Monetizing Banking Ecosystems
A comprehensive ecosystem of partners is no longer the monopoly of technology companies. Today almost all industries across the world including banking are considering the ecosystem model to contend with increasing disruption and competition. Even the traditional banking sector now realizes that a robust ecosystem can help them accelerate innovation, offer hyper-personalized customer-centric service and new customer propositions to ensure better returns on investment.
Banking Ecosystems are the Future for the Sector
New regulatory frameworks like open banking and PSD2 have opened new possibilities for the banking sector and are driving a fundamental rethink of business models. Given the rich customer data that most banks have, and the deep customer trust they still enjoy, the ecosystem model is an attractive play for banks. A banking ecosystem is built with the customer at its center and it offers a broad range of financial and non-financial services and products in a single integrated platform that ensures a superior customer experience and reduces the amount of time spent on accessing multiple products at various locations. Banking ecosystems are already a successful reality in some parts of the world. For example, in Canada, RBC introduced Ownr – an online platform that married cutting edge technology with best-in-class support and resources to simplify the process of starting a business. It aimed to help entrepreneurs in areas like incorporation, brand building, marketing, website building and management, sales and more. In 2020 they acquired Founded Technologies and added entity management and affordable legal tools to their portfolio. Ownr has helped over 55000 Canadians launch their dream business ventures since its launch in 2017.
The Emerging API Economy
Banking ecosystems are evidently the way forward for the sector. But when exploring this business model, banks must remember that they are not owners of the ecosystem but key participants and orchestrators. Most importantly, customer data will not remain their exclusive asset and all partners must have equal access to it to deliver the most relevant customer experience. A banking ecosystem is based on extensive use of APIs. This requires banks to share data and services with customers, and partners. And third-party APIs and partner APIs must be integrated into the platform to ensure a seamless customer experience. APIs are key to adding new revenue streams, gain access to better and expanded customer data, accelerate innovation, and identify new distribution channels. Partners must share technologies and inputs to open new markets and creative business models. Many banks like Citibank are already working with Google to offer checking and savings accounts to Google Pay users. This allows the bank to deliver their products and services via Google’s platform.
Banks must focus on deploying effective productized API strategies that can deliver on their need for speed and agility as well as ensure security. The API integration should follow a plug and play model that is secure, has governance measures in place and that can be self-serviceable. Effective API strategies can help banks become orchestrators of a successful ecosystem and own customer relationships, engage with different partners, and connect customers to services they need. APIs can help them implement banking-as-a-service and banking-as-a-platform models to expand their business roadmaps.
Ensuring Effective Monetization
Setting up an ecosystem is only half the job, monetizing and making it sustainable is the key to long term success. Banks must establish efficient revenue collection mechanisms every time they are involved in customer or partner usage of the ecosystem. This could be in the form of commissions, royalties, license fees for usage, or revenue sharing on products or services sold. Banks can also consider charging customers for using the platform, but they must exercise caution when deciding the rates and balance they need for profitability against deepening partner and customer commitment and engagement. Monetizing at different levels with smaller fees will help keep customers and partners satisfied.
Pricing design must focus on growing not just profits and revenues but also expanding the ecosystem. Large contributors as well as those who derive less value from the ecosystem while playing useful roles must be equally encouraged. For example, Alibaba allows smaller sellers to join its B2C site, Taobao, for free while large fees are charged upfront from big retailers for its high end Tmall platforms. Banks must remember that the most successful ecosystems are based on mutually beneficial partnerships, and these hold the key to new monetization opportunities as well. Providing data-based insights to partners to help optimize their offerings and personalize their products is a way of data monetization banks could pursue.
Moving to an ecosystem-based operating model is no longer an option but a critical strategy for growth in a highly competitive market. As the lines demarcating different industries become increasingly blurred, banking ecosystems present a unique opportunity for symbiotic business development. Banks still enjoy significant customer trust and hold large repositories of customer data that will be invaluable in this new economy. Combined with the technology prowess of their partners, they can offer a new level of customer experience with hyper-personalized offerings. At this juncture, banks have their work cut out for them. They must identify the right partners and come up with a strategy that works for them to build the most effective ecosystem.