Story time: after years of living in Europe – France, mostly – I moved back to the Emirates last year. With the move came a fresh start but also the pains of uprooting my entire life and rebuilding it in a new city. My immediate tasks included finding a new place, opening a current account, buying a new car and getting health insurance.
Ten years ago I would have walked into a bank and come out with one task ticked off this list. In 2022, I could cross all four without leaving my banking app. Through a single platform, I was able to get in touch with a car dealership, a real estate agent and a health insurance provider. And, of course, get my bank account set up.
This is how ecosystem-powered banking should work, and as a consumer, I’m very much looking forward to a world where ‘ecosystem banking’ will be just ‘banking.’ Here’s why banks should too – and how they can make it a reality.
What is ecosystem banking and why is it the way forward?
My go-to definition of ecosystem banking is a business model that’s based on fostering value-creating interactions between consumers and service providers, banking and non-banking alike. The result is a set of interconnected services that customers can access to fulfil a variety of needs, financial and beyond, in a single, effortless, uniform experience.
‘But can’t a bank be just a bank?’ you might ask. It absolutely can. But not if it wants to stay relevant to customers and ahead of competitors in tomorrow’s digital world. Or today’s, for that matter.
Nine of the ten most valuable companies on earth are ecosystem companies, says McKinsey’s Miklós Dietz. He adds, ‘By 2030, ecosystems will play a major role in almost every aspect of the global economy, driving around $80 trillion in annual revenue—a third of total global revenue.’ The banking revenue pool is very much included.
Financial institutions are a key part of the customer value chain. For example, if someone’s looking to buy a home, they go through several steps that involve an array of service providers, from lawyers and movers to broadband providers. Traditionally, as I pointed out earlier, banks only enter this value chain when it comes to financing the property transaction.
And even when they do, they struggle to keep up with expectations across the entire customer lifecycle. A Capgemini survey shows that 82% of bank executives find it difficult to identify new customer segments, 55% face challenges providing seamless onboarding experiences and 61% can’t seem to find a way to retain more customers.
The ecosystem business model, however, is based on the idea that banks can – and should – orchestrate the entire value chain. This way, they can create the experiences users demand – think single point of contact, fast response times and no duplicate workflows across touchpoints – on one end, and lower customer churn and new revenue streams on the other.
The network effect of ecosystem-based innovation allows banks to expand their applications’ functionality and user base with minimal effort. Ecosystems, at their core, are also asset-light business models, giving their members access to resources they would otherwise have to develop from scratch. Not to mention accelerators of innovation, allowing banks to identify products and services customers might need but also to deliver them through plug-and-play providers.
There’s a lot to be gained in terms of client engagement and loyalty, too. In an ecosystem setting, customer relationships become less transactional and more meaningful. As in, they focus on understanding customer needs and earning trust first and closing a deal and earning a commission second. At the same time, relationships with customers become less risky, thanks to more effective risk mitigation frameworks powered by customer data from across the network.
From ambition to action: 3 questions to ask before going ecosystem
In a 2019 survey of 120 global banks by Accenture, nine out of ten were strongly interested in exploring the potential of customer-facing ecosystems and how it can lead to bottom-line growth and stronger customer relationships. Despite the enthusiasm, many seem to have remained in test-drive mode.
Only 27% of top banks have engaged in ecosystems to a significant extent, a recent BCG study found. More than half are still in the experimental phase and 21% have yet to sponsor anything beyond small projects or pilots.
‘This failure to leap into the ecosystem movement in a targeted way is leaving massive value creation at stake—and giving a significant leg up to peers that have embraced this shift,’ analysts concluded.
It’s no wonder. Ecosystem thinking requires a complete overhaul of how banks create value for stakeholders and comes with a slew of decision points that affect the outcome. Here are three questions bank executives should ask themselves to make sure they start the ecosystem transformation on the right foot.
1.Do we have buy-in from the top management?
If not, stop right there. Built around customers, not products, the ecosystem model is a 180-degree turn from the traditional way financial institutions go about business. That is, having a range of current and savings accounts, credit and debit cards as well as loan, investment and insurance products and selling them through their own channels. A mindset change of this magnitude is hard to achieve unless helmed by leaders who are truly aligned with its goal and engaged in the transformation process.
2. What role do we want to have in the ecosystem?
Ecosystems come in all shapes and sizes – as do the needs and goals of its members. For banks, it’s crucial to “know their place” in the new setup: is it orchestrator, participant or both? What’s the main objective of engaging in an ecosystem: bundling core banking products with complimentary services or maybe foraying into a niche category? Here BCG gives incumbents the lowdown on the strategic roles they can play in an ecosystem setting, including builder, partner, innovator and contributor, based on their ambitions.
3.Do we have the right data and tech infrastructure?
According to Accenture, among the barriers banks face when it comes to executing on the ecosystem opportunity, developing a technology platform is at first place. More specifically, an open-architecture digital banking platform where service providers can plug in any number of applications through unified and secured APIs for customers to access whenever and wherever it suits them. Do read Cenek Navratil’s recent deep dive on how to do just that and Gellért Vinnai’s guide to pre-platform implementation data prepping.
TL;DR: Make sure that your ecosystem has a solid foundation both in terms of mindset and technology. A digital banking ecosystem is more like a living organism than a machine, constantly changing, growing and adapting as business and customer needs evolve. Technology is a powerful enabler of ecosystem transformation – but the driver should be banks’ vision of what value they want to deliver to stakeholders.
