers. 

#2 A Strategy focused on Vertical Markets

In this approach, banks build ecosystems in specific sectors where they already have a strong presence and growth perspectives. They offer their basic products adapted to specific market segments and introduce other products to add value. 

#3 A Strategy of Contributor in Ecosystems

In this approach, banks integrate their white-label products and services in ecosystems managed by other actors. They can also focus on specific ecosystems and adapt to the needs of these platforms and their customers.

To sum up, banks have diverse strategic options to take advantage of ecosystems depending on their market position, their objectives and their capabilities.

• Read more: Become an architect of your business by building your innovation ecosystem

The Beyond Banking to help banks launch into ecosystems?

With the growing convergence of financial services and its lifestyle services, the integration of non-banking products in the existing offers of financial institutions can create more complete value propositions. By enriching customers' life cycles with relevant services, financial institutions can encourage deeper and more loyal relationships with their customer base. This approach meets changing needs and preferences of modern consumers, leading to an increase of customers’ loyalty and global value per customer.

Customer acquisition has become more difficult due to the reduced efficiency of traditional marketing methods based on cookies to obtain precious data on customers. The Beyond Banking offers financial institutions the possibility to attract new customers in non-banking domains. By diversifying their offers and engaging in a larger ecosystem, financial institutions can exploit new markets and customer segments beyond their conventional influence sphere.

The Beyond Banking offers a clear advantage to financial institutions, notably when they establish partnerships with actors outside the financial sector, such as telecommunication operators or retailers. The collaboration with ecosystem’s partners allows financial institutions to explore and access new revenue streams. By taking advantage of their basic services, customers’ trust and information on data, financial institutions can orchestrate innovative offers beneficial to both the bank and its ecosystem’s partners. Transaction data, in particular, offer a unique sale proposition, allowing banks to deduct the consumers’ behavior and to adapt the offers consequently.

To conclude, the Beyond Banking opens new perspectives for financial institutions by enabling them to offer more complete value propositions, to develop their customers’ base and to diversify their revenue streams. By adopting this innovative approach, financial institutions can prosper in a constantly changing environment and seize growth opportunities within emerging ecosystems.

Business Case "Beyond Banking" with Obendy

In the face of intense competition. La Banque Postale expressed its desire to differentiate itself from its traditional banking products and services, and expand its business horizons by targeting the younger generation. In 2021, it embraced a “Beyond Banking” strategy in partnering with Obendy.  

Requirements: 

• The provision of a plug-and-play platform; 
• The management and integration of various services; 
• The implementation of multichannel user engagement through the deployment of CRM relational programs (emails, SMS, etc.); 
• User and business network support; 
• Monitoring and management of key performance and impact indicators. 

This gave rise to the Pass Jeune project: a digital platform offering 10 free non-banking services dedicated to individuals aged 18 to 29. 

The objective was twofold: to provide more comprehensive daily support to young individuals while reinventing the customer relationship. This platform brought together high-valued-added services that addressed the concerns of this age group. Consequently, this solution became a means of acquiring and retaining young customers by accompanying them in their personal and professional development.  

This platformization strategy revolutionized the customer relationship, creating added value. The results obtained allowed La Banque Postale to better understand its young customers through data collecting, enabling it to offer them the right products at the right time within an optimal customer experience.

Conclusion

To conclude, the banking sector evolutions offer new perspectives to financial institutions that must innovate, adapt and collaborate with other actors to prosper in this constantly changing competitive environment. The future of banking will be marked by a fierce competition between traditional banks and new non-banking actors on new innovative business models such as ecosystems and the “Beyond Banking”