This article appears in the Winter 2019 digital issue of DOCUMENT Strategy. Subscribe.

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    There was a time when banking institutions had a veritable monopoly on products, services, and the customer relationship. However, this influence has been weakening in recent years, as third-party financial technology (FinTech) firms continue to disrupt the banking sector with digitally native, multi-channel banking solutions. On a global scale, banks are beginning to understand that the ecosystem is changing, and they must change along with it. It is only a matter of time before communications service providers will be forced to follow.

    A Shift from Face-to-Face to Digital Engagements

    Customer interactions are shifting from face-to-face engagements to digital interactions—an area where traditional banks have struggled. According to a recent Keypoint Intelligence – InfoTrends report, almost half of all banking and financial services firms agree that their current technology stack for customer communications is not well-suited for implementing a digital experience strategy.

    While traditional banks are often burdened by legacy systems, documentation, and practices, FinTech firms are more agile and focus primarily on the digital experience. These firms are experiencing widespread success because they target specific financial offerings that are typically underserved by banks. They improve the process altogether by offering an excellent user experience as well as employing sophisticated marketing tactics. As a result, banks are falling behind on the digital side of the equation, and third-party firms are taking advantage of this shortcoming.

    “While traditional banks are often burdened by legacy systems, documentation, and practices, FinTech firms are more agile and focus primarily on the digital experience.”

    Transitioning from a Closed Model to an Open Model

    To further complicate matters, federal governments are also starting to regulate access to banking and financial services systems, forcing financial institutions to open up their systems through a public and standardized application programming interface (API). As a result, the information technology (IT) infrastructure is shifting from a closed data model (where customer information is retained and controlled internally) to an open model (where customer data is stored within the set regulatory framework and can easily be accessed and shared).

    A few directives have already been implemented to support this new open model, including the revised Payment Services Directive (PSD2) in the European Union, the Competition and Market Authority’s (CMA) Open Banking initiative in the United Kingdom, and the Hong Kong Monetary Authority (HKMA) in Asia. Although no similar regulations have been passed in the United States at this time, the North American market will likely follow suit before long.

    Creating Value in the New Banking Ecosystem

    These developments will give rise to a new open banking ecosystem with a clear-cut difference between the front end and the back end of the system. For communications service providers, creating value will largely depend on the area of the ecosystem that is being served.
    • Serving the front end: The front end of this new ecosystem will be about who owns and manages the customer relationship. FinTech firms and other digital companies have already differentiated themselves in this area by providing excellent customer service and stellar digital experiences. Meanwhile, communications service providers can add value by delivering scalability for multi- and omni-channel communications to improve the customer experience.
    • Serving the back end: Banks and other financial services firms will likely manage the back-end infrastructure and regulatory processes of the new ecosystem. They will also own the customer data and have some influence over standards and regulations based on their importance within this network. Under a typical agreement, the bank will “lend” FinTechs—who will be considered their sales channel—the banking license and the regulatory framework required to provide financial services to consumers. Because banks are “platformizing” themselves, communications service providers can deliver value to these financial institutions by providing/managing critical infrastructure components, facilitating access to data, improving the intelligence of data, and improving data security and compliance capabilities.

    The Bottom Line

    Communications service providers will increasingly seek new revenue streams by offering services that help banks and financial institutions to improve the customer experience. However, as the banking ecosystem continues to evolve, they should also understand where they can deliver long-term value. Increasingly, this will be the back end of this new banking ecosystem.

    David Stabel is the Research Director of the Customer Communications Advisory Service at Keypoint Intelligence–InfoTrends. For more information, contact sales@keypointintelligence.com or follow him on Twitter @davidstabel.





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