The next frontier for banks is the digital marketplace
Banks want to capitalize on their data to bring new offerings to their clients.
When mobile banking started to take over the financial services world, there was a race to develop the best banking app. A slick, responsive app would be an advantage in a world full of competing digital experiences. This line of thinking led to the creation of digital-only banks all over the world. These challenger banks, along with so many fintechs, have pushed traditional financial institutions to invest major resources in their digital offerings. These efforts have led to vastly better digital experiences, no matter your bank. Now, not every banking app is equally user-friendly, but the majority of banks have been able to nail down the fundamentals of usability and functionality.
With the basics dealt with, banks aren’t settling for an app that tells you how much (or how little) you have in your account. They are thinking bigger. From Thailand to Canada, financial institutions are turning their sights to the marketplace. In a bygone era, banks could confidently rely on foot traffic at their branches. Branch usage meant face-to-face interactions that could lead to cross-selling products and introducing customers to promotions. That is no longer the case. Especially in a world where Covid-19 is still prevalent, the first place people turn for their financial needs is their phone. Banks are in the process of tweaking their business models to adjust to this reality.
In working on an upcoming Efma report, I have spent a lot of time speaking with digital executives from Canadian banks. Without fail, the word “engagement” has been the most commonly cited metric they are all seeking to generate with their digital efforts. In a world with nonstop competition for attention, banking executives want their digital offerings to compete with the biggest technology companies for the attention and money of users. “We have absolutely found that the more engaged and the more digital channels in which a client engages with the bank, the higher the retention and loyalty,” said Chris Turchansky, Chief Experience Officer at ATB in Canada.
As with so many trends in our modern world, Silicon Valley and its approach has inspired the new focus on marketplaces. Tech companies are in the data business: accumulating it, analyzing it, and selling it. Artificial intelligence and big data may be overused words, but when it comes to building a marketplace, they are integral elements. Banks are sitting on a trove of transaction data. If they intimately understand how their customers spend their money, they can surely display relevant products right within their app.
Will banks be able to create marketplaces to rival Amazon? It’s not likely. But I have written previously about efforts to create a super app. Banks have differing degrees of ambition. Some, like Tinkoff in Russia, have set out to explicitly build a super app, with an ecosystem full of lifestyle services, eliminating the need for any another apps. Others have more modest ambitions, with limited offerings of occasional discounts with partner companies.
In Germany, N26, the most valuable fintech in the country, is ready to move beyond its origins as a digital-only bank. In December, their CEO said “Next year we are building a marketplace with which we want to bind many of the German start-ups that are launching great products to a platform.” This is an ambitious approach. As they have accumulated so many users, they believe they can now become a central platform, linking together other start-ups and potential customers. If successful, it could serve as a new template for others going forward, showing how banks can move far afield from their deposit holding role of years past, and into the technology platform arena.
Underpinning any ecosystem strategy is the necessity of partnerships. Banks don’t sell train tickets themselves, so they bring in a third party to handle that type of transaction. It would be fascinating to dive into the details of these partnerships: How are fees paid? Is it per transaction? Are there additional benefits for significantly increased traffic to an external service? However they are formed, third party companies are essential to building out an ecosystem of products and services.
What might prove a stumbling block on the path to marketplace adoption is the mentality of customers. It is simplistic to say, but at the moment, most of us think of our bank as primarily performing bank functions. If I need to send money to someone or obtain a loan, obviously I would use my banking app. But when I want to shop for new shoes or buy a plane ticket, my banking app doesn’t immediately spring to mind. Will customers change how they view their banks, making it the first place they look when they are shopping? Banks are betting that if they build it, customers will come.
In a world where everyone is competing for the attention of consumers and traditional revenue streams are drying up, adding capabilities and building out marketplaces might be a smart path forward. But banks need to convince people they are viable platforms. The bank-as-a-marketplace (or bank-as-a-platform) movement has arrived. Whether banks dramatically expand their role in our digital society is an open question.
If you want to read more about a top-notch digital marketplace, be sure to pre-order our upcoming Champions Series report on Kasikorn Bank, who has built a market-leading ecosystem in Thailand.