Business model innovation: The big move towards open banking
As found in last year’s retail bank innovation report, financial institutions are increasingly looking to move to more of an open banking business model, re-prioritizing investment strategies and building third-party partnerships that will drive innovation and customer experiences in the future.
As found in last year’s retail bank innovation report, financial institutions are increasingly looking to move to more of an open banking business model, re-prioritizing investment strategies and building third-party partnerships that will drive innovation and customer experiences in the future.
The move away from being a universal player — building digital relationships with all customer segments — is gaining momentum, with the use of application programming interfaces (APIs) now seen as a secure and standardized method to provide consumers more control over how their data is used.
While 60% of organizations considered themselves a ‘universal player’ today, with only 8% saying their business model was being an open banking player, more than 25% of organizations see themselves having an open banking model in 2030. Most of this shift is away from being a universal player — disrupting traditional banking business models forever.
Banks and credit unions are challenged to satisfy consumers with the traditional services they have used for decades, while also delivering the latest offerings that a growing portion of consumers desire. More than ever, consumers are willing to take their business to other financial institutions to find innovative products and services, with more consumers willing to use new financial services partners to get what they want.
A financial institution’s leadership has a direct impact on the ability to create innovation and the success of innovations already undertaken. This includes both the top leadership of an organization as well as those in a lower supervisory position. A culture that encourages new ideas and a challenger mindset is now essential.
Better utilization of data allows banks and credit unions to offer a more personalized and differentiated user experience — and a better UX keeps customers more engaged. Every interaction provides valuable data, which then helps inform how a financial institution can better personalize the experience and drive engagement.
Bottom line, the entire future of innovation in banking hinges on the availability, democratization and deployment of data and solutions.
Rethinking existing business models
The primary obstacle faced by banking executives today is keeping up with the pace of change in order to maintain relevance and stay ahead of agile competitors. To achieve success, banks must overhaul their traditional business models, which necessitates updating their technological infrastructure and prioritizing transformative initiatives that enable them to compete in the realm of “new-age banking,” which includes digital-first, embedded finance, marketplace banking, BaaS, and other related fields.
It is crucial that each bank determines and matures its path for restructuring its business models based on the unique needs of its specific circumstances. This entails re-imagining customer engagement, operations, and transformational approaches accordingly.
It is clear prioritizing the customer experience will be at the foundation of the evolution of business models going forward. Banking institutions will focus on improving the customer experience by offering personalized services, improving the value proposition, simplifying the distribution channels, and using technology to make banking more convenient and efficient.
Overall, the key to successfully rethinking a banking business model will be to stay attuned to the changing needs and preferences of customers, and to be open to exploring new opportunities and technologies that can help the business stay competitive and relevant at a time of ongoing change.
As financial institutions prioritize digital transformation initiatives, they must take into account the integration of the following megatrends:
1. The growing importance of mobile devices and the increasing adoption of e-commerce.
2. The importance and impact of social media in marketing and customer engagement.
3. The threat of cybercrime and the importance of cybersecurity.
4. The benefits of big data, artificial intelligence (AI) and machine learning, and the value of the democratization of insights.
5. The potential of cloud computing to improve speed, scalability and efficiency.
6. The changing nature of work, both on employees and customers.
7. The future of emerging technologies such as the internet of things, virtual and augmented reality, Web3 and the vision of the metaverse.
This article is an extract from the Innovation in Retail Banking Report 2023. Download your free copy
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