For many financial institutions, finding the right partner ecosystem has become critical to driving future growth and staying relevant in a crowded financial services landscape.
And why is that? “Because you need to become more adaptive and transform faster, and uncertainty is very high. Therefore banking leaders have to trust the ecosystem of partners they work with.”
That’s Paolo Sironi, global research leader for banking and finance at the IBM Institute for Business Value. The institute surveyed 3,000 CEOs from multiple countries, including many from financial institutions.
Fostering an ecosystem of partners was identified as the top priority for many of the CEOs in all industries, but was most pronounced among the banking leaders.
Many banks and credit unions are moving quickly when it comes to digital transformation —moving away from traditional architectures to cloud-based platforms. They are continually thinking about new digital products and services that can entice customers. But traditional institutions are doing this in a highly regulated environment. The “fail fast” ethos of Silicon Valley startups isn’t really an option for financial firms.
That’s why, says Sironi, so many banks and credit unions are attracted to the idea of collaborating with an ecosystem of partners — including, but not limited to, fintechs. It is seen as perhaps the only realistic way to innovate quickly, but in a cost-optimized manner as well as within regulatory confines.
It Takes an Ecosystem:
Banks and credit unions are increasingly willing to rely on multiple partners to help them innovate quickly.
In a podcast conversation with Jim Marous, Co-Publisher of The Financial Brand and CEO of the Digital Banking Report, Sironi discussed these and other issues of top concern for banking leaders.
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Needed: Incentives to Open Siloed Institutions
Marous asked Sironi how financial institutions, especially regional and community players, many of which have operated the same way for decades, suddenly can reset the clock and change directions to become a truly digital financial institution.
The problem, Sironi says, is that so many banks operate in a way where they are divided into different business units that don’t really talk to each other, or not efficiently.
“If you don’t learn how to open up the borders within the organization to share the view of the client, you will not succeed when you try to do that in customer-facing applications.”
— Paolo Sironi, IBM
“The secret to succeed is to be able to ‘bundle back’ these disparate units,” said Sironi. The problem of organizational “silos” in banking, to use the commonly used phrase, is well known, but has proven to be very tenacious. Sironi maintains that to “bundle back” all of this disconnected capability and data it requires senior executives of financial institutions to create incentives that favor this change.
The IBM executive recommends bank executives take a page from the now-famous “API memo” given by Jeff Bezos to Amazon employees in 2002. The memo stated that, essentially, the only way to communicate within business units is through APIs, in order to share data more freely.
This is especially important for financial institutions because, Sironi notes, “If you don’t learn how to open up the borders within the organization to share the view of the client, you will not succeed when you try to do that in customer-facing applications.”
Just as important as creating a good customer experience, Sironi says, is to create a good “user experience” so to speak for employees. Banks can do this by breaking down internal silos so employees can collaborate easier, and, ultimately, innovate better.
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Being a Trusted, Local Platform Gives an Edge
For smaller banks and credit unions that are not as far along in their digital transformation, can rely on partners as described earlier, to help them catch up, as many are beginning to do. But there is another strategy they can employ, Sironi believes. These institutions can regain the advantage by embracing their connection to local communities, which many big banks have lost.
The IBM exec notes that while digital has enabled self-service in banking to reach new heights as a result of the pandemic, there are still financial issues and products that customers struggle to properly understand and need help with.
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“So local banks and credit unions can basically become community platforms,” he says. He points to agriculture-oriented banks as a long-standing example. These institutions not only serve the communities they are in but are an inseparable part of them.
Sironi suggests that financial institutions embrace “conscious banking,” that is, to bundle digital services with human advice into something that is not so much a product anymore, but more like a service. The institution becomes a trusted advisor, in a manner of speaking, to the customer. This mix of human services with technology will enable non-mega banks to remain competitive and stand out in a crowded landscape.
‘Conscious banking’ helps move financial institutions away from a product focus to a mix of digital products and services combined with human advice when needed.
Ultimately, Sironi sees more institutions moving towards a banking-as-a-platform model, so they can serve the customer contextually rather than just by offering products. By better utilizing the data they have, banks and credit unions can move beyond just offering an app that allows for basic transactions, to a platform where the client can consume more complex solutions and services they need for their financial life.
Marous compares the concept to the way consumers are willing to pay for Amazon Prime. The value is not in a particular product or service, but rather the value really is provided on an ongoing basis in the way that the platform knows you, understands you and rewards you.
Agreeing, Sironi says this is how banks and credit unions will be successful in the coming years.
“You cannot enumerate the value you provide just through products,” he says. “It needs to be clear in front of the client that the value comes from that relationship.”