Open Banking - four models for the digital future

In a number of my previous blogs, I’ve pointed to the importance of platformification, and the need for banks to explore new revenue models for Open Banking. In this blog, I’d like to explore the topic again, this time taking a look at some of the Open Banking models out there today.

As with every business, each bank has its own unique goals, products, target audiences, vision and most importantly: people. In an Open Banking landscape, it’s the customer experience and convenience and not just products, that will be the most important competitive differentiators for banks wanting to grow market share. With wider macroeconomic pressures, low interest rates and a squeeze on margins across the board all putting stress on the traditional model, banks will need to carefully consider the approach they take in this new environment.

With this in mind, I’ve listed four examples of Open Banking models banks should consider, as outlined by Accenture in a recent report.

1. The Digital Relationship Manager

As a digital relationship manager, banks will seek to take advantage of their already established, vertically-integrated business model, whilst taking a leaf out of the book of challenger banks to deliver digitally enabled, highly personalized services. To truly be successful in this approach, banks will need to optimize the services they currently deliver across physical and digital channels and capitalize on customer centricity by driving real-time personalization strategies. Much like a platform approach, banks will also need to build an ecosystem of partners, collaborating with third-parties to deliver trusted products and services to the table and delight customers. But in a world where 78 percent of consumers are considering non-traditional providers for their banking services, banks will need to ensure this approach is compelling enough if they are to retain customers.

2. The Digital Category Killer

Whereas a digital relationship manager aims to deliver a wide range of services for a variety of customer segments and needs, the ‘digital category killer’ focuses solely on delivering a single, best-in-class solution and value proposition. Despite serving a narrower set of customer needs, the model aims to maximize distribution through a variety of channels to deliver to as many customers as possible. This approach would see a bank join the likes of fintechs and specialist providers, like Paypal or Betterment. Although an unlikely route for many traditional banks, if executed correctly there is the potential for exponential growth and market domination of their chosen segment.

3. The Open Platform Player

The Open Platform approach sees a bank take on a role similar to that of the big ‘GAFA’ tech firms, creating an ecosystem for third-party providers to collaborate and deliver products to bank customers. In this respect, the bank becomes less of a product driven business, and focusses more on the customer management and experience. As customers interact with these third-parties on a platform, banks can also gather valuable data on the services they use to deliver highly-personalized, context driven services – such as a loan unique to particular needs and demands. Many banks are already showing interest in this approach, with results from a recent Celent survey of senior banking executives stating nearly 40% of banks are using or actively investigating platforms. The platform approach has clear benefits – but the threat from big tech means banks will need to think carefully about whether they build these platforms themselves or integrate with an already established platform.

4. The Utility Provider

As a utility provider, banks would see themselves giving up the relationship with the end consumer and focussing solely on providing efficient, regulatory proven end-to-end banking solutions. In this model, a bank would play a behind-the-scenes role, potentially shedding their retail business to focus on business-to-business focussed partnerships. The success of this approach largely depends on a banks’ ability to deliver high-quality, low-cost and compliant financial solutions and may see them eventually supplying their solutions in an “as-a-service” model. Whilst a viable r­oute, it is not the most ideal one. With not much differentiation beyond pricing, banks may eventually see themselves fading into the background or losing to more efficient utility providers.

The above models serve as some examples of approaches banks can take, but they are by no means the only options. As the banking and technology landscape continues to evolve, we may see new models emerge to disrupt the industry.

Whatever the approach a bank decides to take, there are some key factors they must always consider. Firstly, they must adopt a digital-first approach regardless of the path they choose to take. Secondly, they must drive a top-down approach to transformation and innovation across the business. Lastly, the bank must appoint someone to drive this transformation: whether it be CMO, CIO or CCO. Banks that fail to capitalize on the Open Banking economy now will ultimately have their future decided for them by more agile and innovative competitors.