The main reason banks were created is very simple: the formal loaning of money from an organisation that has money to an organisation or individual that does not. Despite the initial concept being simple, today things have become more complicated with the birth of the internet and rise of digital communications and services as well as big data. This has resulted in big bulky banks struggling to keep up and facing increasing competition from nimble fintechs. Consequently, it’s vital these enterprises act now by focusing on digitally transforming their IT departments to remain relevant.

However, banking transformation – in fact, transformation in any large enterprise organisation – requires strong will and support for change all the way through the business. This is why so many fail - the will to support change does not exist from top to bottom. However, now is the time for the c-level to act by making tough but right decisions or become obsolete to these two future banking models:

Vertically integrated businesses will take over banking

Existing business models will change, companies (e.g Apple) customers use extensively today will move to own more and more of the customer experience (an example of the vertically integrated business model, where the whole supply chain is owned by a single vendor). The question of an Apple or AWS bank (and likely Google to as they move to a vertically integrated business model), is almost a distraction, it's about creating the single seamless experience that is based on as gathering information about you, your life, how you interact with product, what your spend profile is, that drives the new business model.

Systems will likely move to predicting what we buy next, and that can include big expenditures. When searching for a house, we should not have to filter results manually, we should be only shown what we can afford. When we go to the supermarket, all the food we need should just be ready to pick up, we should not have to walk round the supermarket, people have patterns that they modify very rarely. The wealth of information known about you means essentially nothing we do is unpredictable, organisation are already using customer specific machine learning algorithms to understand buying behaviour and reflecting that back into marketplace upselling.

Vertical integration with a single provider is common solution we have seen across multiple markets and has been a very successful approach. This is why it is inevitable that Google, Apple or AWS will provide banking services.

A banking marketplace

The secondary model is that which the ideals of open banking is trying to achieve. Provide services where vendors can interact with banks, through API driven capabilities, allowing a marketplace to exist where customers can go and pick and choose individual finance services they would like to sign up to, similar to an app marketplace today, like smorgasbord to choose from. The centralised data model becomes more complex here, because of the distributed approach to consuming services, day to day banking with one provider, credit card with another, personal loan and others.

A marketplace model will allow the customer, and businesses – because it will apply to both – to switch loans at will, or credit cards with minimal interaction, through the click of a button. Or the they will be able to outsource this thinking to a machine learning-driven third party system, that is able to overlay and integrate with these providers, shunting data between them as a different offering is selected on your behalf.

The bank of the future is likely going to be an organisation that you already interact with, or an over the top service which is abstracted from you. The likelihood is the majority of that interaction will not be direct, it will be indirect through a management system, think Google, Siri or Lexa on steroids. Individuals and businesses will be able to move services in seconds based on discretion. You will only ever be able to view and buy products that you can afford, due to this deep linking between finance and spend. Keeping customers will require constantly refining offers for customers as systems will always be able to keep up with any new deals.

All of this should result in much more power being in the hands of the customer, is that really a bad thing?



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Andrew Brydon

VP of Consulting - APAC

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