SunTec

Building the Contextual, Pervasive Bank of the Future

By Binesh K, Strategy, CEO’s Office, SunTec Business Solutions
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Ikea recently acquired a 49 percent share in their long term banking partner Ikano Bank with the intent of offering consumer banking services online and within their stores.1  Ikea customers will find it easier to avail of loans and financial schemes as they shop. And for Ikano Bank this is an opportunity to connect with customers in a new way and explore new revenue models. Banks and banking are undergoing an incredible transformation. Today banking is all about the customer and providing an experience that is comprehensive, contextual, highly personalized, and intuitive. The future of banking lies in embedding itself into every aspect of the customer’s lifestyle and the Ikea-Ikano deal is the latest example of this deep transformation within the sector.

To be honest, at this juncture, the traditional banking sector has no alternative but to modernize their strategies and systems. On one hand Fintechs and technology giants have uberized the sector by offering customers on-demand, customized, easy to manage banking services. On the other, banking sector is increasingly impacted by macro environmental factors including stringent regulations and laws, and economic recessions. The ongoing pandemic has wreaked havoc on the banking sector as well. Traditional revenue models are failing, and banks are expected to lose between $1.5 trillion to $4.7 trillion in revenues between 2020 and 2024.2 Exploring new revenue models is the only way for traditional banks to continue growing their business.

New revenue models and long-term monetization strategies are critical for future growth and resilience. Merely adding partners to their existing ecosystem is not enough, banks must integrate financial services into diverse business frameworks. They must go where the customer is and explore new engagement models. The emergence of the PSD2 regulations and open banking norms will allow banks to leverage the new API economy. By allowing access to their APIs by third parties to build new apps and services, banks can not only deliver superlative customer experience but also build new revenue streams and grow their business. Open banking holds the key to strategic transformation of banking and profitability and is gaining traction with customers and banks. The number of open banking uses is likely to go up to 40 million by 2021, from 18 million in 2018.3

Two new open banking models are gaining popularity. The first is Banking-as-a-Platform where banks try to establish themselves as ecosystem orchestrators by bringing together third-party services onto their own channels. Here banks are a net consumer of APIs. The second is Banking-as-a-Service where banks embed their services into diverse businesses. This takes open banking to the next level by APIs to distribute their services to partner channels. For example, DBS Bank’s developer portal offers over 500 APIs and has helped the bank forge at least 400 new partnerships with brands ranging from AIG and McDonalds to Food Panda and SoCash.

To implement either of these models, banks must accelerate their digitalization journeys to integrate cutting edge technologies like AI, ML into their business. This is easier said than done as modernizing legacy cores is risky and expensive. But as banks embark on the open banking journey, they have the option of partnering with fintechs to provide them with the technology prowess they need. In return, fintechs will gain access the banks repository of customer data and be able to leverage the trust and reach that they enjoy. Banks can also deploy middleware on top of their cores to host and enable new technologies and manage the APIs needed for the open banking era.

Despite the transformation and disruption brought on by technology powered options, traditional banks still enjoy a significant degree of customer trust. They now have the opportunity to transform the way they operate and become all pervasive in the customer’s lifestyle. The time is now to work towards becoming the custodians of an ecosystem built around the customer and designed to operate in a seamless manner.

Binesh K

Binesh holds a management degree from IIM-L and has worked in Management Consulting, EdTech & Insurance sectors

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