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Future Finance: Why Banks Must Become Money Orchestrators


Amid sweeping disruption inspired by fintechs, non-banking rivals and ongoing regulatory change, established banks must embrace a partnership-driven and collaborative approach with “frenemies” to remain relevant, grow and meet evolving market needs.

The traditional notion of banking is being challenged across all fronts. Look no further than the retail space to see and understand how and why. While vying for nearly two trillion in e-commerce sales, Apple and Google both launched popular digital wallets. Meanwhile, Amazon is providing small business lending and short-term loans to resellers through Amazon Capital Services

And that’s just the beginning. To compete in this brave new world and proactively respond to new competitive threats, incumbent banks must embrace a new and more open business model known as “banking-as-a-service” in which products and offers are assembled and aggregated from a collection of in-house and third-party-provided services. Like musicians in a finely tuned ensemble, this new approach will enable them to orchestrate and enable new ideas, partnerships and offers to meet customers’ ever-changing needs and expectations. 

Three Disruptive Trends

We see three pervasive challenges that traditional banks must address to remain relevant today and tomorrow. 

The rise of millennials. 

Over the next half century, millennials will become the largest revenue-driving demographic in the world. While baby boomers value a relationship-centric experience that hinges on trust and personalization, younger generations favor accessibility, convenience and speed. This shift in consumer expectations is challenging banks to provision services similarly to what digital natives already expect from Facebook, Amazon, Netflix and Google (i.e., FANG companies).

The rise of fintechs.

Including the above four non-banking rivals, fintechs focus on addressing the shifting demands of digitally native consumers. They are adept at applying rapidly advancing digital technologies and benefit from a relaxed regulatory framework. And they’re growing. Over the last two years, fintechs and nonbank institutions raised $19 billion in capital, with 90% of the funding aimed at the highly profitable banking segments such as payments, peer-to-peer, and consumer lending and wealth management. Business and consumer lending should be the banks’ biggest concern and major consideration as they chart their digital future.

The rise of new regulations.

Regulatory shifts are compelling traditional banks to digitize quickly. Governments and regulatory bodies alike are focusing on enhanced pricing transparency and open banking standards across the globe. For example, the European Union’s Revised Payment Services Directive and similar transparency-driven international frameworks require banks to reduce barriers to entry and make financial data available to third parties via application programming interfaces (APIs).

Collectively, these factors threaten to strip banks of over $660 billion in profits over the next half decade. That alone should be reason enough for banks to embrace smart service aggregation. 

Five Ways to Respond

Banks should consider the following guidelines when developing their smart aggregation strategies:

  • Take a “frenemies” approach. In other words, actively pursue and foster respectful relationships with fintechs and nonbanks. Such partnerships should leverage both parties’ capabilities and create a mutually beneficial digital ecosystem. To retain control over the customer relationship, however, banks must ensure their own value-add in the process. JPMorgan Chase, which recently partnered with online lender OnDeck to launch a small-business loan platform, is a good example. 

  • Offer the banking “OS” of the future. Provide a reliable, trustworthy, plug-and-play platform or “operating system” that enables partners to co-build, innovate and deliver consumable financial services. The construct is akin to Android or Apple iOS operating systems, which are crucial to device usage but do not provide or cater to every app or service to fulfill user needs. By leveraging a layer of universal APIs to collaborate with fintech and nonbank ecosystems, banks can become a vital player by availing a licensed, regulated platform that services can be plugged into. Fidor Bank, for example, has leapfrogged its peers by putting digital technologies at the core of its banking ecosystem. 

  • Reemphasize slow money as fast money is commoditized. To thwart disintermediation in the growing fast-money segments largely served by fintechs, banks should focus on maximizing slow-money segments such as capital/asset management, investor portfolio management and other areas where they still have a historical advantage. Doing so might entail restructuring the business to enhance the slow-money focus on customer relationships, as well as partnering with the broader ecosystem for fast-money offerings to meet the digital consumer’s convenience needs. For more on this please read “How Financial Institutions can Capitalize on the Emotions of Money.”)

  • Own the customer experience and journey. Banks can remain at the forefront of the trust quotient by communicating more effectively and consistently through consumer touchpoints. That includes customer-facing applications, but also better API support to take banking services directly to customers, a la Mint. Simply put, many customers would rather entrust their business to well-established brands, an advantage that plays into banks’ favor and keep them a central part of the modern customer experience. 

  • Become the bank of the future. To do this, incumbent banks need to evolve through an API-led and open banking program to retain a central role in the democratized digital ecosystem. They must develop a holistic strategy that can help advance their partner ecosystem, determine the means to monetize, and deliver upon new millennial demands. Major banks worldwide have pursued this transformation by personalized customer interactions, facilitating instant services, evolving into a lean operator of digital services and creating a platform-based marketplace for products and services to drive new revenues. 

Figure 1

Looking Forward

Becoming a bank of the future will not be quick or easy. It calls for major transformation. It will require banks to externalize services and aggregate capabilities with new entrants. It will also require significant cultural change

Banks must begin now to identify capabilities that are ripe for open banking, identify business-driven use cases that justify externalization, develop the technology and operating model for implementation and, most importantly, select partners to collaboratively enrich the digital banking ecosystem.

Many traditional banks are well positioned to succeed in the digital banking future if they take the right actions now — and reestablish themselves as the most important piece of the financial services puzzle.

To learn more, read “Why Banks Must Become Smart Aggregators in the Financial Services Ecosystem,” visit the Banking & Financial Services section of our website, or contact us.

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Future Finance: Why Banks Must Become Money Orchestrators