Most western economies have experienced little or no growth since the global financial crisis.However, fewer resources are often a trigger for innovation and better long-term planning. Before hard times fell upon the western world, banks would build their own solutions. But this outdated technology is preventing digital transformation programmes that banks hope will boost their revenues and re-engage customers. 

 In response to this, banks are revaluating their business models including their production processes, supply chains and skill sets. By doing this they are able to improve the user experience, while owning less of the assets that deliver that value, much like the Ubers and AirBnBs of this world.

 As part of this process, banks are opening up to collaboration with third-party providers, even in the provision of products, services and processes once viewed as mission critical. In order for this to be achieved successfully, banks need to unbundle their offerings to identify their key differentiators, before deciding what to get rid of, what to focus on and how to potentially rebundle with external providers to improve client experiences at reduced cost and system complexity. 

Once banks have decided which products, services and processes give them a definitive sustainable competitive edge, they can evolve their business models. It will likely become  commonplace for banks to outsource larger parts of their supply chain and integrate with third-party providers more deeply, as new rebundled service propositions emerge, through the use of APIs.

The growing use of APIs has enabled a more comprehensive integration between partners, allowing tasks to be executed ‘natively’. To date, integration of a third-party vendor’s services into a bank’s client proposition has required some degree of manual intervention. However, the operational risks and inefficiencies of human involvement are being eliminated as third-party applications use APIs to connect to core banking platforms. 

While the benefits of collaboration are gradually being felt throughout the financial services industry, the business case for collaboration should be developed carefully. Ideally, banks should partner with firms that have already re-examined their role in the supply chain and realigned their business and operating models. By leveraging the assets of others, rather than creating a new division, banks can direct more expenditure to areas where they already have well established expertise.

The rebundling of a bank’s value proposition to reduce cost and increase efficiency is no easy feat, nor is it a one-off process. Initiatives in different areas of financial services may have different approaches to collaboration, involving partnerships with firms with a complementary array of skills to ensure the optimal mix.

Collaboration is by no means an easy fix to the challenge of creating long-term revenues in an increasingly challenging economic environment, but it is a sustainable and cost-effective one. While it may sound daunting, the alternative - building on top of existing foundations continuously - is not sustainable.

To illustrate this a brilliant colleague of mine once said I would be wise to consider the Winchester Mystery House in San Jose, California, once the home of Sarah Winchester, widow of the infamous gun manufacturer, who spent more than 40 years between 1881 and 1922 adding tier after tier, and room after room. Whilst impressive, the house is testament to the risks of adopting a piecemeal approach to pursuing a vision, instead of working with partners with an over-arching strategy. If Mrs Winchester had had a finite budget, rather than a US$20 million inheritance, she might have opted for a different approach!