The new decade calls for a renewed outlook to building economic moats

There was once a time in the banking industry when ‘product and pricing innovation’ were the popular means of differentiation. After a time, when most of the banks adopted the product and pricing flexibility, the innovative banks looked to technology investments to drive efficiency and growth. Today, the banking sector in most of the countries is competitive and challenging. The product, pricing and efficiency have become table-stakes, and no longer adequate to assert a competitive edge among the peers.

The neo-normal for the banks is to champion the trifecta of Customer Experience (CX), Omnichannel engagement and a Platform business model.

However, succeeding in either of these, or all these endeavors entails great benefits.

A few studies across the world have been able to quantify their ROI.

An interesting observation is that, technology has a vital role to play in building each one of these economic moats – CX, multi-channel integration and platform business models. Banks recognize the role of technology in amplifying the effectiveness of their business transformation initiatives. In fact, they are extremely diligent in their approach to evaluate and adopt select applications to their tech stack.

This past year, as a representative of one of the world’s leading Banking Software solutions provider, I have had the privilege of interacting with many senior banking professionals and analyzing dozens of Request for Proposals (RFPs) for technology adoption. My collective experience hints at three distinctive shifts in the way, banks explore and adopt technology today.

1. A collaborative and explorative engagement

There is a shift from banks telling technology providers ‘these are our technical requirements’, to now asking them ‘how can we achieve these outcomes using technology’. The banks are no longer rigid about their business plans and technological roadmap. I see a collaborative exploration of the possibilities between the banks and technology providers. The solution-evaluation discussions too are centered around business outcomes than technical specifications.

2. The risks and cost of exploration are now mainstream

Today, banks are even more consciously handpicking the ‘best parts’ from several whole solutions and building their unique moat. The progressive banks go even further to experiment/explore new propositions involving niche technologies such as, Augmented Reality, Artificial Intelligence, and Computer Vision. The banks understand the cost involving these experiential propositions. But the banks have come to accept the cost of these explorations as necessary and worthwhile.

3. Blurring lines between banking needs and lifestyle needs

As progressive banks pursue their ‘platform business model’ ambitions, the demarcation between lifestyle and banking needs are merging fast. Ex: The bank’s app needs a chat/message feature just as bad as Whatsapp needs payment workflow. These emerging trends are forcing banks to upgrade their existing tech-stack to be amenable for multiple point-solutions and 3rd party integrations.

These may be indicative trends. But are consistent steps towards championing the trifecta of Customer Experience (CX), Omnichannel engagement and a Platform business model.

Do you agree?

What are some of the other ways that banks are building competitive advantage?