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6. December 2017

Where does digital banking live?

Dynamics and strengths of digital eco-systems

In the world of internet digital eco-systems have formed: companies covering many different needs such as shopping, communication and payment. Networking, cooperation and synergies could become efficient strategies for banks on their way to digitisation.

From small beginnings to global players

They are household names all over the world: Apple, Google, Amazon and the Asian e-commerce giant Alibaba. Over just a few years, these companies have become worldwide leaders in the digital service sector. Their ascension is similar in at least three aspects:

  • They have developed a product meeting the needs and life-styles of great consumer and user groups. All companies became well-known brands very quickly.
  • They have expanded their range of services in a precise manner, thus ensuring customer loyalty. Apple went from computer manufacturer to media service provider, while Google started as a search engine and changed into a communications platform and a hardware supplier (Alexa, Google Home). And Amazon rose from an online bookstore to a leading media provider, even operating health food stores in the USA.
  • They have systemised all buying, ordering and payment processes, ensuring ease-of-use for the customer.

A significant part of their success can be chalked up to the fact that these companies have identified their customers’ needs at an early stage and met them with an array of innovations. Just as important, however, was creating customer loyalty – with free-of-charge services complementing each other. Experts are calling this digital eco-systems. And they are growing: Apple, for example, is currently rolling out its new digital pay service Apple Pay in many countries.

A new definition of eco-systems

These digital eco-systems are the modern-day version of a department store or a shopping mall at the city’s outskirts, offering everything you need in one location. Today, it’s called customer journey – manage everything on one journey, one internet visit. Customer satisfaction is an essential part in building a positive brand image.

This mechanism could offer some new perspectives for the finance sector. Today’s customers expect many services; preferably from one provider. The solution is synergy – which is attainable via cooperation. If a bank wants to secure or even expand its range of services in a cost-efficient manner, finding a partner can save a lot of time and money. Time, because the new partners’ services can be offered rather quickly. And money, because there are no high development costs. With both partners weighing in with their respective expertise, win-win deals are more than feasible.

Two examples illustrate this. Online bank Ing-Diba has entered a partnership with the fintech Scalable. While, of course, an online bank working digitally comes as no surprise, in this case Ing-Diba is using Scalable’s fully-developed technology instead of designing a new one. Customers are offered a new service at www.ing-diba.de and Ing-Diba participates in the fees. And since Scalable is gaining renown beyond their limited circle of clients, the growing publicity also helps Ing-Diba.

The Hamburg-based private bank M. M. Warburg is also entering unchartered digital territory by using robo-advisors as consultants, mainly with low-volume investments. However, a human financial expert, who can offer knowledge the developers of fintech solutions just do not have, is also employed, thus combining traditional expertise with state-of-the-art technology. Additionally the bank saves time on consulting and can tap new customers.

Strategies for the future

Alas rebuilding banks into digital eco-systems will not be enough to permanently satisfy all customers. Market studies show that especially in financial matters many clients prefer direct consultation.

This is actually one of the strengths of traditional banks when compared to fintechs. They possess a banking licence necessary for consultation. That’s why many fintechs are interested in cooperations – with a suitable partner they can enter business fields otherwise closed to them.

A future strategy could look like this: rebuilding banks into digitally-based platforms concerning all financial questions, where appropriate incorporating partners from the insurance sector. Once a multi-channel communication with customers is established, existing customers as well as new customers can be taken care of.

It will then become evident if such a digitally-based one-stop-shopping in financial matters is feasible. As long as the portfolio consists of advanced and competitive products and services, chances are it will.

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