In a previous post, we pointed out that corporate banks were in danger of falling behind the technology curve. We also said that banks needed to respond through full-scale digitisation. In this post, we’d like to take a deeper look at the principles we think should guide this transformation.
We strongly believe the future will be one of platforms and ecosystems in which large networks of providers contribute to the collective value chain. Banks, however, have traditionally taken the opposite approach, serving most if not all of their value chain themselves. This will not be sustainable in the coming world of regulatory mandated open banking, nor in a technology environment where banks (but also third-party providers) and clients can already easily consume financial services on broad-based platforms (think SAP Cloud, AWS, Google Cloud or Microsoft Azure).
We’ve seen other industries such as manufacturing successfully implement multi-provider value chains. We think banks must focus on putting the infrastructure in place to build such value chains in financial services too – for example, by taking advantage of the burgeoning third-party fintech offering.
In doing so, they must be careful to position themselves as platform owners. This is very important. Today, banks own the customer relationship. If they don’t take the initiative to secure their place as the central players in the new ecosystems, they run the risk of losing that ownership, which would be disastrous. One way we think banks can keep customers close is by extending their offering. This can be within financial services, for example by providing insurance, accounting and tax services, or data analytics. Or, it can be by moving beyond financial services: banks offering supply chain finance, for example, could collaborate with partners to offer warehousing and logistics support too.
In this way, banks can become a one-stop shop for corporate clients in the same way platforms such as Amazon have become for consumers. This may sound far-fetched, but with today’s technology, it’s hardly impossible. We see no reason why banks shouldn’t explore broadening their business model beyond traditional banking.
The good news is that when it comes to building such ecosystems, incumbent banks have a significant advantage: their reams of customer data. To capitalise, they will need to up their game when it comes to exploiting it for useful insight.
We’ve often asked ourselves why it is that in the enterprise world we can’t ask a question and get an immediate answer the same way we do every day in our private lives with Google. The secret is being proactive … and predictive. Companies such as Facebook and Google don’t just have data on their customers – they have real-time intelligence on what they’re asking about. This lets them provide answers more quickly and precisely, and keeps them on the pulse of user needs. Banks must develop the capabilities to do the same.
Yes, the future is now
All of this calls for relentless innovation. Banks must digitise, build the open infrastructures we have alluded to above, and master the new technologies such as blockchain, machine learning and artificial intelligence that will allow them to put the pieces together into a meaningful whole.
The need is all the more urgent considering that many other industries have already completed this process. As a result, not only will corporate customers increasingly ask for the type of real-time, on-demand banking services that retail customers receive, they will also have the systems in place to consume them. Those banks that can meet this demand, for example by integrating their offerings directly into their customers’ ERP systems, will have a distinct advantage.
Last but not least, banks must be able to adjust to new business models as market dynamics change. Take the sharing economy. In the past, people bought their own cars, motorbikes or boats. In the future, people will prefer not to own, but to pay per use. We will see similar developments in the enterprise.
Banks as service providers could do well in such a world, but they will need things such as advanced analytics to predict usage patterns, and so be ready with the right products at the right time.
By mastering platform and ecosystem thinking, we think banks will be able to maintain their positions and even grow their businesses. For its part, SAP has already reacted to these realities – building both an infrastructure layer (the SAP Cloud Platform) and a digital innovation system, (SAP Leonardo), both of which provide the foundations upon which to grow ecosystems.
We are convinced that the future belongs to platforms and network-based ecosystems. If they can seize the day, corporate banks have an opportunity to play a leading role in them.
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– This article is reproduced with kind permission. Some minor changes have been made to reflect BankNXT style considerations. Read more here. Image by Man As Thep, Shutterstock.com