The Future of Banking as Seen by Blomfield and Grech

The future of banking.

The video above introduces a debate and visions on the future of banking by Blomfield and Grech. The video is from 2018 though the visions are still relevant for how the banks will be operating in the future. When speaking of the future of banking, then the concept of the future of payments:

  • Transactions to and from accounts.
  • Transactions of goods among suppliers and purchasers.
  • Security and overview of monetary transactions.

Ecosystems and Partnerships for Future Payments

Partnerships with payment companies can enable companies in other industries to be innovative and create competitive advantages for them to thrive. The partnerships can be enabled through various approaches. One of these approaches is a loosely coupled set of partnerships where the companies applies some of the services from the parent company. Another form would be to consider the payments companies a potential platform for the other companies to interact with. The third alternative would be to consider the payments company an open ecosystem. The different approaches leads have different types of strategic couplings between the individual payment company and the businesses (and organizations) that make use of them.

Payment companies are good examples of companies working as platforms and that enables the business possibilities for their customers and by that enabling the customers to create winning strategies to obtain better positions at the market. E.g., why should a webshop develop its own unique APIs to integrate with MasterCard or VISA platform, if a payment company can provide secure APIs and a state of the art fraud detection system? As a consequence this blogpost deals with the payments company as seen through these three archetypes.

The Payment Company as a Partner

A partnership is one of the strongest forms of business integrations among companies. A great example of this is when companies applies the other organization as a part of a strategic plan to enhance existing products and develop new products and services. The partnership models enhances the relations among two organizations and businesses while it might undermine relations for the company to other companies. An example of company is Nets (Nets 2019) which communicates about the possibilities of partnerships to its customers.

Partnerships will usually be a combination of a contract, mindsets for the executives of the company and the foundation through business processes and IT-platform. E.g. a webshop prefers to make use of its bank to transfer money from a to b, though it could gain a better deal by scanning the market. This is due to the convenience and to the mindset of the business owner (strategic level). This delimits the company to some extent to identify new possibilities.

The Payment Company as a Platform

In order for a payments company to become a platform it has to provide secure channels for communication and exchange of data on payments and transactions.  The payments company can provide products where multiple consumers are able to use on product or sell their products via the platform. By acting as a platform the payments company provides a framework for which its users can interact. In order for the payments company to become a relevant platform they will have to continue to invest in innovation and development (and operations). Usually the innovation and development will only come from a single source, which will become a constraint for the payment company acting as a platform. The payments company has to be on the forefront of innovation and constantly embed services and products that can become a competitor. This approach is well known within the software development industry and to some extent it will be possible to achieve competitive advantage through becoming a platform, but most major platform companies are struggling to continue to stay relevant for their customers. Examples are Facebook and the old Microsoft and to some extent the current situation for Apple. Relevant platform companies starts to open for customers, suppliers and competitors and through that approach staying relevant and strengthening their position.

The Payment Company as an Open Ecosystem

Proactive payment companies can enable competitive advantages through implementing open ecosystems. The open ecosystems enables the payment companies to embed their products and services in a multitude of products and services. Likewise will the open ecosystem enable the payment company to fuel innovation through applying different services, technologies and channels to bring to stay relevant and win the competition. Banks have usually been secretive regarding what is happening “behind the counter” and “within the box”, but with the current European legislative on banking, the banks would have to expose APIs and data regarding the customers’ accounts. This means  new companies can combine data on behalf of the consumers and enable better financial services, without the bank. Similar businesses such as insurance companies (e.g., life insurance companies and pension funds or money-transfer companies like PayPal, VIPPS and Western Union, DIBS) can provide applications, apps and portals that enables their users to transfer money, digitize invoicing, purchase goods and stay protected in a digital economy.

The challenges of being an ecosystem is to establish the infrastructure for collaboration across organizational boundaries. Likewise, is one of the challenges to deal the needed mindset are uphold among the executives and owners of the organization. In case executives and middle managers are not able to uphold the mindset, the company will reverse to either partnerships or the platform archetypes.

Conclusions

The three archetypes are relevant for both domestic as well as multinational companies operating in the payments industry and finance-industry. The three archetypes are relevant regarding how the company can align itself with trends on its geographic markets and how it can deal with competitors and customers alike.

The current trend is for companies in the payments industry to go for partnerships, but within a few years it will become more likely that companies will move towards the open ecosystems since companies working with embedding its services (and value chain) into products that enables other companies can essentially become essential for competition and markets. Platform companies are able to win for now, though essentially the platform thinking will delimit the individual company to misunderstand trends and not being able to renew itself. Examples from the software industry would be Facebook or for that matter the old Microsoft. Facebook is currently not able to renew itself for the “anti-SoMe” trends in current Western societies.

Sources

Nets. (2019). From our very DNA we’re open to partnerships.  URL: https://www.nets.eu/perspectives/Pages/From-our-very-DNA-we-are-open-to-partnerships.aspx