A branding crisis is looming in the Financial Services industry. Its subtle beginning came with Mint and PayPal but became much more apparent with Apple Pay in 2014. New entrants in Financial Services – both smaller fintechs and larger technology companies – have created a crowded value chain that spreads the end customer relationship across a variety of parties. And now, as financial data becomes liberated through regulations like PSD2, banks have begun to rethink operating models.
Branding through Wrapping Paper and White Labeling
“Wrapping paper” has become a relevant branding concept in the world of retail payments. Essentially all of the “Pay” wallet apps play the wrapping paper role, whereby the mobile wallet is merely branding on top of a bank’s card payment solution. This is the case for proximity (in-store) payments, in-app payments and online payments. The longest standing example is PayPal, but the former eBay subsidiary has been joined by a myriad of new products, including Apple Pay, Android Pay, Samsung Pay, Visa Checkout and Masterpass.
Since these providers own the customer experience, they have the power to command a fee from card issuing banks, who are relegated to the utilitarian, backstage role of payment processing. The more engaging that new providers make their wallet solutions, the greater the opportunity to cross-sell other products (smartphones, in many of these cases). Cross-sell revenue, therefore, is why many technology companies are involved in the payments game to begin with.
The branding evolution within payments is an earlier form of what has already been happening in personal financial management (PFM). An increasingly popular strategy for driving revenue in a penny-pinching PFM market has been white-labeled solutions provided to big banks. Such is the revenue model behind MX and Personetics, whose solutions empower banks’ customers with data-driven insights on spending. Moven, a “neobank” that offers its own customer-facing app and debit account, also owns the technology behind the white-labeled app known as TD MySpend.
APIs, Open Banking and Platformication
Wrapping paper and white labeling are creating a progressively complicated banking value chain, as data and technology become core assets behind revenue growth and brand identity. And these arrangements just might be predecessors to the “big bang” of democratization in Financial Services: open banking via application programming interfaces (APIs).
A lot has been made of this concept during the turn of the calendar year – the idea that open APIs can enable banking customers to manage their cross-FI financial lives through a single lens. Further, the onset of PSD2 in Europe has led to an emergence of broader, Banking-as-a-Platform (BaaP) operating models, whereby the customer can access third-party financial solutions, in addition to his external account data, within his bank’s native portal.
JPMorgan Chase’s partnership with Intuit may be the first step toward open banking amongst large banks. While Chase’s partnership is largely about sharing data securely, the operating models of newer, digital-only banks exude a much broader form of open banking. Many envision a future of “banking app stores” that provides customers with access to financial products for a core subscription fee, plus incremental pricing by bank product.
How Banks Avoid Commoditization
Increasing rate transparency and inserting more parties into the value chain can lead to greater disintermediation and, ultimately, commoditization for retail banks. In this changing environment, how can providers differentiate their solutions from others? The answer for banking incumbents is a combination of both digital user experience and redesigned revenue models.
Leveraging Data Analytics to Deliver a Rich Customer Experience
Unlike many of today’s larger banks, a platform bank must use its expanded set of customer data to truly understand customers and raise relevant products in a frictionless fashion. What good is having every last piece of data on a customer if it can’t be employed in a contextual and engaging way? This means that banks must understand the customer’s life stage and what financial and non-financial needs can be addressed through its platform offerings.
When relaying data-driven insights to its customers, a bank must conduct interactions in a rich, engaging and contextual way. Easy-to-understand visualizations of spending and chatbot correspondences that quickly resolve inquiries can strengthen the digitally-based customer relationship, boosting brand affinity and recognition. This is where the bank regains its role of trusted advisor and life stage companion.
Building a Powerful Fintech Network with Commensurate Pricing
A key component of the retail bank’s operating model in this platform-based industry is its network of fintech solutions. More important than just a large volume of solutions are their integration and accessibility within the bank’s core distribution channels, which will play critical roles in the customer’s perception of the banking product suite.
Once a network is established, banks must price their BaaP offerings accordingly, using combination of subscription and a la carte. The perception that a customer’s single subscription payment buys him access to a seemingly endless inventory of products – many of which are low-cost or free – is powerful from an engagement and loyalty standpoint. Prime examples are Spotify and Amazon Prime.
Due to technology advances and new market entrants, banks are faced with a paradigm shift in how they engage with and serve customers. They must respond to this transformation by establishing a network of fintech partners and delivering products through rich digital experiences.