By Likhit Wagle, Managing Partner Financial Services, IBM Consulting EMEA
The digital transformation of banking continues to reshape both products and services. It may be cliché to describe the traditional high-street model as becoming increasingly redundant, but that doesn’t necessarily mean that the next iteration of service provision has been fully finalised. For example, despite all the positive talk about banking platforms, there are still major questions about how they should operate and what services they can profitably deliver.
What is becoming increasingly clear, however, is that customers, including many businesses, don’t want to travel from one platform to another when carrying out related transactions. The friction this engenders can slow down processes and create unwelcome, time-consuming hurdles. For example, if a business is expanding or relocating, it makes sense for management to be able to interact with IT (information technology) specialists, recruitment agencies, energy suppliers and office-space vendors—all from a single platform.
Similar integration would be beneficial when purchasing fleet vehicles, which often involves simultaneously arranging financing and insurance, amongst other things. Being able to access and manage related services from a single location is entirely logical, but for banks, there are complications, especially around the rate of change and the necessity to quickly pivot to a rapidly developing market.
Make no mistake, a substantial market share is migrating away from the banking industry to the big tech companies that offer an integrated platform model. For instance, Block (formerly Square), Stripe and PayPal have built up tens of billions of dollars in revenues as well as substantial market capitalisations.
Mapping the customer journey
These specialised ecosystems are disruptors—they are not traditional banking products or services; they don’t sit well within conventional banking behaviours. Big tech consumer companies, such as Amazon, offer an easy, frictionless customer experience with the expectation that your order will be fulfilled in minutes instead of days or weeks. Banks, by comparison, have made some steady progress in creating apps. But the underlying processes are still not completely automated; there are a lot of manual handoffs, and the documentation associated with transactions is often paper-based.
However, digital paths are developing through the analogue jungle. By mapping customers’ journeys from end to end, banks can successfully assemble the types of integrated platforms that people increasingly want. It isn’t banking as we know it, but the benefits for everyone concerned are becoming increasingly apparent. Alibaba’s valuation surely underlines that.
You only need one.
These insights are starting to drive meaningful change. An excellent example of this is State Bank of India’s (SBI) decision to test the waters with YONO (You Only Need One), an integrated digital-banking platform that enables users to access a variety of financial and other services, such as banking services, travel booking and online shopping, in collaboration with merchant partners. The ecosystem, initially launched in 2017, is currently offered as a smartphone app for both Android and iOS and has far outperformed expectations. It has in excess of 54 million monthly active users (MAUs) and saw growth of more than 35 percent in MAUs during 2021.
And it’s easy to see why. If you want to get a car loan from YONO, you can complete the entire transaction on your smartphone. You don’t have to go to a bank branch; you don’t need hard copy documents; there are no wet signatures. The whole process, from inception to money landing in your account, can take minutes.
Creating a sustainable business
So, how can the ecosystem model help businesses enhance their sustainability? Well, the move to net zero and the increasing need to set and meet environmental, social and governance (ESG) performance targets can be difficult to negotiate for many large companies, but for small and medium-sized enterprises (SMEs), the task can look especially daunting.
Importantly, the ambitious climate targets set out in the Paris Agreement cannot be achieved without the green transitions of SMEs. Many are, therefore, understandably worried about their environmental performances and their paths to net zero. Helping ensure SMEs can support their green evolutions requires engagement with a range of suppliers and organisations, including specialist finance providers, regulators and rating agencies. The scale of the task can seem overwhelming.
This creates a massive opportunity for banks to build platforms specially designed to explicitly disentangle these convoluted issues. A bank could, therefore, assemble the services SMEs need to achieve their environmental objectives by creating an ecosystem that brings together a range of relevant organisations, including specialist ESG-related public and private finance suppliers.
Targeted products and services
But it’s not just about money. Businesses may also be looking for green assets such as solar panels, heat pumps and low-emission vehicles, which will require access to businesses with sustainable products and services. Third-party data specialists may also be required, as many SMEs are ill-equipped to analyse their own ESG performances. These should also be included within the ecosystem, making them all accessible from a single interface.
Importantly, banks that commit to sustainability will have long-term success, which could be another way of showing that they are taking the responsibility seriously while also generating value. Putting green business on a platform really makes sense.
Platform-based companies, such as Alibaba and Facebook, have grown rapidly over the past two decades due largely to a business model that enables direct interaction among users. These big tech firms have also accrued vast amounts of consumer data, enabling them to offer services driven by network activity. This, in turn, impels more user activity, generating even more data.
By using technologies such as AI (artificial intelligence) and big-data analytics to pan for insights in the digital Klondike, big tech firms can also map the risk appetites of their customers and provide financial services in tune with their user profiles, which helps ensure that consumers’ repayments are high. This is where banks should be operating…and can be, as evidenced by the success of SBI’s YONO platform.
Thriving in a world of change
It may be cliché to say that the banking landscape is undergoing a wide-ranging transformation powered by emergent digital technologies, changing customer preferences and new competitive pressures, but it’s nonetheless true. To compete and thrive in this digital frontier, banks need to develop their own ecosystem strategies—ones that can help them create value and drive growth by delivering hyper-relevant experiences from banking and non-banking services. Emerging markets, such as sustainability, are opening the door to new business opportunities.
The world is moving to a place where banking is required, but banks may not be. Developing platforms is the obvious answer; banks need to start creating ecosystems that enable them to achieve this—efficiently, effectively, seamlessly…and sustainably, too.