According to Sopra Banking Software’s Dr David Andrieux, as online marketplaces become mainstream, the banks set to profit most from their introduction will be those with not just the right technology in place – but the right approach, too.
Online marketplaces hold public sales to match supply and demand, as you may know. But why are we starting to talk about them in the context of retail banking?
The reason is that in a short time, instead of customers visiting multiple financial providers to review their wares, the providers themselves will court them directly with their offerings, presenting them in an open forum where customers can review and compare them directly against each other.
So while marketplaces are a familiar business model in hospitality and the airline industry, where they are seen as making the interaction of customers and the supplier community more efficient, you can expect them to soon spread into the banking sector.
Why? Customer convenience. Consider applying for a loan. Most people have no particular loyalty to a particular banking institution; they are looking for the quickest, easiest way to secure credit, at the lowest interest rate available from Your Bank, Their Bank or the Non-Traditional Contender.
A marketplace gives customers just such purchasing power. Soon, digital-savvy customers will be looking to these new financial services marketplaces. They’ll start off niche and limited to specialist services; however, once the concept gains in popularity, fully-fledged ‘marketplace banks’ will start to become established.
This will result in new forms of both online and real-time competition. So you might have a process in which the conditions offered are non-negotiable, but you could also have a competitive bidding process to get the best offer for each client at any point in time. In any case, competition for customers is likely to have a very different face than the way it is today.
Biggest shake up since the cashpoint?
And such banks will offer a compelling set of elements: a core banking platform built from ground up, an API layer to connect to third parties, a compliance infrastructure and processes, and the ability to hold client funds without restrictions, plus a customer support team.
That’s going to make them very credible. These marketplace banks may well in their first manifestation only generate some minimal core retail banking products (e.g. limited current accounts, debit and credit cards, perhaps digital wallets), and have to rely for all their other products and services (loans, insurance, etc.) on third parties – including traditional banks, financial institutions and fintech players. This is a positive, since it allows these banks to best mix and match customer needs with products they don’t have to own and build themselves. It is a dynamic new way to meet customer needs – and a promising new business model.
In this new landscape, all banking products will need to become a lot simpler, more modular, and transparent. That’s because today’s e-enabled customer is looking for products they understand, that they can buy without worrying about the small print, and which they can change easily (and without penalty) as their personal situation evolves – which will drive change.
New entrants will come in to the sector, jumping off a simple mix of an access fee to the marketplace bank and a revenue sharing model with third parties providing additional services. Without a doubt, from the get-go, non-traditional competitors are going to be part of this new landscape – with fintech start-ups like Lending Circle set to feature large, making the battle for new business even more competitive than it is now.
Let’s get real-time
Banks won’t rush in here. Philippe Gelis, co-founder and CEO of Forex online marketplace Kantox, has gone so far to claim that the first true marketplace bank will be launched by a fintech firm, arguing, “It is too disruptive and the risk of cannibalisation is too high to see a bank assuming the risk.”
So banks won’t lead the charge – but they can’t afford to be too far behind. In any case, to succeed in this new world, any and all players need to be agile and well-resourced, both technology and data-wise. Automated bid management including risk management capabilities is a requirement; another basic requirement will be next-generation credit models to isolate who are the most profitable customers, in the near and longer term, as well as establish potential exposure. Decisions will need to be made in real time as to whether your bank will bid for a specific customer’s business, so you need a real-time capability; without it, you are simply going to lose the sale.
Without question, in this brave new world of increased competition and increased consumer power, the ability to discern more about your potential customer and instantly, drawing on all available data and in real-time for risk management and assessment is critical. And in order to achieve this digital transition, you need to take steps now to build robust technical foundations and strategies for business growth. Minimally a powerful online Marketing and CRM suite based on advanced analytics and with deep Big Data capability leveraging existing and newly available customer data is probably going to be the entry requirement.
Get ready for this next digital service challenge – or watch as your non-traditional competitors swoop in and own the Marketplace landscape of tomorrow before you’ve even mobilised. It is that serious a threat.
Find out more by downloading a special Sopra whitepaper, Banking in The Digital Age here