Hyundai recently launched an in-car payment system that allows drivers in the USA to find and pay for items using their car’s touchscreen with securely stored credit card information.1 In Germany, Mercedez Benz partnered with Mastercard to offer embedded in-car payment options. Customers can use a fingerprint sensor in the vehicle to make secure digital payments at more than 3,600 service stations in the country.2
Just a decade ago, such in- car payment options would have been considered fit for a science fiction movie. Today this is a reality. In fact, customers have now come to expect such embedded services options from their financial services providers. Convenient, personalized and on-demand is how customers want their financial services today. Banks that fail to transform and deliver customer centric, personalized, innovative, and on-demand services will not be able to ride out the wave of disruption facing the sector today. Banking margins have decreased by 25 percent in the last fifteen years and is expected to reduce further by 20-30 percent over the next decade.3 Fintechs and tech giants are making deeper inroads into the sector and increasingly adopting cross-industry models to deliver a comprehensive and customized customer experience. And modern customers are not hesitant to switch loyalties if it means their needs are being met. Traditional banks must evolve to keep up with these changes.
This is an era of hyperconvergence and collaboration where disparate industries come together to address customer needs. Platforms or ecosystems that bring together different products and services hold significant potential. Not only do they meet customer demand for convenient, secure, and personalized services, but they also open opportunities for entering new markets, creating innovative offerings, and accelerating the pace of customer acquisition. Fintechs and tech giants are already embedding payments and financial services into a wide range of ecosystem offerings, as evidenced by the announcements made by Hyundai and Mercedez Benz.
Traditional banks too are getting into the banking ecosystem play. Barclays Bank, for example, has partnered with TransferMate to ensure easy payment and collection of fees for overseas students engaged in higher education in the UK.4 HSBC partnered with NepFin, an online commercial lending platform, to provide growth capital and global services to mid-sized U.S. companies.5 But these constitute only 27 percent of the world’s leading organizations that are leveraging ecosystems meaningfully.6 52 percent are still experimenting or just getting started on their ecosystem journeys, and 21 percent have not moved beyond small pilot projects. The future of banking will be all about value creation and ecosystems will play a critical role. In the long run, the banks that adapt, adopt, create, and orchestrate financial ecosystems will thrive and grow.
The shift to ecosystem models of banking is inevitable. They hold tremendous potential for further innovation and deeper engagement with customers. Banks can truly leverage ecosystems to drive adoption of different services and tap into newer customer segments with a robust ecosystem in play. For example, they can work with car manufacturers to offer in-car insurance services – car insurance, travel insurance and more. They can offer in-car loan repayment options where the car owner can be reminded of upcoming payment dates with the option of making the payment from the car dashboard itself. The possibilities are endless, and traditional banks must accelerate their ecosystem transformation to future proof their revenue and profitability growth.
Abandoning decades of established business strategies can be daunting and is the primary reason why organizations have been slow to capitalize on the ecosystem opportunity. They lack the capacity to manage and monetize multi-partner networks and are afraid of the risks. But they don’t need to start from scratch when it comes to orchestrating ecosystems. Fintechs and tech giants are already in the game, and partnering with them can give traditional organizations the digital foundation they need. On their part, fintechs and tech giants can benefit from the data, reach, and customer trust that traditional banks still enjoy. Banks must of course, also modernize their technology infrastructure to keep up with the API economy that is the foundation of ecosystem banking. They can do so without touching their legacy cores by deploying a robust middle layer and revenue management solution that can sit atop their legacy core and ensure the scalability and agility that orchestrating multi-partner ecosystems require.
The banking sector is now at a crucial inflection point. They can choose to ignore changing customer expectations and the increasing competition from fintechs and tech giants. Or they can fundamentally transform the way they function to embed financial services into customers lives, the way they want. And to be honest, banks choosing to stick with the first option will not be able to withstand the disruption within the sector in the long run. Ecosystems are the future of the banking sector and traditional organizations must now focus on the best strategies to future-proof their business.
