Experience-driven banking: experience enablers
I’ve talked at conferences, in podcasts and blogs about experience-driven banking for a few years now and I’ve generally focused on what it means from a customer perspective. Looking at it from a bank perspective, experience-driven banking is a strategic choice about whether you become a platform to enable experiences or you own experiences.
Of course, you can do both, but no bank will ever be able to compete for ALL customer experiences, so they will have to decide which they can effectively compete for (I’ll cover experience owners in my next post).
In this post, I’m going to focus on experience enablers. Being an experience enabler is the superset of open banking and Banking-as-a-Service (BaaS). The strategy is really to shift towards a technology-based model of selling access to:
- Products – e.g. deposit/current accounts, loans, cards, mortgages;
- Services – e.g. identity validation, know your customer (KYC) and anti-money laundering (AML) checks, credit checking, treasury;
- Data & insights – e.g. average spend on utilities, seasonal variations on spend categories, discretional spend by age group or income bracket.
This may be simply providing the software to allow a fintech or a bank to onboard and run products for their own customers, and could include the bank underwriting the product with its banking licence. It could go further still and operate the back office for those products, handling enquiries and other product specific processes.
In the BaaS space, software vendors are increasingly acquiring, or partnering with, banks to offer all three options, whereas incumbent core banking vendors only offer software (be it in the cloud). In the 1990s, traditional banks offered this as “white label” banking, typically with a single supermarket brand. Today’s providers like Vodeno, for instance, offer this on scale and as an offering that is much closer to Software-as-a-Service (SaaS) than the custom developments banks did in the past with supermarkets.
As the notion of “embedding banking” into experiences owned by non-banks (e.g. accountants providing banking for their clients) grows, the biggest opportunity is likely to be outside of banking itself. Hence, there is huge growth in the number of new players offering BaaS. Some have specialised in specific products like cards, loans or accounts, whilst others provide a broader set of offerings.
Providing a service could be coupled to a product or something that is standalone, for example, identity or KYC/AML checking.
Other services could include things like providing money management capabilities and analytics, similar to what Bud and Tink are doing.
It could also be non-banking capabilities like cashflow management or accounting, like FreeAgent from Royal Bank of Scotland (RBS).
Today’s focus is very much around the periphery features of core banking, however, I suspect this will change as competition increases and providers seek to differentiate themselves. It’s also highly likely that some consolidation of service providers will help create broader offerings for acquirers with greater scale.
Data & insights
Whilst access to banking data through open banking is not chargeable, banks can charge for other data. For example, they could categorise transactions for third parties at an additional cost, essentially this would mitigate the third party having to do it themselves or buy a personal finance management (PFM) solution. These insights could be provided as chargeable alerts, for example, if a customer’s income has increased or their average household spend has reduced. Clearly, this can only be done with customer permission.
Data/insights could also be aggregate data which is not customer-specific, for example, household expenditure by geography, age or income bands. With the volume or data held by banks and the opportunity to pull in more data (e.g. data on housing), there is a huge opportunity here, limited only by the provider’s imagination and creativity.
Being an experience enabler is a broad strategy to create an income stream not only from banking products and services but to go further. With everything being accessible through a set of application programming interfaces (APIs), experience enablers could become powerful platforms that power more than just fintechs and banks. So, it is no wonder we are seeing a growth of new players backed by venture capital (VCs). What’s exciting is that there is room for specialists with deep and narrow focus as well as generalists with broad offerings.
Clearly, a new competitive landscape is forming, and it will be interesting to see how many “traditional” businesses survive as they are, be they banks or software companies. I’m not saying that old models of banking or banking software will die, I’m just saying that the battleground has changed – new players are now competing on different terms to how it was done previously.
About the author
Dharmesh Mistry has been in banking for 30 years and has been at the forefront of banking technology and innovation. From the very first internet and mobile banking apps to artificial intelligence (AI) and virtual reality (VR).
He has been on both sides of the fence and he’s not afraid to share his opinions.
He is CEO of AskHomey, which focuses on the experience for households, and an investor and mentor in proptech and fintech.
Read all his “I’m just saying” musings here.