Online platforms reach millions of people, enabling more and more products and services to find their way to the customer. This also applies increasingly to financial products, where platform operators are becoming serious competition for retail banks. Thus, banks face a fundamental decision: Do they position themselves in the future at the customer interface and actively design platforms or should they focus on primarily being product providers? Currently most banks are busy digitalizing their existing business model – without any sign of real innovation.
Digitalization has significantly accelerated many retail banking processes, from opening accounts to taking out loans to signing up for mortgages. But most of the progress has been on traditional banking products, which can now be processed online using digital tools. Very few banks see themselves as drivers of innovation. Asked to name the innovation frontrunners in the banking sector, 47 percent of respondents in the "European Retail Banking Survey" cited the big technology firms and 42 percent mentioned FinTechs, whereas just 2 percent of those polled mentioned traditional retail banks.
This attitude is alarming when you realize that the platform economy is going to completely disrupt the financial sector just like it has done to other industries: Flights, for example, are sold almost exclusively through platforms these days with hardly anyone buying from the airlines anymore. It's going to be the same for banking products – we are already seeing financial portals taking an ever-greater share of the customer interface.
Banks will need to fundamentally realign their business if they don't want to leave other players like platform operators and FinTechs to shape the future of retail banking . The existing business model, essentially universal in nature, is not suited to operating in the platform economy. Banks therefore need to be clear about what they want their strategic positioning to be in the future: Do they want to focus on the customer relationship, the banking products or the technology? Though 66 percent of the banks polled say they want to be the customer interface, not all of them are going to be successful with their own platform – quite apart from the fact that the very point of online marketplaces is to bring many different providers and customers together in one place.
Banks should therefore carefully analyze where their particular strengths lie and design their business model accordingly. This is an individual process, as is the job of coming up with the right way of implementing it. There is no one-size-fits-all answer to digital transformation. What counts is having a clear vision combined with as much flexibility as you can get in the implementation process. The more innovative, disruptive and uncertain the expected outcome, the more agile and flexible the approach needs to be.
The platform economy is revolutionizing the banking sector. Retail banks must reposition themselves. Instead of the business model they operate now, a new direction is called for.
