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The future competitive battleground

I blog a lot about the disruptions of new technologies on bank structures, but only in the last few weeks had the chance to reflect upon what this means overall to a bank’s strategy.

A bank is a digital business, as mentioned so often before.

As a digital business, all banking can be broken down into pure bits and bytes but, more than that, a bank can be seen as three digital businesses in one.

It is a manufacturer of products; a processor of transactions; and a retailer of services.

In this context, the digitisation of banking becomes more interesting at a strategic level.

First, the products have been deconstructed.

Every bank product can be deconstituted into its lowest common denominator of components, and then reconstituted into new forms of use and structure.

This component based bank demands that every bank capability is put into a basic widget form, or object form if you prefer, and then offered to customers to put together as they see fit.

In other words, there are no integrated product sets any more, but just banking as apps that customers put together to suit their needs.

Bank products are just a bunch of apps, manufactured in such a way that customers can put them together to suit their lifestyle.

Moving onto processing, we build upon the app-based product view and begin to consider processes as open source code.

The open sourcing of digital processes is rife and has disrupted and changed everything from how operating systems operate, vis-à-vis Linux, to how Google develops its omnipotent reach.

Learning from such open source processing PayPal launched X, a developer based service for PayPal processes as APIs, Application Program Interfaces.

APIs allow anyone to pick up and drop PayPal into their systems and, like banking products as apps, allow PayPal to be reintegrated by third parties into any code and operation desired.

The result is that PayPal’s relevance increased massively overnight and led to Citi following a similar approach, when they announced that their transaction services would be offered as APIs at SIBOS this year.

In other words, all banks processing is just open sourced coding, offered to anyone to plug and play with their offerings through APIs.

Finally, the customer relationship has also changed.

The customer relationships used to be human, one-to-one.  Then it became remote, one-to-many.  Now it is digitised, one-to-one.

This is where Big Data comes into its own, as we are now trying to manage remote relationships leveraged through mass personalisation.

Mass personalisation can only be achieved by offering contextual servicing to each and every customer at their point of relevance.

This means analysing petabytes of customer data to identify, on a privacy and permissions basis, what contextual service the customer may need as they live their lives.

If they are walking past a car showroom, do you promote cheap motor insurance or a car purchase scheme?

If they are leaving the casino, do you offer a loan or a referral to an addiction clinic?

If they are leaving the maternity clinic, do you offer child investment services or a referral to an abortion clinic?

Some of these may seem controversial, but we are already seeing contextual offers through finance coming into play in the form of Google Wallet.

And the aim of such contextual offers is to track your digital footprint, using Big Data analysis, to gain intuitive service offers relevant to your point of living.

For example, as Google track your searches for Plasma TVs, you get an offer for £200 off the TV you spent the longest time studying online as you walk past the electronics showroom today.

But the offer is only good for an hour, and only as you are in proximity of that electronics showroom.

This is the new augmented reality of customer intimacy through Big Data analysis, and bank retailing will be based upon the competitive differentiation of analysing mass data to deliver mass personalisation.

In summary, the digitisation of banking is now mainstream, and all bank capabilities will be packaged as digital structures where products will be apps, processes will be APIs and retailing will be contextual, delivered through mobile internet at the point of relevance.

Meantime, what happens to the physical structures of banking, as the digitisation of everything takes over, will be the biggest challenge of all.


About Chris M Skinner

Chris Skinner is best known as an independent commentator on the financial markets through his blog, TheFinanser.com, as author of the bestselling book Digital Bank, and Chair of the European networking forum the Financial Services Club. He has been voted one of the most influential people in banking by The Financial Brand (as well as one of the best blogs), a FinTech Titan (Next Bank), one of the Fintech Leaders you need to follow (City AM, Deluxe and Jax Finance), as well as one of the Top 40 most influential people in financial technology by the Wall Street Journal’s Financial News. To learn more click here...

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