The Ecosystem in Business
The development of ecosystems in business was first talked about in the West more than 20 years ago. Today we increasingly see examples where successful IT products or service companies are organically evolving into ecosystems. But does this apply to the conservative banking market? So, let’s find out today what is banking industry’s role in the start-up ecosystem?
In Europe, the PSD2 payment directive requires banks to provide open access to APIs, which is causing their business models to change dramatically. The development of open banking is increasing competition for customers and puts strict demands on service efficiency and technical maturity. Traditional internal tools of product creation do not provide the required speed and quality of changes, or with them, you do not know how to activate.syw.account online
so financial and technological companies are actively involved. This is not inherent to the conservative banking sector and requires a change in the approach to assessing the institution of partnership.
A Few Examples
There are also examples where open banking leads to big players drawing customer traffic away from smaller players. Retail banking is one of the fastest-growing markets in terms of both volume and digital. Today, a customer doesn’t even need to go to a branch to change banks, they can easily do it with just a mobile phone. In this environment, banks have to work very hard to compete and meet market demands and customer expectations.
Transformation requires banks to spend heavily on new, often at first inconvenient initiatives and programs. This begs the question: can a classic bank remain successful at the expense of exceptional customer service, or does it need to broaden its focus towards the ecosystem in order to survive? And can the bank compete with technology companies on the level of solutions offered?
Now or Never?
Long-term global forecasts suggest that banking margins and net return on equity (ROE) will continue to stagnate. Over the past 10 years, the global average ROE for banks has been 8-10%, barely covering the cost of their equity capital (McKinsey). And by 2025 McKinsey predicts that the ROE of the banking sector will be in the range of 5.2-9.3%. In such an environment, the desire of banks to move outside the financial services sector into higher-margin segments looks logical. When the market gets crowded, creating an ecosystem allows you to expand the boundaries of your core business.
Creating an Ecosystem
There are two ways to create an ecosystem. The first is to build a general ecosystem (so-called lifestyle banking), where the goal is to get close to 100% coverage of a client’s daily existing and potential needs in one application. The second is to build a niche ecosystem, i.e. 100% coverage of the client’s existing needs in only one area of life (home buying, education, medicine, etc.).
But it cannot be said that creating an ecosystem is 100% the right path for all players to pursue. If we talk about how many ecosystems there will eventually be, experience in other markets shows that there are a few, usually 2-4 key players. But this is almost certainly not going to happen in the banking market in the next 3-5 years. And having a few large leading players does not mean that everyone else will have to leave.
Are Fintechs And Banks Enemies or Allies?
The banking industry is quite advanced in terms of new digital solutions and financial technologies, and banks themselves have managed to adapt well to the arrival of various fintech companies and non-banks. We are now witnessing a real “arms race” between credit institutions and some fintech companies, both in the retail and corporate segments. “Yandex, using its loyal audience, is offering payment cards under its own Yandex.Money brand. New challenges arise every day: from the fact that the British financial service Revolut, which is showing impressive results in Europe, is preparing to enter the Russian market, to Apple’s recent announcement of its own credit card or the announcement of a new cryptocurrency from Facebook.
While the biggest players are strengthening their positions, smaller banks are losing them – as a rule, they have no opportunity to invest in IT infrastructure, new technologies, and people, which means they cannot truly compete with the market leaders. Overall, 20-25% of banks in the industry are unprofitable, and under such conditions, they either have to withdraw from the market or embark on “adventures” and enter more risky client segments and lines of business.
Banking Sector
The banking sector has the potential to become one of the leaders in ecosystem-building – infrastructure, people, a willingness to change and invest in change, and, most importantly, the significant accumulated experience of overcoming crises (which may be lacking in current technology leaders).
But if you haven’t found all the answers to your questions yet, then you need to go to Forum: Crash on startup. This is the only place where you can ask questions to professionals and amateurs, as well as learn important information on the topic here. So only this forum will allow you to learn as much as possible about the ecosystem and its existence in business.
Bottom Line
There is no doubt that banks have a lot to learn from service companies in terms of customer experience. However, various studies show that people still trust banks more than technology giants when it comes to, for example, personal data security. In addition, banks have an established customer portfolio, brand, heritage, and experience. Most fintech companies do not have these advantages. But they have great products, which creates an ideal environment for cooperation.
This year we will see a lot of experimentation by banks with non-banking services and try out prototype super-apps of varying degrees of maturity. Banks have 2-3 years to figure out through trial and error the viability of this business model, discard false hypotheses and keep anything that will allow them to make money. Now is the time for colossal experimentation at colossal expense.
