The world’s largest transportation company owns no cars and employs no drivers. The world’s largest hotelier owns no properties or rooms. The world’s largest movie service owns no cinemas or multiplexes.
Digital distributes, decentralizes, and disintermediates. Digital banking will, in many ways, resemble the digital models described above. Success will not be defined by the ownership of the largest assets but rather by the ownership – and resolution – of customers’ most irksome problems while ensuring the richest experience.
Take Uber for example. Ever since the company opened up its API to developers a year ago, it has been integrated into many popular apps including adjacent services like Starbucks, Hyatt, United Airlines, and TripAdvisor. Recently, the company has launched a new offer that allows any developer to add an Uber button to their app with just a line of code. The company has pitched differentiation, experience, and additional revenue as the benefits of the partnership.
Quite incidentally, that is the all-important trifecta that banks are also aiming for with their digital banking investments and strategies.
Arguably, no other sector touches almost every aspect of a consumer’s life like the financial services industry does. If there has to be a case for a ‘button’ on every digital service, then it probably has to be a banking service button. And yet that is a possibility that can only be realized once banks get over the traditional, universal banking mindset of owning everything that’s required, to be relevant to everyone.
But all that is set to change thanks to the pace of the Fintech revolution and the rise of the API economy.
According to our recent EFMA-Infosys Finacle retail banking innovation report, many banks have already created their own accelerators and venture funds – to enable them to work more closely with Fintechs. Even though these startups are threatening to disrupt the incumbents’ traditional fiefdom, most banks still recognize the inherent potential in these partnerships to ramp up the quality and pace of innovation, and deliver a positive impact to enterprise performance.
In many ways this represents the first step towards reimagining the concept of universal banking. Not even the largest banks in the world can put together a portfolio of products and services, deliver them with the features and functionality, and enable the experience and engagement that can collectively be everything to everyone. Truly digital banks will increasingly rely on collaboration and coopetition, with financial and non-financial services, to create an aggregated ecosystem of products and services that are relevant to the customer. The focus will be on continually expanding this ecosystem by creating new interfaces that will help enhance the core functionality of existing services and extend their reach as well as enable the addition of new services and competencies. For instance, an API-driven collaboration strategy can enable a universal banking ecosystem to quickly capitalize on new technology opportunities, like wearables and IoT, and accelerate innovation at the edge of the enterprise. More importantly, it also gives banks the agility to move into new markets, and the flexibility to reach out to customer segments that were, until now, too expensive to serve.
And if for some reason, traditional banks choose to ignore the call for openness and collaboration, regulators will enforce it on them. The revised Payment Services Directives (PSD2) that compels banks to open up their payment APIs to other service providers may well be just one such indicator of a brand new collaborative future for banking.