Economics of the business ecosystem will come into play
“If banks can’t offer something more valuable than Amazon Prime, then we’re probably in the wrong business” – Bradley Leimer, Head of Innovation, Santander North America, “Empowering Lifelong Customer Relationships in a Digital World”, Money Summit, 2016
2016 saw the rise of the collaborative ecosystem as the new universal banking model, a consequence of distribution, decentralization and disintermediation brought about by digitization. We predicted that truly digital banking would resemble the digital models of highly successful platform businesses – think Uber and AirBnB. IDC says that by 2018, more than 50 percent of enterprises will create and/or partner with industry cloud platforms to distribute their own innovations or source them from others. Clearly, platform ecosystems are opening up new avenues of growth for enterprises.
2017 will bring the ecosystem into sharper focus. Each bank will need to articulate its ecosystem strategy in terms of the ecosystems it would like to participate in, and those it intends to create or lead. The first decision is relatively straightforward, calling upon the bank to identify the national, regional and global ecosystems that it would like to be part of. Being part of a strong national or regional ecosystem will help banks expand reach and penetration in local and nearby markets. This is the reason why ICICI Bank has tied up with Alibaba.com to launch a one-stop destination for trade finance for India’s small and medium enterprises. On the other hand, global ecosystems, such as those led by Google and Uber, allow access to almost unlimited customer data and insight that no bank can afford to stay away from.
The second decision – what kind of ecosystem to build or nurture – is much more nuanced. Here, banks should be looking at specific objectives considering their strengths, such as facilitating trade between customers. Deutsche Bank’s hub, where SME customers can gather to share, trade and engage, is a good example of this. Another example is a recent pilot Blockchain network for trade finance and international remittances set up by Emirates NBD and ICICI Bank, that will open up to other banks in the future.
But beyond this, banks also have to attain clarity on a fundamental question, which is linked to customer ownership. They have to choose between fighting for ownership of the ecosystem’s customer data and the customers’ share of wallet. Data shows that a minority of customers contributes the majority of profit. Hence not all ecosystems do equally well and this also determines the fate of their members. So each participant must do what it can to make sure the ecosystem profits as a whole and the share of wallet grows accordingly. The key point is that in 2017, economics must underpin a bank’s ecosystem strategy as much as other considerations.