What is a Digital Eco System
Digital Banking Ecosystems are collaborations built on partnerships that use technology to provide new products and services to clients . The main idea which is behind the collaborative models like these is very simple . Although no single bank can cover all its customers needs , but a consortium of Banks and digital companies can.
Basically, there are three types of stakeholders in a digital ecosystem . Banks , Third party service providers and customers . The basic role of a third party is to act as an intermediary between the customer and the bank . An eco-system approach involves bundling services beyond banking to offer customers a friction -free and far reaching service . These service bundles could focus on different aspects of individual life’s such as housing , retail mobility , retail and well being and financial health .
In an eco-system offering , a multitude of actor provide their products and services and are integrated on a single digital platform destined for the customer . Adopting an ecosystem play allows banks to address a bigger share of total wallet by expanding the points of access to their financial products . They can also strengthen their strategic positioning by providing non -financial services that customers would be willing to buy .
Need for a Digital Banking Ecosystem
Many of the financial institution customers have moved on from the principal financial provider , while many of them are considering to do so .This is the reason why many of the Banks must evolve if they want to retain their existing customers and perhaps attract new ones .
- Regulations Many Banks should allow to access to customers data and online payment capabilities using the API technology , with specific consent .Many of the new customers are introduced to the ecosystem each month as a result of open banking enabled products being used by both users and enterprises around the world .
- Increased competition Many of the Fin Techs are taking the advantage of the decreased barrier to enter into the financial services market by using their technical enterprise and the superior digital cliental experience . Due to the very limited services which is being offered by the challenger banks , few of the customers have totally transmitted away from the former banks .
- Increased digital and technical investments Banks are increasingly investing in the technological systems and data both globally and locally .This lowers the operating costs and provides a foundation for new revenue streams .
- Changing Customer Behavior,A paradigm shift from the previous paradigm (Provider based ) to the new paradigm (need based ) aided in the creation of one -stop shop ecosystem to meet the want and the needs of the customers . Banks can now embed their products and services at the place of need , such as embedded finance in this paradigm . Over the next few years ,customers can now expect their bank to provide them with more personalization ,proactive services and connected omnichannel experience .
The Benefits of Digital Banking Ecosystem
Banks in digital ecosystem have a number of substantial advantages built in , including strong customer relationships and well-known brands .Banks , the customers as well as all the other stakeholders can all profit when the strengths are joined with third party artificial Intelligence (AI ) and cloud-based solutions .
- Increasing the reach and the quality of digital products Working with the technology partners can be helpful for a Bank to extend its digital distribution , improve the quality of the products and reduce the client acquisition expenses.
- Providing other eco systems with access to Banking Services Generally , when customers transact in other eco systems , they demand the seamless access to bank held data as well as the banking goods and services .Providing secure access to their systems to partner can help banks bridge ecosystems gaps and stay relevant to their customers .
- Increasing the value of internal resources Eco systems are a cost – effective way for banks to promote their in house developed capabilities to other banks , Fintech and even non -bank enterprises .
- Digital eco system help incumbent banks retain their customer base . For a long time now, financial institutions have persisted in building their entire IT architecture themselves .By nature financial institutions are control freaks , the very basis of banking is about managing risks ,security and regulatory compliance .By building the applications on their own Banks feel more secure and more in control .
Financial Institutions must get serious about the Digital eco system
The next few years could be a make – or -break period for some bank .They will join the digital financial eco system movement or be consumed by it .
These platform-based ecosystems offer products and services that are created and distributed in partnership with other and they confer powerful advantages, allowing organisations to enter new market , create new services and acquire new customers faster and more affordably then with traditional product development and -go -to the market models. By 2030 digital ecosystems could account for a significant share of the banking revenue pool .
Eco Systems are the inexorable next step in digital disruption for the financial services sector .The hyper connectivity that digital tools and channels enable has blurred traditional boundaries between the brick and mortar and web environments and between the four walls of an enterprise and the wider value chain .
Ecosystems are the next step in digital disruption for the financial services sector .
The focus of the bank is shifting from internal platforms to external ecosystems .Many of the Banks are accelerating efforts to partner with different industries and built their own eco systems , which is definitely going to be the new growth curve for the Banks .
Delivering a successful ecosystem strategy,is not just about good ideas , but good ideas delivered well .
Conclusion
Margin pressure, competition from the new entrants and the changing customer preferences are forcing traditional banks to transform their business .In doing so banks need to embrace digital platforms to service customers better , make full use of data analytics for better -real time customer insights ,modernize operating models and free themselves from the old core IT systems .Adopting an ecosystem approach will give banks an additional way to increase the value they both offer and gain from the customers .Real Banking transformation can then be per sued in an ongoing basis , driven by clear organisational goals .
Digital ecosystems including embedded finance are the future of banking .Increasingly they are moving from being an opportunistic approach to becoming a revenue generating strategic competitive imperative for banks . Indian banks can find ways to embed their financial products in unique life moments along with the customer journey -health , housing , education , employment which will put them at the heat of the global transformation .
In this new future for Banking , Indian Banks must seize the opportunity to create a strategic advantage and unlock a larger addressable wallet by orchestrating cross-sector eco systems .Banks that don’t do this because of lack of investment or the right talent will be made obsolete by other sectors and players .
