# The importance and growth of banking ecosystems to create superior customer experiences and value Author: Pal Sinha, Barnali Author URL: https://financedigest.com/author/pal-sinha-barnali Published: 2021-10-20 Category: BANKING Category URL: https://financedigest.com/category/banking Meta Title: The Future of Banking Ecosystems: Innovation and Collaboration Meta Description: Discover how financial institutions are innovating in the digital era to deliver seamless, frictionless, and secure services in a networked economy worth $60 URL: https://financedigest.com/the-importance-and-growth-of-banking-ecosystems-to-create-superior-customer-experiences-and-valuehtml ![undefined](https://prod.superblogcdn.com/site_cuid_cm5qst7v3003gwirgwqtxn8i8/images/young-woman-with-a-piggy-bank-on-a-yellow-background-sbi-317641706-1736837537523-compressed.jpg) _By_ **_Seshika Fernando,_** _VP & GM BFSI Practice, WSO2_ Today consumers expect great digital experiences.  Financial institutions looking to meet these expectations are under more pressure than ever to innovate — while delivering seamless, frictionless, and secure services. As [banking has moved from the physical to the digital – accelerated by COVID-19 – so too has the trend towards building ecosystems](https://www.financedigest.com/transforming-the-retail-banking-ecosystem-its-all-about-technological-innovation.html "TRANSFORMING THE RETAIL BANKING ECOSYSTEM: IT’S ALL ABOUT TECHNOLOGICAL INNOVATION").  In this world, [banks must interact with not only their own digital](https://www.financedigest.com/how-will-the-introduction-of-digital-banking-impact-customer-perception-and-overall-loyalty.html "HOW WILL THE INTRODUCTION OF DIGITAL BANKING IMPACT CUSTOMER PERCEPTION AND OVERALL LOYALTY?") financial services ecosystem but also a network of ecosystems from across economic sectors like healthcare, transportation, and telecommunications. **In fact, McKinsey predicts that this integrated network economy will be worth $60 trillion by 2025.** This is because successful ecosystem participants have been able to draw insights and bundle together value across these sectors—leveraging data and services from customers, technology vendors, and digital service providers—to build more complete, timely, and personalised customer experiences. FinTech firms, big tech companies, and forward-thinking [banks that are participating in this environment are freeing consumers from isolated transactions and hooking them with highly personalised experiences](https://www.financedigest.com/transforming-the-banking-experience-to-be-mobile-first-and-people-centric.html "Transforming the banking experience to be mobile-first and people-centric") delivered at the time of need. **Delivering new services through collaboration** This has created a fiercely competitive financial services market demanding continuous adaptation with dynamic, advanced systems that deliver new features and rich real-time data insights. FinTech firms and neobanks have altered the technology landscape because they are built from the ground up in the digital era with cloud, AI/ML, and connected, interoperable systems. Most traditional banks are tied to expensive, difficult-to-replace [legacy systems](https://www.financedigest.com/retailers-weighed-down-by-their-own-legacy-systems-survey-reveals.html "Retailers Weighed Down by their own Legacy Systems, survey reveals") and are not as agile. However, with competition from FinTechs, BigTech, neobanks, and progressive banks, incumbents yet to look seriously at these technologies can’t afford to stand still. FinTech firms and progressive banks are driving these new [services](https://www.financedigest.com/20-billion-in-bank-service-fees-are-you-overpaying.html " Billion in Bank Service Fees: Are You Overpaying?") while many traditional banks have been slow to transform. **According to a** [**study**](https://hs.crnrstone.com/banking-2021) **from Cornerstone Advisors, only about a quarter of banks surveyed had embarked on a digital transformation strategy prior to 2019, and 45% hadn’t launched a strategy prior to this year.** With barriers to entry particularly harsh in a highly regulated space, banks haven’t previously needed to deliver exceptional experiences to capture or retain customers; there has been relatively little [innovation in banking](https://www.financedigest.com/knowing-your-customers-needs-is-essential-for-banking-innovation.html "KNOWING YOUR CUSTOMERS’ NEEDS IS ESSENTIAL FOR BANKING INNOVATION") over the past 40 years when compared with most other industries. What traditional banks have in their favour is their banking license. When FinTech firms or BigTech (e.g., Google with Google Pay) want to move into the banking space, they often choose to tie up with banks or get their own banking license to [avoid having to worry about compliance](https://www.financedigest.com/how-to-avoid-the-compliance-recruitment-merry-go-round.html "HOW TO AVOID THE COMPLIANCE RECRUITMENT MERRY-GO-ROUND") themselves. Even Google, when launching Plex [banking accounts](https://www.financedigest.com/are-banks-ready-for-the-new-accountability-regime-in-2016.html "ARE BANKS READY FOR THE NEW ACCOUNTABILITY REGIME IN 2016?") on Google Pay, took the approach of partnering with several banks from Credit Unions to Citibank instead of getting a banking license, because it wanted to focus on its core competency. An important takeaway here is that while technology firms find formulas for high growth through customer-centricity, highly adaptable technology, and new business models, they often find it difficult to scale the breadth of [services they can offer without help from banks](https://www.financedigest.com/30-per-cent-of-uk-consumers-would-use-amazon-google-facebook-or-apple-for-banking-services.html "30 Per Cent of UK Consumers Would Use Amazon, Google, Facebook or Apple for Banking Services").  Similarly, while they have the technical capacity to derive better insights into [customer behaviour than traditional banks](https://www.financedigest.com/the-bank-of-me-why-banks-need-to-be-totally-customer-centric.html "The bank of me – why banks need to be totally customer centric"), they don’t have access to the customer’s financial information held by incumbent banks. The introduction of the **[Open Banking](https://www.financedigest.com/open-data-represents-the-biggest-challenge-to-banks-in-a-generation.html "Open data represents the biggest challenge to banks in a generation") Directive in 2018** has lowered the barriers to entry and made customer-centricity a core strategic capability that even incumbents now need to build. On the face of it, Open [Banking might not sound like much of a change](https://www.financedigest.com/exclusive-world-bank-seeks-more-funds-to-address-climate-change-other-crises-document.html "Exclusive-World Bank seeks more funds to address climate change, other crises -document"), but it is increasingly transforming the way we use and consume data and services. It has enabled [customers to not only see but also control](https://www.financedigest.com/2019-year-customers-take-control-payments.html "2019: The year customers take control of payments") their own data, and transformed the way banks interact with third parties.  Open [Banking is far more extensive than just payments; it has fostered deeper relationships between banks and third parties using APIs as the gateway between these disparate applications](https://www.financedigest.com/crown-agents-bank-owner-explores-sale-of-british-payments-group-sources.html "Crown Agents Bank owner explores sale of British payments group –sources"). **Building more personalised value for customers** [Banks that start to leverage external third-party data will be able to offer](https://www.financedigest.com/first-abu-dhabi-bank-reiterates-not-eyeing-offer-for-standard-chartered.html "First Abu Dhabi Bank reiterates not eyeing offer for Standard Chartered") a more enriched, frictionless marketplace using white-label partnerships to complement their own services and augment what they do. This will reduce the high cost of development, deployment, and maintenance as they move away from focusing solely on custom in-house development to becoming more agile nimble players bundling new service offerings from an ecosystem of providers. But for less progressive banks, these ecosystems require a deep cultural shift from [closely guarded systems and processes](https://www.financedigest.com/can-digital-labour-displace-cfos-in-the-close-process.html "CAN ‘DIGITAL LABOUR’ DISPLACE CFOS IN THE CLOSE PROCESS?") to open collaborative value generation. This industry has traditionally had control over the whole end-to-end supply chain, and now finds that it must open its infrastructure and data to partners. Understandably, larger [banks are nervous about third parties having access to data as this could potentially weaken their relationship with customers](https://www.financedigest.com/insight-into-tomorrows-retail-banking-customers.html "INSIGHT INTO TOMORROW’S RETAIL BANKING CUSTOMERS"). [Banks that respond to this evolution will continue to play a central role in the future of financial](https://www.financedigest.com/financial-crime-is-the-chink-in-the-banks-armour.html "Financial crime is the chink in the banks’ armour") services based on the deep foundation of trust built with consumers over decades or centuries, and for the reasons set out earlier. But to compete, they will need agility, speed, and the ability to collaborate securely. Fundamental capabilities for this will include APIs to integrate both internally and externally, a product platform to rapidly explore and scale new opportunities for partners and consumers, and the ability to use data better. **Digitisation requires a culture transformation** As banks digitise, new business models and a cultural shift will be required to become a partner-focused collaborative company.  However, the larger the bank, the harder it will be to make that change – not just from a technology and legacy infrastructure perspective, but with tens of thousands of employees around the world, the culture change will also be challenging. This requires strong leadership and a C-suite that understands technology.  There are exemplary larger [banks embracing](https://www.financedigest.com/rethinking-retail-banking-embracing-a-customer-centricvalue-proposition.html "Rethinking retail banking: Embracing a customer-centricvalue proposition") this new model, such as JP Morgan Chase, HSBC and BBV A.  JP Morgan Chase started its [digital transformation journey](https://www.financedigest.com/the-journey-towards-a-digital-bank-five-major-stages-to-successful-banking-digitalisation.html "THE JOURNEY TOWARDS A DIGITAL BANK – FIVE MAJOR STAGES TO SUCCESSFUL BANKING DIGITALISATION") more than five years ago, approaching it not from a cost-cutting or efficiency focus but from a customer perspective with the customer journey and experience central to their transformation. The good news is that the [banking industry has a track record of surviving](https://www.financedigest.com/the-survival-of-the-banking-industry.html "THE SURVIVAL OF THE BANKING INDUSTRY") disruption, which suggests it will rise to the challenge.  Underpinning all these trends will be the demand for connections between ecosystem players: banks, FinTech firms, and other third parties. One way this will be achieved is by building good interfaces and APIs. However, these APIs must work well, otherwise ecosystems will not consume these consistently enough to deliver [business results for the banks](https://www.financedigest.com/challenger-banks-missing-golden-opportunity-to-steal-business-from-competitors-by-repeating-same-old-mistakes.html "Challenger Banks Missing Golden Opportunity To Steal Business From Competitors By Repeating Same Old Mistakes").  The challenge is creating the right APIs and then ensuring they are reliable, discoverable, usable, high-performing, and [flexible to offer](https://www.financedigest.com/britain-urges-banks-to-offer-mortgage-flexibility-in-cost-of-living-crisis.html "Britain urges banks to offer mortgage flexibility in cost-of-living crisis") long term value to both API partners and their end-consumers. [5 Things to Consider When Choosing a Challenger Bank](https://www.financedigest.com/5-things-to-consider-when-choosing-a-challenger-bank.html "5 Things to Consider When Choosing a Challenger Bank")**To make this transition successfully, banks should consider:** - How fit is the [bank for the next](https://www.financedigest.com/how-open-banking-will-change-the-banking-industry-in-the-next-10-years.html "How Open Banking will change the banking industry in the next 10 years") decade, does it have the right culture to embrace an ecosystem approach? - Does it have the right technology? For example, does it have APIs that integrate both internally and externally, and a product platform to rapidly explore and scale new opportunities? - Is the executive leadership invested in building this ecosystem capability? How skilled and knowledgeable is the C-Suite? - Is the bank thinking about more than just compliance, like PSD2 and other regulations, and focused on disrupting not only its own business model but driving an ecosystem that delivers new services that broaden the value chain it is currently serving? - Banks of all sizes must fundamentally rethink their distribution model, with big branch [networks consuming up to 50% of operating](https://www.financedigest.com/how-can-network-operators-monetise-television-quickly-and-effectively.html "How can network operators monetise television quickly and effectively?") costs. What is the new role of a branch and how does it complement and serve the customer to deliver an experience-led approach? - What consumer problems is the [bank looking to solve and how can it scale new services](https://www.financedigest.com/britain-seeks-to-boost-banking-services-from-fintechs.html "Britain seeks to boost banking services from fintechs") and propositions? What precise form [banking will take in the future](https://www.financedigest.com/communicating-with-the-customer-is-the-future-of-mobile-banking.html "Communicating with the customer is the future of mobile banking"), and which business models will suit which banks, is not immediately clear. What is clear is that with experience-focused consumers and the rapidly evolving nature of their needs, [banks operating within the emerging vast network of ecosystems will need](https://www.financedigest.com/britains-digital-banks-need-support-amid-banking-turmoil-trade-body.html "Britain’s digital banks need support amid banking turmoil – trade body") to build the fundamental capability of rapid adaptability. In summary, [banks need a combination of the right technology](https://www.financedigest.com/the-rise-of-biometric-technology-in-banking.html "The rise of biometric technology in banking"), the right partners, and the right kind of leadership commitment to implement a robust digital strategy to build strong adoption that delivers superior benefits across their ecosystems. --- This blog is powered by Superblog. Visit https://superblog.ai to know more. ---