Platforms to the rescue !?
There is little doubt that the changing consumer behavior that has been visible in retail-shopping or travel arrangements is starting to hit the last stronghold of old-school banking: private banking. Just a short recap of what is happening right now:
- The users’* path to a decision is no longer linear, and it is influenced by peers, advocates, etc. over the internet.
- The evaluation and decision path is circular. Thus, it never ends.
- Every decision is instantly re-validated outside the provider’s area of influence.
- Most of this is happening outside the merchants’ and vendors’ area of influence.
To complete the perfect storm as many call it, technology is making some big leaps as well with:
- The notion of micro services that appears to be the answer to increased demands for agility and responsiveness to user needs.
- Another artificial intelligence boom phase that is again triggering the phantasy of investors, technologists and business people about what could be.
And last but not least, the massive amounts of VC money pumped into the market by investors seeking to escape dull markets or something else… All this has passed by incumbent banks whose current value chains have not kept up.
- They are static and bound to a bank 1.0 type of business model (offline, paper, etc.)
- Users are asking much more from their private banks in service sophistication, choice, selection, individuality, etc.
- Banks’ current client segmentation models do not address the needs mentioned above.
A possible answer, in my view, could come from the retail industry, too: the creation of value networks referring to more agile value chains assembled by users. Current developments in financial services, such as open APIs, robot services, and further automation, are helpful as users could simply select between services they want and not want. In essence, more sophisticated users are already doing this on their own. This is not something one can “prevent” from providers’ angle with “more of the same” offerings. The reality is that it is happening, and the increased demand for transparency will only add to that; this will go mainstream. The question is, will providers (some Fintech as well to be clear) be able to go along?
Marketplaces or platforms to the rescue
The above facts apply to retail banking and private banking alike, with retail banking being deeper into the transformation as of now. Users get more choices and will use their new freedom sooner or later, assembling their bank value chain. This, however, will be available to very sophisticated users as translation between services and most importantly service discovery have to be done manually.
At the height of the e-commerce bubble in 2000, a concept was promoted heavily called “the marketplace,” an aggregator of all offers to give the user the ability to cherry-pick the best deal. This theory is not dead and has transformed along the way to something some call the “platform-based business model” today, in which service providers connect with their users. AirBnB, UBER, etc. are prominent examples of this in the sharing economy. We can currently watch first examples of marketplace startups in retail banking getting into the market.
Can this be done in private banking, too? The short answer in my view is “yes — but”: Yes, but it needs a different angle. Private banking has been a very diversified market, and this gets even more intense with FinTechs entering the space. Transparency is a scarce good in this area, too, so any platform bound for success in this market would need to address the transparency topic in a broad sense: make the overall market accessible and, most importantly, understandable to the user. This will only happen if one lets the user into this as a contributor or co-creator.
It will be the users of this once so perceived secretive area talking about their service experience (not their money), sharing, comparing, and advocating good services amongst the bigger crowd of connected consumers. With that, users will help each other unravel this market. A platform catering to these immediate needs might be able to facilitate a marketplace where users and providers find new ways to connect. Ultimately, such a platform could be the base for users to combine and configure their value networks of private banking services as well, just as they do with other business areas, too.
Not all are ready, and we are not there yet.
A private bank that can survive in this connected consumer age is (still) believed to have to be a “high touch” business rather than an automated one. As a general statement, this might be true, but I do not think that today’s private banking services will survive as high-touch low-tech. Platforms, contacted consumers, and new technologies will (and always have) turn some processes “upside down,” forever shifting ownerships of e.g. personal data and “profiles” toward the user. Technology influences from new standard APIs and those (in-)famous micro-services that did turn businesses like Spotify to such big successes will be the second large drive toward platform business models in private banking. One more aspect that we should not forget is the possibilities of decentralized approaches inherent in things like the blockchain and smart contracts. However, at the moment, the density of buzzwords compared to real solutions is still pretty one-sided on the buzzword side. There are lots of things to explore, but it’s no longer uncharted territory.
* or clients as incumbent banks are calling them