We've all heard of them: taxi companies that don't actually own taxis, but have a significant market share in the blink of an eye. The Ubers who, with their new business models, reshape the traditional landscape of established companies. They fully commit to the innovative potential of digitization and focus their business strategy explicitly on the customer and their experience. At the same time, there is also a new trend where customers themselves are increasingly at ease with digital platforms and determine – and even expect – how things are done.
Renewed focus on the customer
The question is, how can banks best achieve this? The banks' traditional business model, in which the current account is often used as bait for other credit products, has been left unchanged for what seems like an eternity. Change is now taking place, partly thanks to digitization, which is also soaring in the financial world. One of the driving forces behind this is the renewed focus on the customer, who increasingly wants to be served across several channels. They choose the device and channel that suit them at that moment: irrespective of when and where, be it in real-time, adaptive or personalized. Banks are now more aware than ever of the need to have a dynamic and agile front office that facilitates the customer's experience and ease of use.
Another driving force behind digitization is the increasing competition from fintech companies. Fintech refers to technology-driven companies that seek out, specialize in and perfect certain niches in financial services, such as payments and risk analyses, with innovative products and services. Large firms can be found among the fintech companies, but it is more often all about the startups. These newly established technology companies can approach the banks' customers in an agile, efficient and low-cost manner and force themselves in between the bank and the customer. As a result, the financial institutions' value chains are coming under pressure.
The fintech companies are the Ubers of the financial services world. Banks must be aware of this and learn from other sectors where it seemed that the established firms were too slow for the Ubers of our time. Banks must make tough choices about the type of bank they want to be for their customers, because let's be clear: the bank of today is no longer the bank of tomorrow.
Hendrik Albrecht: "As other organizations are busy trying to reinvent themselves, banks must do the same. Insurers are facing the same challenge. It all boils down to standing less on your own and working more with the advantages that networks and platforms offer. One of the challenges for the banks is the dual approach to the speed of the digital transformation. They need to establish a structured approach that ensures speed in the digital front office as well as stability in core systems. This can be achieved by defining new collaborative models and opening up their data and systems to third parties."
"From a technical perspective, data and systems are unlocked using application programming interfaces – APIs," says Hendrik Albrecht. "APIs are nothing new. They have been used for years to link software components within an organization. What is new, however, is that APIs are increasingly being made available to third parties – partners, customers and suppliers – as digital access ports. APIs act like glue in that they ensure systems can be integrated easily and in a secure, controlled fashion without the developers needing to know exactly how the other component works. The advantage is that you no longer have to build everything yourself, but can use APIs from third parties – plug and play, so to speak. This is how an ecosystem of applications is born, and it allows you to excel easily and expand the range of your services. This fits perfectly with the growing trend for open-source technologies, systems and processes."
Banks have the potential to reposition themselves from a classic institution to a digital platform in which an API economy is crucial.
PSD2/XS2A as a catalyst
One of the driving forces of innovation in the financial sector is the PSD2/XS2A legislation. The revised Directive on Payment Services is an EU directive that obliges banks, as of 2018, to provide external service providers with access to customers' current accounts, as long as the customers give permission. In order to achieve this, the banks must build open-source APIs – and this in turn opens up the banks' traditional playing field to new players. According to the regulator, the use of open-source APIs will also stimulate innovation and as such will be a catalyst for the digital transformation of banks.
Play to your strengths
The ability of banks to adapt is the key to success. The best bank is the one that works hand in hand with the technology companies in a joint ecosystem in which the banks benefit from the technology firms, and vice versa. Given that the bank is in position to group together the best tech firms, it can use the best APIs as well offer the top APIs to its customers. The market, and therefore the customer, determine how the service is used or integrated, which is completely in line with the API philosophy where decentralization and specialization are the keywords. Each organization must contribute from where their strengths lie; no more, no less. Technology companies are agile and ensure innovative acceleration, but banks also have their advantages. Banks represent security and trust. They know their customers. Above all, they have years of experience with IT and are extremely good in areas such as compliance, security and privacy. The future of the financial world? Hendrik Albrecht: "Experts agree that partnerships and co-creation are the way forward, with one goal – the customer and their ultimate experience."
The ability of banks to adapt is the key to success. The best bank is the one that works hand in hand with the technology companies in a joint ecosystem in which the banks benefit from the technology firms, and vice versa.
Would you like more information about how you can become a connected company? Contact our expert Hendrik Albrecht, Division Manager at The Connected Company, at email@example.com.
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