Month: March 2019

Cocktail vs. Mocktail in Banking

Let me start with a disclaimer and a couple of definitions:

The disclaimer:

I am a tee-to-tal-er and by that definition I do not advocate consumption of alcohol in any form!

And now couple of definitions:

  • Mocktail:
    Cocktails are alcoholic drinks made by mixing alcoholic drinks with soft drinks, fruit juices or other alcohols. Mocktails are non-alcoholic drinks made by mixing different fruit juices, iced tea or soft drinks. Mocktails are so named because they mock the cocktails i.e. they look like cocktails but are non-alcoholic (source: https://www.quora.com/What-is-the-difference-between-a-mocktail-and-a-cocktail )
  • For the purpose of this blog, anything that is original is a cocktail and the one that is derived, or mocks or is a variant of the original is a mocktail. For e.g., physical store businesses: cocktail, eCommerce: mocktail!

Digitalization has touched almost every aspect of our life in some or the other way and we see a lot of innovation driven by digitization. But a quick look at it also reveals that most of the innovations actually mimic, mock or are derived from the already existing ways of doing things. They just elevate the same to next level.
Swiggy, zomato probably can trace their genesis to the unique dabbawala services of Mumbai.
eCommerce is the digital extension of what we saw in the form of super markets, departmental stores.
And now, digital only banks – they are bringing the eCommerce behavior on top of traditional banking experience to bring the best of both the worlds together.

Digital mocktail:
Mocktail provides a lot more variety and the possibility to customize and personalize at an affordable cost which roughly translates to what digital banking is doing now.
Digital banking thrives on technology to provide quite personalized banking experience stemming out of core banking services and thus is able to create variants swiftly and at a reasonable cost.

I tried understanding what I call the mocktail vs. cocktail phenomenon further, and what became increasingly clear to me is that due to the advent of mocktails and their acceptance, a new customer segment has emerged. What is also noteworthy is that mocktails can be consumed anywhere, anytime which makes it is a must-have at most places.
Similarly, in digital banking, cross-channel and multi-channel digital service appeal to the next generation of users and allow them to bank anytime, anywhere at their convenience.

Now let’s see this analogy from a different and interesting perspective.
We have seen that most places which are licensed to offer cocktail, do offer mocktails but the vice versa is not true. The former take pride in their core offering. Mocktails are offered as an add-on to prevent losing some of the customers who accompany the core customers!
Do I see such a mind set with some of the traditional banks, to an extent? The answer is yes, isn’t it?

Extending this further, some things just get better with time and so are some banks which have put in years of service to be known for their specialized and niche offering. This is where they probably command premium which basically means that it takes a while to build expertise and branding around it.

Platformification in banking allows new-gen banks to offer lots of variety, and at times they spread too thin to offer everything under the sun. This is probably where customers who look for specific and specialized skillset may not find what they are looking for.

Hence it is important for banks to identify their true strength, real needs of their customers and thus accordingly plan what they need to offer – a cocktail and a mocktail, only mocktail or a hybrid!

And whether cocktail or mocktail or both, what really matters for banks is to serve their customers with the best and provide value for money.

So what’s going to be your drink?

Platform and Hybrid Business Model: Future Game changers

Peter Drucker – “A business model is supposed to answer who your customer is, what value you can create/add for the customer and how you can do that at reasonable costs.”

Business model is the heart of a business strategy. Over a period of years, business models have evolved from simple product manufacturing and selling to complex online market places. With the advent of disruptive Fintech players, varying consumer behaviours and technology advances, we are on the verge of shifting from Traditional or Linear Business Models to Platform and Hybrid Business models. The latest additions like the UPI, IMPS payments in India and PSD2 (Payment service directive) to promote Open banking in Europe, clearly indicate that these new models entered banking industry although in a hushed form.

Traditional Business Model

The traditional model where a manufacturer creates the goods, owns and manages the supply chain, and sells the goods, is a very simple way to define the Linear business model. So the cost involved in manufacturing and other selling processes is owned by the company. Any additional revenues would mean additional efforts and additional resources. Anything which comes as an outcome from the company is licensed by it.

Drawing a parallel to banking industry, Banks have been selling their own products and services to the end customer. The scenario is now changing. As the market matured, more and more banks tried differentiating themselves and we have reached a stage where mere product variations may not help attract customers. At this juncture, the entry of FinTech players as well as successful platform players like Amazon, Google, Apple and Facebook, exposed a subtle but a profitable business model taking shape.

Platform Business Model

Platform business model tends to connect different parties who may or may not own any product themselves1. They facilitate building a network, riding on the existing connected technologies and the Internet. For instance, in the older traditional business model, if Company X wants to sell its good, it first invests in manufacturing the goods and then building an online site to put up the goods for the sale. However, in the Platform business model, Company Y just has to get the list of Company X goods on its website and all it needs to do is to acquire new users. This way the cost of building or acquiring companies can be avoided completely. This is the principle behind the 21st century successful players like Uber etc.

Hybrid business Model

Other successful players like Apple and Amazon have clubbed both linear and platform models and come up with Hybrid business models. In this model the company not only invests in its own products but also invest in building the connections. For instance, Apple has opened up and extended its ecosystem to other players through App store and hosted a number of other company apps developed using iOS version.

Drawing a parallel to banking, Banks can make the best of both the worlds by joining hands with other ecosystem players like Fintechs and other banks. The hybrid model, where banks not only provide their own products but should also be able to service their end customers with other banks / partner products, can be a game changer. Implementing Open API and being a part of UPI payments model are a replica of the new business models.

Why is it a game changer?

  • Collaborations among multiple players will help in spreading the risk and costs. It helps in taking advantage of each other’s strengths.
  • Mere participation in the Open banking model could mean the ability to leverage a large ecosystem of other existing players such as Amazon, Alipay etc.
  • There are new sources of revenue due to exposing services to third parties. The revenues flow by way of partner revenue sharing, pay for use, one-time fee, recurring fees etc.
  • Additional benefits can be realized through increased lead generation and better service augmentation that ultimately benefits the bank.
  • Customers can choose from products offered across banks. They can also view at one place, a single financial portfolio irrespective of the servicing bank.

Word of caution:

  • There can be security risks when banks open up the services to different players. This can be mitigated by appropriate Firewall and access control measures, clubbed with stringent regulatory guidelines.
  • The major challenge to implement platform and hybrid business models will come in from the inherent company culture and leadership. Technology might be an enabler but the legacy cultural transformation has to be appropriately dealt with.

References:

Cloud native vs. Cloud agnostic – What’s the conundrum behind the hype

Speed seems to be the imperative behind digital. We can see huge, successful solution providers moving from rigid monolithic structures to loosely coupled service based architectures. Cloud based solutions together with API-based communication and container-centric applications seem to have helped in this shift. And they have surpassed the initial hiccups. For some time, cloud providers, especially the most famous ones such as Amazon, Microsoft Azure and Google Cloud, have driven business processes globally. As the technology continues to mature, the company’s business processes are now questioning which cloud platform is more efficient, what could be easily maintainable, which option is potentially more beneficial in the long term. At this juncture comes the debate: cloud native vs cloud agnostic. This is the point where companies decide whether to stick to one vendor or to be omni-present on all clouds.

Cloud Native: See the power of sticking to one provider

When a beginner like me tries finding the meaning of cloud nativity I get tons of different answers and end up as confused as I was when I started the process. Cloud platforms require applications to run in a distributed nature with systems that are scalable, automatic and fault tolerant, but is that it? Or is there something more to it? According to a leading author on the topic,1 being cloud native is to surrender yourself to a platform and build for it. This means your application takes advantage of the strengths of the underlying platform instead of trying to be present in all clouds.

Pros: Cloud native services have better performance, better efficiency and lower costs. One can inherently use auto scaling and load balancing features of cloud offerings by providers such as Amazon, and Google.

Cons: Cloud native would mean we end up using native APIs, but when a client has to move to a different cloud provider, it can involve a lot of code rewriting. Moreover, if the cloud provider changes the services during upgrades, the application will also have to react accordingly and this can be both time consuming and costly. So does being cloud native efficiently solve your business objective?

Cloud Agnostic: Free yourself from vendor lock-in

Agnostic in the IT context would mean to be interoperable and it can refer to either software, hardware or even business practices. Thinking on the same lines, cloud agnostic means moving from one cloud to another without much impact to the IT systems and business processes. To put it in mere technical terms, each of the cloud services say the infrastructure, platform and software, could be taken from different service providers and yet must not have impact the services provided. So in a way the data should be portable and the applications should be platform agnostic. Containerization2 helps in being cloud-agnostic, it enables building the platform within the container and the applications can be run anywhere.

Pros: For clients working on multiple clouds, cloud agnostic service platforms will provide the required consistent and standard performance in every environment.

Cons: However, hopping between cloud providers will come with its own cost and complexities. It could mean the client is not using the complete capabilities of one vendor. Performance can also take a hit due to internal design differences of each vendor. Moreover, logging and monitoring is really difficult with multiple cloud providers. They may not really provide a way to maintain and aggregate logs across platforms. So is being cloud agnostic worth the costs associated with it?

Let Business make a choice

  • While portability is clearly an issue with being cloud native, the rest of the benefits definitely tempt the clients to go ahead. If we want our developers to focus completely on building great application features rather than being bogged down by underlying platform tools and infrastructure hassles, then cloud nativity is the answer.
  • The decision to go cloud agnostic needs to be more organization-driven. It involves some questions which the leadership needs to answer like: Do we hire outside developers? Do the apps the company builds need to undergo major changes as we deploy them across the globe? Do we need to upgrade versions frequently? Does the business process change drastically across the globe? Is the problem being addressed a short term problem or does it have long term repercussions? Being cloud agnostic is mostly preferred when application features are likely to undergo faster changes but in smaller chunks. Moreover, for clients with geographically dispersed sustainable operations being cloud agnostic is the way to go.
  • Ultimately the decision to build for a specific cloud platform or remain cloud-agnostic depends on the application and the constraints of budget, time, etc. Considering the life-expectancy of a software, the requirement for modularity and standards-based architecture design, it’s best left to the business and its process teams.

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