Volume 5 (2020-21)

Each volume of Journal of Digital Banking consists of four 100-page issues. Articles scheduled to be published in Volume 5 are available to view on the 'Forthcoming content' page. The articles published in Volume 5 include:

Volume 5 Number 3

  • Editorial
    Simon Beckett, Publisher
  • Request to pay: Monetising the instant payments investment
    Erwin Kulk, Head of Service Development and Management, EBA Clearing

    For the past few years, payment service providers (PSPs) have come together in an attempt to harmonise European instant payments. At the back end, the effort undertaken to transform PSPs’ internal processes and the underlying payment infrastructures to transact in real time has been impressive; however, despite the significant costs associated with this back-end modernisation, pan-European front-end payment solutions capable of fully leveraging instant payments — and the accompanying investment — are yet to be realised. This paper proposes that the solution to this problem is implementing a request to pay messaging layer between existing end-user payment interfaces and PSPs’ SEPA Instant Credit Transfer (SCT Inst) settlement layer. This layer would be used for the secure exchange of messages before the payment is executed to facilitate pan-European request to pay type solutions. This approach promises not only to bring the full value of SCT Inst to consumers, promoting increased levels of certainty, transparency and convenience, but also empowers PSPs to monetise their instant payment investments by enabling them to offer integrated value-added services to their customers around the payment process. This is the missing piece of the puzzle for European payments, and its implementation should prove a crucial step towards attaining a ‘complete’ European payments ecosystem.
    Keywords: instant payments, request to pay, SEPA, R2P, four-corner model

  • The digital bank: Has it come of age?
    Faraaz Ali, Regional Head of Deposits and Secured Lending, DBS Bank

    Digital banking for incumbent banks can be challenging given the difficulties with organisational fit, cultural construct, people skills and legacy systems having to coexist with the new way of doing things. But it is also a tremendous opportunity to build a world-class digital experience and to take the bank’s reputation as a solid and trustworthy brick-and-mortar institution that will stand behind its digital transactions, especially in a world where physical interactions are severely impacted by the COVID-19 pandemic. This paper discusses how the convergence of artificial intelligence, machine learning, computational power and data abundance creates the perfect ecosystem to deliver a compelling digital banking experience. It outlines how it is imperative for banks to invest smartly over the next few years in their infrastructure as part of their digital banking strategy so that customers who choose to conduct their banking services at a physical touchpoint can also have a state-of-the-art service experience.
    Keywords: digital banking, new normal, ecosystems, human-centred design, data

  • Data and consent management services: An opportunity for banks to redefine themselves
    Dârâ Hızveren, Head of Innovation, Garanti BBVA

    We are producing increasing amounts of data, which is fast becoming an extremely valuable asset. A handful of companies, dubbed Big Tech, control most of this ‘asset’ and are making forays into financial services, which is bound to commoditise financial services. How this ‘asset’ will be managed in the future, however, presents a potentially huge opportunity for banks if they can leverage their current advantages and boldly create new business models. This paper recalls the basics of the data economy, proposes three major approaches to fend off the threat of commoditisation and defines the opportunity to be seized.
    Keywords: Big Tech, FinTech, financial health, open banking, data, consent management services, data ownership

  • Regulatory obstacles to organised trading in security tokens
    Stefan Tomanek, Legal Expert, Florian Pekler, Supervisor and Ralph Rirsch, Supervisor, Austrian Financial Market Authority

    The success story of the crypto-economy is undeniable. Crypto has gradually been making headway into the traditional financial sector. Acceptance of and demand for distributed ledger technologies (DLT)-based securities are on the rise. ‘Initial token offerings’ (ITOs) or ‘security token offerings’ (STOs) are on the verge of entering the mainstream — especially in the realm of small and medium enterprise (SME) financing. The borderline between the traditional financial markets and the crypto-economy is starting to blur. The players in the financial markets, however, are not the only ones beginning to realise the potential of Blockchain, and, more generally, DLT. The public sector is also slowly waking up. Recent developments include new legislation in Liechtenstein, France and Germany, as well as various initiatives in other member states. Amid all this enthusiasm and optimism, there is one issue that undeniably still dampens the mood: current EU financial markets law poses significant, and in some cases insurmountable, obstacles to the integration of DLT-based assets into the traditional financial system. In this paper, we analyse what currently appears to be the most pressing of these issues. These are the strict and inflexible rules of the Markets in Financial Instruments Directive/Markets in Financial Instruments Regulation (MiFID1/MiFIR2) regimes and the Central Securities Depositories Regulation (CSDR) in the area of post-trade securities settlement that do not do justice to the characteristics of DLT and that at present almost completely prohibit any organised trading in DLT-based securities.
    Keywords: crypto-economy, initial token offerings (ITOs), security token offerings (STOs), SME finance, distributed ledger technology (DLT), EU financial markets law, DLT-based assets, MiFID /MiFIR, CSDR

  • Building the future of advisory in private banking
    Muriel Danis, Global Head of Advisory and Diana Biggs, Global Head of Innovation, HSBC Global Private Banking

    The wealth management industry is undergoing transformation, with developments, powered by digital, currently starting to accelerate. This paper describes how HSBC Private Banking is leveraging new technologies, such as BlackRock’s Aladdin Wealth platform, to build out a future-focused end-to-end advisory process. It outlines the transformation and new capabilities enabled by technology along each stage of the process and the organisational considerations required for such a transformation. The paper demonstrates how HSBC Private Banking is integrating innovative technologies to better serve clients by building a solution platform foundation for a future state of advisory that blends the best of human interaction with the power of digital.
    Keywords: digitalisation, digital transformation, financial technology, private banking, portfolio management, wealth management

  • Experiences from the Dutch instant payment project: From 0 to 289 million in one year
    Frans C. van Beers, Head Payments Product Management, Dutch Payments Association and Inge P. J. H. van Dijk, Director of Payments & Market Infrastructure, De Nederlandsche Bank

    In May 2015 the leading Dutch banks announced their ambition to offer instant payments (IP) to the Dutch market in four years. The complex and innovative programme, led by the Dutch Payments Association, delivered, in mid-2019, a new IP infrastructure that has now become one of the fastest growing IP environments, with over 289 million interbank IP transactions processed in its first year (April 2019–March 2020). This paper looks back on that period and focuses on the elements that, in our view, were important to the successful introduction of this new payments infrastructure. The challenges, dilemmas and the rationale for the decision of the Dutch banking community to organise the IP project are described. The journey towards achieving all the set goals by means of a clear joint effort from the Dutch payments community was intense and rewarding. IP is expected to become the new normal for SEPA payments in the years to come, provided that some hurdles to full interoperability and reachability in SEPA will be overcome. This paper aims to share insights that may be useful to other parties that are considering introducing IP or that want to push a similar transition from conventional credit transfers towards a 24/7 available, interbank IP backbone.
    Keywords: instant payments, interbank project, payments infrastructure, Dutch Payments Association, Netherlands, De Nederlandsche Bank, real-time payments, ISO20022, faster payments, EPC, TIPS, ECB, EPC SCT Inst Rulebook, SEPA Credit Transfer

  • What digital banks can learn from decentralised finance
    On Yavin, Founder and CEO and AJ Reardon, Chief Editor, Cointelligence

    Although digital banking has improved upon the traditional banking model, it could do more to revolutionise modern finance. Decentralised finance (DeFi) looks to make banking more accessible and more flexible for today’s global population. Banks should look to DeFi to discover ways to improve their own offerings. In this paper we outline the elements of DeFi we feel would be most beneficial if they were incorporated into digital bank offerings and what the potential benefits could be.
    Keywords: decentralised finance, DeFi, online banking, distributed ledger technology, Blockchain

  • Instant payments in Asia are changing business models
    Steven Pairman, Head of Digitisation Europe & Americas and Wanisri Sanggita, Director of Payables Products, Standard Chartered Bank

    The work of instant payments has just begun. This paper aims to inform the reader of how the Asian marketplace is leading as the world moves to instantaneous payments, enabling real-time commerce. Digitisation is creating a technologically interconnected society that treasures immediacy, and payments are integral to this. Immediacy is not only a question of speed; it implies simplicity, ease, convenience and transparency. Across the Asia-Pacific, real-time domestic electronic payment schemes offer instant payments 24/7/365. These occur within seconds, provide immediate confirmation to payer and payee and are irrevocable. New payments models like instant payments foster new ways of doing business. They support an open banking environment that accelerates innovation to create a more cohesive, customer-centric experience, heightening connections between merchants and consumers as well as businesses and their supplier ecosystems. The unprecedented level of interconnectivity enabled by application programming interfaces (APIs) in an open banking environment, combined with instant payments, will enable banks to unleash vast troves of information related to payment flows. There is a massive opportunity for growth in domestic and cross-border markets. Companies readily will adopt instant payments where there is a compelling case for improving business.
    Keywords: instant payments, Asia, QR, cross-border payments, API, real time

  • Request to pay: The missing piece of the puzzle
    Francis De Roeck, Head of Industry Engagement for Payments, BNP Paribas Global Cash Management

    This paper describes and compares the new European Payments Council SEPA Request-To-Pay (EPC SRTP) scheme with the open banking-based payment initiation. The SRTP solution is not a new payment instrument but a full four-corner ‘authorisation messaging’ concept that still needs to be launched, whereas the open banking payment initiation by third parties is already possible, albeit still with a slow uptake on the continent. SRTP has powerful advantages on customer experience, but needs reach. Open banking payment initiation can already operate today on any bank, but the model has not been proven yet. Both solutions can challenge each other.
    Keywords: request to pay, open banking, third party providers

Volume 5 Number 2

  • Editorial
    Simon Beckett, Publisher
  • The seven highly effective strategies to survive in the open banking world
    Germain Bahri, Digital Banking Consultant and Tabitha Lobo, Consultant, Fidor

    While open banking is expected to accelerate the pace of disruption and has brought a wealth of new opportunities for banks to better understand their customers and offer value-added services, changing customer behaviour and increased competitive offerings by new entrants are pushing them to look beyond their traditional territory. Embracing application programming interfaces (APIs) that enable them to plug-and-play in the digital business ecosystem is only one of the many ways in which banks can compete. This paper discusses, identifies and illustrates some of the most common strategies and business model archetypes banks can adopt to move beyond the required APIs and remain relevant in the years to come. The different business models portrayed in this paper encourage banks to consider the following strategies: the augment model, the migrate model, the platform model, the greenfield model, the marketplace model, the merger and acquisition and the banking-as-a-service model. Every bank will need to question its identity and central focus to select its most suitable strategy.
    Keywords: Open banking, PSD2, digital transformation, platform, banking as a service, FinTech, marketplace

  • Building CEE’s largest banking partnership ecosystem
    Christian Wolf, Head of Strategic Partnerships & Ecosystems, Tanja Imamovic, Open Banking Leader, Strategic Partnerships & Ecosystems, Catalina Arateanu, Product Owner, Group API Marketplace and Miriam Obetkova, Intern in Strategic Partnerships & Ecosystems, Raiffeisen Bank International

    Digital platforms and ecosystems represent a phenomenon that has emerged from recent dynamics on the market such as global digitalisation and demographic and behavioural changes. In particular, the banking industry is undergoing a revolution based on a combination of technological progress, changing customer behaviour and new regulatory standards, all of which lead to a fundamental transformation of financial services. The paper discusses the shift in value generation, the transition of business priorities from traditional to digital environments and the move to cross-industry and beyond banking solutions. Industry incumbents are pressured to revise their traditional closed business models and base their new strategies on open innovation and collaboration. The authors of this article reflect on these challenges and share concrete steps that RBI undertakes in order to successfully transform the organisation on three levels: being alert to emerging customer needs, urging for new organisational capabilities and overcoming technical barriers of the existing IT foundation.
    Keywords: digital platforms, banking, ecosystems, network value, open innovation

  • ISO 20022: Understanding the scale of change
    Isabel Schmidt, Global Head of Direct Clearing and Asset Account Services, BNY Mellon Treasury Services

    Payments are set to undergo phenomenal change. The industry-wide move from existing payment messaging formats to ISO 20022 incorporates cross-border, high-value payments/wire transfers and will touch the payment life cycle end to end. As the implementation deadlines draw nearer, the implications for banks are more wide-reaching and involved than many have yet to fully comprehend. This paper examines what is changing, what banks will need to consider and the opportunities that are being presented.
    Keywords: ISO 20022, payments, SWIFT, coexistence, technology, data, operational efficiencies, risk management, straight-through processing, artificial intelligence, real-time payments, client experience

  • Dos and don’ts of immediate payment implementation: The Hungarian story
    Róbert Kiszely, Director of Professional Services and Jozsef Czimer, Manager, Capsys Informatics

    The launch of the Faster Payments System in 2008 in the United Kingdom was the start of the modern era of immediate payments services. More than 50 countries have joined the UK since, and instant payment services have become to be the norm in the payment industry. The number of countries is growing from month to month, and the emphasis is already being placed not merely on the implementation of new systems but, even more, on reaching interconnectivity among systems and offering instant payments across the borders too. Hungary has always been an innovative country, and tourists had the option of paying with bank cards, for example, as early as in 1961. It is not surprising, therefore, that the National Bank of Hungary made a bold decision to implement immediate payment services in the country. In just over three years a unique system was launched that offered immediate payments services in Hungarian Forints. This paper offers comments on the project based on a review of the implementation period.
    Keywords: immediate/instant payment, implementation, testing, lesson learnt, Hungary

  • PSD2 Secure Customer Authentication and customer experience: Ensuring a positive impact
    Roxana Sacaleanu, Global Product Manager and Eric Tak, Global Head, ING Bank

    In this paper the authors describe the current diverging views on how to comply with PSD2 Secure Customer Authentication (SCA) requirements for card-not-present (CNP) transactions that are due to kick in come December 2020. Many parties argue the focus should be on the six possible exemptions to SCA to avoid, as much as possible, having to apply SCA and thus ensure smooth customer experience. The authors, however, referencing good experiences with that in The Netherlands, argue that the focus should instead be on making SCA itself smooth and seamless. Leveraging mobile banking apps and the nascent Secure Remote Commerce (SRC) standard, the cards industry can copy what is already commonplace in the Netherlands. That way a universally smooth experience can be created, and investments can be focused on providing seamless SCA rather than spreading it too thinly across many exemptions, which will not solve the issue in many instances anyway.
    Keywords: PSD2 Secure Customer Authentication, SCA, shopping, checkout, biometrics, seamless payment, customer experience, e-commerce security

  • The smartphone, not the tablet, now rules the mobile banking experience
    Sandrine Prom Tep, Associate Professor, Manon Arcand, Full Professor and Sara-Kim Diotte, Graduate Student ESG Business School, Université du Québec à Montréal

    Even though 56 per cent of Canadian Internet users conduct banking transactions on mobile devices, most studies still focus on factors governing its adoption rather than its use. To better understand what mobile banking means, the tablet versus smartphone experience is compared using a sample of 375 Canadian mobile banking respondents. Survey results show that the mobile experience, though socially friendly, is frustrating when conducted on a smartphone. This paper describes how, despite specific characteristics and benefits associated with each device, there is no difference in the effect on the cognitive, sensory/positive emotional and behavioural dimensions of the mobile experience mostly because of the increasing mobile device format evolution.
    Keywords: banking, user experience, mobile devices, channel services

  • Assessment of micro, small and medium enterprises (MSME) financial inclusion initiatives by commercial banks in Lesotho
    Lefeela Joseph Nalane, Section Head, Market Conduct and Consumer Protection and Lira Peter Sekantsi, Acting Head, Policy, Oversight and Research, Central Bank of Lesotho

    This diagnostic study sets out to assess micro, small and medium enterprises’ (MSMEs’) financial inclusion initiatives undertaken by commercial banks in Lesotho. Data for this study was collected by administering a semi-structured questionnaire in four commercial banks operating in Lesotho. The feedback was analysed using descriptive statistics. This paper presents how study revealed that all the commercial banks have, to some extent, tailored their financial products/services and non-financial services to the needs of MSMEs. There are, however still gaps related to the scope and intensity of their actions on MSME financial inclusion. Almost all banks lack separate and comprehensive MSME financial inclusion policies. The implication is that the MSME financial inclusion aspects of the Financial Sector Development Strategy (FSDS) will not be implemented successfully in this context. There is a very limited adoption and adaptation of innovative loan products for MSMEs. On the basis of the findings and gaps, it is recommended that banks develop MSME financial inclusion policies. The policies should specify value propositions, organisational structures, products, processes and systems with which to respond to the MSME financial inclusion dimension of FSDS. Banks should adopt innovative MSME loan products such as financial leasing, factoring, commercial agriculture loan products that are particularly suited to the peculiar needs of crop, wool and mohair farmers and fruit growers, among others. The banks should adopt a common standard for defining MSME. The Government and the Central Bank of Lesotho should identify MSME financial inclusion indicators, develop a measurement framework thereof and institutionalise the periodic reporting of MSME financial inclusion information. This requires that banks upgrade their data management systems/management information systems to enable the capturing, storing, reproduction and sharing of accurate, timely and reliable MSME financial inclusion data.
    Keywords: MSME financial inclusion, commercial banks, financial inclusion policies, strategies, Lesotho

Volume 5 Number 1

  • Editorial
    Simon Beckett, Publisher, Journal of Digital Banking
  • Readying the open banking system for success
    Jim Wadsworth, Senior Vice President, Mastercard Open Banking Solutions

    Open banking is now the accepted norm across Europe and beyond thanks to mandated legislation. For financial institutions, however, it is no longer deemed the compliance exercise it once was. Many have realised that it offers an opportunity to innovate and, importantly, compete; open banking is the architecture that allows them to rethink audiences and transform product portfolios accordingly. The potential for open banking to revolutionise the financial well-being of millions of individuals and small businesses across Europe is beginning to unfurl. But to reach its true potential, there are still challenges to be overcome within the open banking ecosystem and its architecture. This paper addresses some of those issues, such as Application Programming Interface (API) multiple standards, which are causing unwanted layers of complexity, confusion and expense for both third-party providers (TPPs) and banks; trust and security problems posed by the validation of TPPs — particularly in cross-border transactions; and also the complexity of dispute resolution where no central records or consistent formats exist. Additionally, readers will learn whether the topic ‘open banking’ itself really matters to the success of open banking-enabled products and whether FinTechs, banks and financial institutions are wasting their energies marketing the underlying technology. Readers can expect to get a clear picture of how all of these challenges — interoperability and standards, secure transactions, clear means of resolving disputes and marketing — can be overcome to create an efficiently functioning architecture that allows powerful open banking-enabled practical tools and solutions to be transformational for both people and businesses.
    Keywords: open banking, API, PSD2, TPPs (third party providers), FinTech, banks

  • Consumer-centric commerce: Why banks and merchants need to step up their game on customer experience
    Chris Kronenthal, President and Chief Technology Officer, FreedomPay

    E-commerce is growing year on year, with expectations that US$4.6tn will be spent in this area by 2022, but with this growth come a variety of problems and opportunities that need to be addressed. Consumer interaction with today’s brands is changing as technology advances, and mobile technology dictates how customers want to pay, buy, browse, receive offers and earn loyalty rewards. Any merchant or service provider wanting to retain a foothold in ever more competitive markets needs to embrace this technology and use it to both their and their customers’ advantage. Merchants have real power when they get this loyalty piece right, increasing customer sales but also creating the opportunity to generate additional revenue from banks and credit providers, who increasingly want access to a merchant’s loyal customers. Trust is an issue for financial institutions, so piggybacking on the existing trust between merchants and their customers makes perfect sense. Payment services technology allows the seamless integration of the range of services necessary to facilitate these transactions, enabling the management of all interactions with clients. Robust and secure systems that comply with the latest regulatory requirements, including payment card industry (PCI) compliance and strong customer authentication, offer a secure and technologically advanced environment that will keep up with whatever payments methods or regulations are devised next. This paper discusses the result: potentially limitless benefits to all parties that can be adapted to suit future needs at will, thanks to the seamless integration of a single-platform service that provides benefits to all simultaneously.
    Keywords: customer experience, commerce, technology, payments, consumer-centric commerce, digital

  • Personalising digital banking with human middleware — why humans still have a place in customer service for banking
    Nicola Lambie, Marketing and Brand Strategy Manager, Energy Super

    As the world marches irrevocably towards fully digital experiences, consumers increasingly expect to be able to fulfil their banking needs online, whenever and wherever they want to. Two of the main challenges facing banks in the race for digitisation, however, are how to deepen customer relationships within a remote channel and how to meet the continued customer desire for advice from a real person in complex transactions, such as buying a home or financial advice. This paper discusses the current trends in banking channel preferences for consumers and examines how front-line teams are meeting those needs. It explores the concept of human middleware, defined here as the intersection of humans and technology in delivering banking services. And with the need to balance customer service expectations alongside productivity, efficiency and cost management, it provides a case study of some of the steps smaller financial institutions are taking to remain relevant in the banking market by leveraging ‘human digital’ services for customers.
    Keywords: digital transformation, channel transformation, digital banking, online customer experience, human digital, banking innovation

  • Evolution of the invisible bank: How partnerships with FinTechs are driving digital innovation
    Mayank Mishra, Global Head of Digital Channels, Treasury and Trade Solutions and Global Head of Online Banking Services, Citi

    Business banking as we know it is changing in ways that could hardly have been imagined less than a decade ago. The introduction of next-generation technologies, such as application programming interfaces (APIs), artificial intelligence (AI), machine learning and robotics, is poised to deliver the ‘invisible bank’, where treasury and banking functions merge together seamlessly, bringing customer experience to a new level of convenience. This paper discusses the need to extend the reach of banking solutions beyond the bank’s own channels and technologies, incorporating them into day-to-day treasury management functions. In this way, the friction between corporates and banks is reduced — making it impossible to tell where the bank ends and treasury operations begin. By leveraging treasury data in a more contextual way, banks will be able to integrate banking functions and services into the daily duties of treasury professionals, delivering tremendous convenience and a greatly improved client experience. Digital technologies, such as APIs, are allowing banks and corporates to be more agile in connecting and collaborating with each other to bring innovations to market faster, meeting the needs of their customer base. In fact, Forbes reports that 80 per cent of large enterprises are already generating more than US$5m a year from APIs.
    Keywords: Business banking, next-generation technologies, application programming interfaces (APIs), AI, machine learning, robotics, invisible bank

  • A ‘Digital Euro’ as an approach for frictionless payment processes
    Udo Milkau, Chief Digital Officer, Transaction Banking, DZ Bank

    Digitalisation is changing the way we think of money and payment architectures in the 21st century. Within global competition, economic benefits for the consumers and corporates in terms of convenience and efficiency will be the benchmark for success. App-based solutions with strong brands and centralised payment platforms proliferate, while Europe has a fragmented landscape of various elements for fully digitalised payment processes. Frictionless payment processes could be facilitated by a ‘Digital Euro’ as an interface between digital (and more and more automated) payment initiation at the frontend level and real-time processing and settlement at the back end. Such an approach could provide an end-to-end cross-industry synchronisation of processes with payment automation as an integral solution. This paper discusses a special case machine-to-machine payment in the Internet-of-Thing payments at the ‘edge of networks’, as they could generate a tremendous volume of ‘localised’ transactions that require dedicated solutions compared with networks with their principal overhead.
    Keywords: digitalisation of payments, payment architectures, customers’ perspective, CBDC, blockchain, M2M payments

  • Technology-driven next-gen corporate banking: Trends and implications in APAC and Japan
    Eiichiro Yanagawa, Senior Analyst, Celent

    Corporate banking is at a critical juncture of accelerated change. External factors are driving disruptions and opportunities in corporate banking. Banks are at risk of falling behind in their response. Players in the corporate banking arena need to ensure that they keep pace and take significant strides to compete effectively with financial institutions at the vanguard of technology as well as digital giants and FinTech firms. Companies need to cease product-centric approaches and embrace a customer-centric approach, one that reimagines and improves the customer journey. Banks need to digitise paper-based processes and assign top priority to shifting from intuition-driven decision making to data and analysis-driven decision-making. Asia-Pacific (APAC) dominates the global bank profit landscape, generating 43 per cent of total global bank revenue, with the Chinese market forming the centrepiece of growth strategies for the region. Having said that, moving ahead, China will not be the sole growth engine. The global situation is characterised by uncertainty stemming from factors ranging from negative interest rates and the emergence of trade protectionism to US-China trade friction and Brexit and now coronavirus (COVID-19). Against this backdrop, the future of corporate banking growth can be expected to be heavily dependent on performance in digital economies, where technology plays a prominent role. This paper discusses how, now more than ever, as technology iteration continues to speed up, banks should seek to pursue evolution and innovation in the corporate banking arena.
    Keywords: legacy and ecosystem migration, Innovation and emerging technology, digital transformation, transaction banking, SME banking, next-generation corporate banking

  • The inverted bank: How platforming helps exploit ecosystems
    Sankha Som, Chief Innovation Evangelist and V. Ram, Chief Technology Officer, Tata Consultancy Services

    Ecosystems are emerging as major drivers of economic activity all across the world. The emergence of ecosystems is seeing a fundamental transformation of traditional business models across all sectors of the economy. The FinTech movement has been one of the earliest ecosystem-based disruptions that have profoundly affected the banking sector. The banking sector globally has been trying to build strategies to engage and exploit ecosystems with varying degrees of success. Community banks have been early adopters of ecosystems, leveraging the traditional banking infrastructure to take deposits, underwrite loans and provide the regulatory governance infrastructure to FinTechs, whereas FinTechs provide the necessary customer experience layer and create innovative new products and services. While large banks are pursuing major digital transformation programmes to make banking services more accessible to customers and partners, smaller community banks are devising new ways of remaining low-cost players with personalised services. Digital ecosystems are now opening scope for API-fication and AI-based decision-making. Smaller niche firms are now able to build and integrate faster and demonstrate business agility. In this paper we present a summary of the macro environment that is driving changes to business structure in enterprises. The present FinTech engagement strategies of banks are presented through the lens of motivation to go-to market with new products and features that appeal to the end-customer. We have also attempted to analyse the relative merits and demerits of each strategy. If banks must emerge as ecosystem orchestrators, they will need to re-architect themselves into digital platforms. This is even more relevant for community banks. We present a logical architecture of such banking platforms and important features that need to be built into these platforms. Finally, we have presented a model of an ‘inverted bank of the future’, where many existing production activities of the bank, large and small alike, will be performed outside the bank’s boundaries by the banks’ ecosystem.
    Keywords: ecosystem, platform, FinTech, digital, open banking