There is distribution, decentralization and disintermediation of assets brought on by digitization in today’s world. This is the brave new world of the sharing economy, and businesses are partnering with other service providers to bring value to consumers in a scalable and flexible manner. When banking becomes truly digital, it will resemble the business models of today’s successful platform businesses like Alibaba, Uber, etc. There is no other industry that is as pervasive as the financial services sector when it comes to consumers; hence this makes a solid case for having a banking service option embedded in all applications.
There are platform businesses that have embraced the platform economy wholeheartedly – for example, Uber opened up its APIs to developers and since then it has been integrated into many popular apps with complementary services like Google maps, United Airlines, TripAdvisor. Uber currently as a valuation of $62.5B and this integration has enabled Uber to provide its customers with a convenient and differentiated experience. Banks will have to come around to this new business model of partnership and sharing and shed its traditional mentality of owning all assets. Taking part in the business ecosystem will take a two-part approach from banks – banks will have to first figure out which ecosystem they want to be a part of, and then the kind of ecosystem they want to build and support. While the first decision is fairly easy, the latter half requires a bit more thought from banks as they are looking to provide a platform to connect two parties to share value amongst themselves.
While this distributed ownership of assets to provide the best value to the consumer sounds like a great idea, banks will also have to keep an eye whether an ecosystem is turning a profit. Only a minority of the customers bring in a bigger part of the profits, which in turn means that not all ecosystems will be profitable. Banks will need to make economics the foundation of their ecosystem strategy to make sure that they thrive and flourish in the coming year.