The future of banking is differentiated. Banking services today are not only delivered by or through traditional banks, but also and increasingly by Fintechs, Bigtechs, mobility services providers and many other types of players. Most of them expand their original value proposition to include banking services. Is this threatening to today's banks? Perhaps. However, for the Connected bank this development opens up just as many perspectives: after all, they possess the much-needed services in abundance.
The digital platform business model is on - what seems to be - an unstoppable rise. There is enormous potential in linking multiple producers and service providers to consumers in a smart way, via an online market. Large parties are already proving this, but also on a smaller scale examples are popping up everywhere.
Increasingly, these companies are also integrating banking services and products into their platforms. For example, bol.com struck a partnership with Floryn, a provider of business credit that enables sellers on bol.com to obtain credit for which the limit grows with the growth in revenue. Uber, meanwhile, has expanded to include Uber Wallet and Uber Money, for payments and other financial products. And yet another example is Adyen, that recently announced to provide banking services to platforms, amongst which a clever credit provisioning solution directed at the sellers on marketplace platforms.
This trend is said to threaten the position of traditional banks. Who needs a separate counter for payments, savings or loans, when all your favorite brands - big or small - seamlessly integrate these services in their value proposition?
In our view, this is only partially true. It is true that these platforms are taking over parts of the distribution of banking services, and it is also true that customer expectations are only going to get higher because of these digital platforms. This is because they are able to seamlessly integrate the various components of their services into a wider customer journey in a (digital) place where customers are as their needs are being fulfilled in that place. However, it is not true that this necessarily undermines the position of banks. Depending on the strategic choices a bank makes in these changed circumstances, we would even say: this development can strengthen a bank's position.
The crux of that strategic choice is to strive to become a Connected bank. Connected is KPMG's approach to digital transformation. At its core are eight capabilities that a bank must invest in to prove their added value in the digital age. Of course, it is important to first determine what the bank is already strong in, where and with what it distinguishes itself and especially: what the bank wants to be for its customers.
Subsequently, there are four possible profiles to choose from, that of Allrounder, Front-Office Champion, Back-Office Champion and Functional Specialist.
The profiles of the Allrounder and the Front-Office Champion are clarified in the blog Dutch banks and the need for distinction. Back-office Champions focus on the production of financial services. Functional Specialists on the other hand deliver building blocks like KYC, financial market infrastructure connectivity or e-Identity services.
It is the latter two profiles that are explicitly linked to the emergence of digital platform business models. This is often referred to as Banking as a Service or Embedded Finance. Indeed, banks that focus on these profiles are strong in exactly the functionalities that the abovementioned platforms require. The back-office champion holds the risk of the financial products on her balance sheet, but is not directly visible and involved in the customer relationship. It utilises its regulatory license as an asset. Banking products and services like lending are distributed through the already mentioned platforms. The Functional Specialist focuses on very specific services and products, for instance connectivity to financial market infrastructure, KYC and e-Identity services. These services and products are then offered separately to digital platforms.
In other words, digitization gives banks plenty of opportunities. However, to benefit from this, they must be able to strongly question their current business model and accept the consequences. It's also about daring to invest in the capabilities needed to realize the chosen route. The profiles just mentioned, for example, require different qualities when it comes to experience-centricity by design. After all, it is not the customers that the bank needs to focus on, but (the developers of) the platforms. They must be at the heart of the customer experience that the bank offers. Also, a lot is asked of the digitally enabled architecture of the bank (focus is the development of APIs) and of the bank's ability to choose the right partners and to build and maintain ecosystems.
With our Connected approach, KPMG helps banks in this process. The approach is based on banks investing in the right capabilities, following well-considered strategic choices. The Connected bank will no longer have any reason to feel threatened in its digital future.
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