Banking As a Service platform – similarity or competitive advantage

Banks that are embracing their digital transformation journey are becoming open and  designed to encourage new business models, using Open Socio-technical Systems during the transformation journey.

Three concepts emerge here:

  • Digital finance advisor: deliver tailored, personalized advice that meets the customer’s financial needs taking into consideration, the unique customer profile – the digital twin – based on customer life style, aspirations, appetite for risk, existing and upcoming transactions.
  • Banking disintermediation: developing special alliances and partnerships that enable them to provide offers that appeal to customers. Doing banking without the customer feels that is doing banking.
  • Expanded value chain and services: connect the customers with other service providers – e.g. wellness providers, retail companies – becoming part of customers’ needs and lifestyles. The more the customer interacts with the customer ecosystem, the more the ecosystem benefits in terms of shared customer profile data and business transactions.

 

the forces

The current status-quo of banking industry in competitive markets

 

The realization of these three concepts is via the bank as a platform with a connected ecosystem in which integration is the core component and where an API-enabled platform and marketplace is a key strategic consideration. However, the API capability, combined with strategic partnerships is not enough. With most of the new IT capabilities combined with new “micro-business models” being already available in the market, Banks are partnering, investing, going on tour to multiple venture forums for shopping new IT capabilities, or discover new ones by organizing hackathon events.

There are some important consequences of this shift:

  • IT reduced expenditure. IT departments will no longer need to develop applications. They already exist in the market. They will continue to be focused on core banking systems, the middle-ware and the classics banking channels (web/mobile/social/wearable).
  • The CIO will focus on building and evolving the banking platform, but he will need to become a business changer, otherwise, we will only be solely focused on supporting the business.
  • Solution providers will start to loose importance in the market unless they can offer an unique or distinguished capability.
  • Ultimately, the bank can implement the concept of the “bank of me”, which the customer chooses what kind of capabilities he wants to use, relevant to its needs, rather than play with the ones the bank offer via channels.

 

Bank ecosystem

The era of open socio-technical systems

 

Under this new paradigm, designing, implementing and make available a banking as a service platform – like a cloud computing provider – is becoming a mainstream trend in banks that are embracing digital transformation, offering complementary third party financial or non-financial services alongside with the bank’s core products. The bank becomes a catalyst of third party providers to provide a more appealing spectrum of services and offers as co-branded products.

There is however, a fundamental design flaw in this approach. Under the concept of the “bank of me”, customers do not want to be forced to consume what is made available by the banking platform, the reason for this, is by the same way a couple of years ago we entered in the era of the customer – by the collision of forces of mobile, social, cloud, data – that shift operations control to the hand of the customer, so does such principle apply when designing the banking platform.

As Damian Madray [1] expressed:

When we design, our designs generate behaviors that in turn shape our collective experiences through culture. The concept is fairly simple but the feedback loops are all — encompassing: essentially all of the things that we design and that surround us, from our language, to our dwellings, our cities, tools, aircrafts, bedrooms, kitchens, religions, sports, design us back. It all feeds back. And this feedback has been coined Ontological Design [2] by Anne-Marie Willis.

What this means is the customer wants to have the freedom to design interaction on his own terms. As I wrote some years ago:

People will be over connected naturally without the need to request for connection.

But such connection must be related with with whom I really am, not a profile or customer segment I belong to, or personas, as it is labeled user design or in change management methodologies.

Ontologies providing meaning to the data manipulated thus no one needs anymore to learn […] its meaning

Elizabeth Tunstall [3], provides another interesting perspective, as our universal individuality is cannot separated by the sacred, profane and spirituality. The flow of other people, nature, environment and ancestor influence that provided us the life principle guidelines we adopt or tend to ignore that is a consequence of what surround us and make us unique individuals. Investec, embedded this principle in one of the latest marketing campaign, more than data.

Investec

Investec’s – More than data – from the customer profile to who you really are as an individual

 

Despite the bank as a service platform brings advantage to consume or offer products or
services through the APIs ecosystem, most of the banks will ultimately adopt this strategy bringing all around similarly and the new digital bank will soon become the same old bank it used to be. Allowing the customer to design its own banking experience based on habits of mind, personality, selfish goals, personal interests leveraged on the platform capabilities will make the bridge between the customer and the bank as separated self-contained entities.

References:

[1] The Evolution of Design with Culture Thinking – Why we should think about culture before we design – Damian Madray, 2017

[2] Ontological Designing – Anne-Marie Willis

[3] Design Anthropology, Indigenous Knowledge, and the Decolonization of Design
Elizabeth Tunstall, Fabrica, 2011.

 

Digital Banks – Providing Banking Platform as Service

During the course of last two weeks, I was involved with a series of workshops with the IT department of a bank that operates in more than 30 countries. The workshops objective was to define a digital banking transformation roadmap.

During many years, for those that are involved in BPM projects have discussed the meaning of what is the definition of end-to end processes. One of the classic examples in the banking industry is when the account opening process ends. It ends when the account number is created or it ends when all the channels which the customer can consume financial services and execute operations are available and operative?

Today, opening a bank account trough a friction-less process is not a common desire. The wish of any customer that belong to retail banking is how it can construct the Bank of Me, how it can incorporate using the bank mobile app making transactions with 3rd parties, like a youngster paying the school fees, do social banking (transfers, borrowing from Facebook friends). Corporate banking, oriented to trading operations, which to integrate supply chain operations between, customers, suppliers, road haulage companies, combining the flow of documents, status of merchandise movement and money transfers.

Five years ago, under the new e-CMR regulation, there was the possibility in road freight to eliminate the famous paper based system (that still exists) and exchange information digitally between all the involved stakeholders – buyer, seller, transport company and banks [1]. The CMR is a document that underpins the legal transport contract between a seller, a transport company and a buyer. It ensures the goods were shipped and received accordingly, on which banks rely to wire the money between the involved trading parties. Without such a document, financial transactions are halted, supply chain document reconciliation is blocked, as well as financial close activities. Now, that piece of document travels physically in the truck. Some long haul trucks return to logistics head quarters every 15 days – because they need to optimise cargo utilisation, a key KPI for business viability – this means only when the physical CMR arrives to the logistics back office, payment processes between buyer and seller can start (digital copies are ignored, due fraud and contractual implications between the parties involved). In such kind of transactions there is room for optimisation and automation, but unless companies do not embrace the concept of open systems architecture is very unlikely that operations will suffer from the tangled syndrome.

The era of Open Socio-technical Systems

Fred Emery defined and evolved the concept [2] and defined such kind of systems as:

“Is a purposeful system composed of an interrelated social component (people, culture, norms,) and technical component (technology, tools, materials) which is embedded in a greater context, an environment, which the system is influenced by and also influences.”

Later, Merrelyn Emery [3] evolved the concept to “Socioecological” means:

“people-in-environments,” which is expressed by the concept of the open system […] expresses the transaction of system and environment, all components of which are governed by laws which are able to be known. “

Gartner [4] defines in the Magic Quadrant for Enterprise Integration Platform as a Service:

“integration platform as a service (iPaaS) is a cloud service that provides a platform to support application, data and process integration projects, usually involving a combination of cloud-based applications and data sources, APIs [5] and on-premises systems”.

Gartner single focus in the technical platform enablement plays the de-stratification of the Open Socio-technical Systems that goes against experimentation, multiplicity and intense social human interaction and important component of Open systems. When designing IT strategy, the peril for the CIO and the IT teams is to overdose the enterprise with integration technology and superpower the enterprise service bus, over-dosing on too much de-stratification decoupled from the new business models and human relationship management of digital banking.

Providing Banking Platform as Service

Exposing the Banking Platform As a Service – BPAaS, allows banking services to talk to other services. In this sense, leveraging on API allows you to open up data and functionality to other developers, to other businesses or even between departments and locations within the bank. It is increasingly the way in which banks exchange data, services and complex resources, both internally, externally with partners, and openly with the public.

BPAaS, can provide a common root so that transactions can flow from wherever they originate: mobile apps, integrations with clients, the client’s website or physical devices. All mapped into a strong ecosystems of partners that repurpose, resell and re-bundle assets to reach new customer segments – like the millennials – that the bank could never have reached alone.

Imagine for example, you want to offer a mortgage service coming from a real estate website or you want to open the possibility to customers subscribe financial products from 3rd party, like Brokers or the case were the bank can outsource loan services to partners keeping costs low. Providing the banking platform allows customers and partners to integrate them as a self-service adapted to their particular needs or bringing the reality of the Bank of Me.

Regulation want banks to embrace open ecosystems
The UK regulator, issued a report [6] that sates in the remedies section:

“mobile banking tools have been rapidly adopted, and a growing financial technology (‘FinTech’) sector is developing and applying new tools. Application programming interfaces (APIs) will allow publicly available data and customers’ own data to be shared with trusted third parties, and ‘open standard’ APIs can be particularly powerful (with necessary safeguards for security and privacy) in opening up new customer information and advice services.”

 

CMA states clearly about the importance of:

“development and implementation of an open API banking standard has the greatest potential to transform competition in retail banking markets […] by making it much easier for both personal customers and SMEs to compare what is offered by different banks and by paving the way to the development of new business models offering innovative services to customers.[…] APIs may also be used, with the customer’s informed consent, to share securely their transaction history to enable access to tailored current account comparisons and other services.”

As I pointed before in this post, banks can offer for example, in the retail segment, custom services like automated financial management based on your spending patterns, risk appetite and the phase of your personal life – before entering into labour market, in labour market, retirement – this is just a matter how soon banks want to enter in this new kind of business models before they are expelled from the market.

From a strategic point of view, some banks consider the remedy with a very strong dose or as a threat to their outdated business models. In my experience dealing with CIO’s and CEO’s from different banks is clear that the younger generations are much more prepared or already sparked business model transformation and look to this more as an opportunity. The generational gap – a self-acquired soft skill – can play a key role how the organisation perceives the way forward.

 
References:

[1] Unfortunately, due protective measures related with entry in force of the regulation, most countries in European Union delayed the application of the new regulation, meaning that a cargo travelling from Portugal to Germany will only benefit from the electronic act when enters in Germany, meaning that all way down the road the paper document should exist to present to customs and other government authorities. In other terms, the digitalisation of the process is impracticable, an outcome that is still a reality.

[2] Magic Quadrant for Enterprise Integration Platform as a Service, Worldwide, 2016. […] “Integration PaaS delivers some combination of the capabilities typically found in enterprise service buses, data integration tools, B2B gateways, managed file transfer products and API management platforms. IT departments, line-of-business developers, mobile application development teams, application teams and even business users (aka “citizen integrators”) leverage these capabilities to develop, execute and manage integration interfaces (or “integration flows”).”

[3] Emery, Fred E. “Characteristics of socio-technical systems”, in Design of Jobs: selected readings, Davis, L. E. And Taylor, J.C. (Eds.), Penguin Books, ASIN: B013KQY62S

[4] Merrelyn Emery “The current version of Emery’s Open System Theory” Systemic Practice and Action Research.

[5] Application Programming Interface

[6] CMA – Retail banking market investigation. Summary of final report. August 2016

Machines are taking over me – I

In the past weekend, I watched one of the last screenings of the Steve Jobs movie picture. The picture starts with footage of Arthur C. Clark, at a (probably) 60’s datacenter explaining to the reporter that in a near future, humans will have in their hands a miniaturised computer which they will have access to information. By the effect of the minicomputer intrusion, Arthur also points that future society will become dependent and blended with technology. This kind of assumptions are the ones that mark the character of a futurist, that can predict and envision years ahead what we are becoming to be, not the other way around, as we, part of a jittery, mouth-full instant communication global community, started to assume that futurists are the ones that can predict what it is going to happen in the next 6 months, or next year.

During the last couple of months I been in contact with at least two hands full of financial institutions. In most of them, the business initiatives around social business, ranked on top of their transformation programs, once they realised that letting customers blow to the horn when they are angry, damages the reputation of institution, as well as, social media should be used to serve the customer. With this in mind, banks wish to have an upgrade of the brand new 360 degree view of the customer. Hence, in the CRM system, apart of the account statements, the financial products the customer subscribed, it will integrate his social media feed, with social listening and sentiment analysis features. There is nothing new on this, the novelty is the customer profile built around the what we know about him, taking into consideration the spending partners, the investments done, the risk profile, combined how he expresses in social media, builds who the customer is. Or not.

Technological advances have open the door in the emergence of services that perform financial advisory services. Despite there are some regulation barriers to comply, the financial personal assistance is here to stay. The financial assistant, leveraged among others by machine learning, high performance computing and natural language processing are able determine the best investment needs, your tolerance to risk and what are your goals to be achieved. However there is some room for improvement on adjusting to investment portfolio or your debt stack taking into consideration portfolio diversification or futures in economy growth or income fluctuations. One of the biggest barriers to break is the fact that customers operate with multiple banks and such kind of intelligent advisory services stumble in the lack of open interoperability. Last, there is an emotional factor, which is, the human lifecycle phase that dictates our inherent needs and wants. Someone that is heading retirement have very different needs from the ones that are starting their professional life. And some humans do not want to retire at all, despite there are in a certain age.

Luciano Fiordi, in his book called the fourth revolution, quickly points one of the foundational philosophical well-know distinction between who we are – let us call this our personal identities – and who we think we are – call this our self-conception. The two selves-our personal identities and our self-conceptions – flourish only if they support each other in a mutually healthy relationship. Things get more complicated because our self-conceptions, in turn, are sufficiently flexible to be shaped by whom we are told to be, and how we wish to be perceived. Hence, the dream that bankers have about understanding who are you and how they can serve you better, it is still far for reality. This should not only be a reflection point in the banking industry, as well as across the mass market verticals. For those industry sectors like retail that are in the forefront of understanding customer behaviour it could be interesting for banks to carry a join design experience on who the customer really is. There is still a very long road ahead how to better serve bank’s customers.

Creating the digital bank of the future

The three pillars of digital banking

Banking like logistics, manufacturing and retail companies are on the forefront of business model and operational transformation. This is related with the fact that these vertical industries are very coupled. Manufacturing companies produce goods that are shipped to retailers and consumed by customers. During all these handoffs, money flows on every touch point, the more difficult we make money transactions, the more ineffective the supply chain becomes and that comes with a price. Retailers, logistics and manufacturing companies are in constant optimization mode, bringing the rights products, the right quantity, in the right moment at a minimal transport cost. All these principles, are driven by managing lows, physical, information and financial. Manufacturing companies are working together with logistics companies in order to decrease the time it takes to plan to deliver, optimize deliveries, predict unpredictable events on real time, like strikes or methodological alerts and traffic conditions, detect fraud by the use of Internet of Things operational design and integrate supply chain operations like transport documents and invoices. Banks that assure financial transactions need to adapt as well, like manufacturing and logistics companies reinvented themselves driving the continued need for simplification, automation and innovation.

 

Empowering banks to be part of this integrated supply chain

Transformation means driving change in these three pillars:

Digital experience first by design
Make things easier and simple for the customer. It is not anymore about creating mobile apps to check balance or make transfers it is leveraging big data to recommend investment opportunities when there is a surplus in the account or to prevent default, when there are signs that the customer will not pay the loan because there are some overspending patterns that arise from all channel transaction history.
Digital workplace first by design
With the looming of self-organizing teams and mobile first customers, work and collaborate as a team from anywhere and on any device, to support banking operations and enterprise transformation projects.

Digital business model first by design
Make things different and generate new areas of primary income source, like pear to peer mobile lending. Accelerate competitive advantage by the Internet of Things, for example providing information to consumers where there is the nearest on-line ATM, implementing predictive maintenance on ATM and automated equipment which customers interact with.

Digital experience first by design
The rise, evolution, collision and merge of cloud computing, social media, mobile, analytics and things, as well as, communication technologies becoming ubiquitous, the fact that penetration of smartphones is growing even the emerging countries, as also as, the fact that users want to have the same interaction experience with companies, the same way they are used to in their personal life, changed the way operations are designed and performed.
The fact that humans have today access to more information that the companies, as also have to tools to make decisions and execute actions shifted the power of operation control to the society. In this new environment, customers are more technologically demanding than ever before. This also extended to workers and partners that for the reasons exposed above want to replicate their personal interaction experience in their working environment.
Consider the following scenario before the convergence of cloud, social, mobile, analytics and things. When a company wanted to get a contract award, the customer had only access to information that was provided by the companies that where competing for the request on quotation. This limited their choices and bargaining power. Today, customers are using full force ahead digital technologies to take power from institutions.

Customers can easily discover pricing, reviews, features, offer components, service level agreements and make a decision anytime anywhere in a way that when companies discover that the customer made choice to a competitor, it is too late to steal the deal. The customer already wired the money to a new financial institution.
The customer experience may be the most impactful area of innovation available to businesses today. With the rapid rise of personal digital technology, customers have become savvier and more demanding about how they want to interact through technology.
Image this scenario when you in the role of a customer are looking into your account balance and time and time again you notice that you have a surplus in your currents account and you don’t know how to do it. By default, the attitude of your banker is it will call you when your account is on negative, you have outstanding payments you cannot honor.

Sometimes the banker does not have a positive and proactive attitude to take care of your effort on create that money surplus that you can leverage on top of it even if it is for a short investment time period. Now image that instead of looking to your account profile page without an idea of what to do, you could get automatic recommendations about how to apply your money or get personal recommendations on investment options from your banker after he received a filed alert that cash is growing ahead of short-term needs or a previous investment is just about to reach maturity. This is just the beginning of virtual finance assistants.

 

What I learned from multiple conversations with banking institutions
The focus is on new digital business models. Re-imagining banking and create new value with highly-automated processes that beyond meeting the security, privacy and transparency expectations of clients, regulators and shareholders have embedded automated intelligence or collective intelligence – like for example risk community based assessment. Banks are starting to look to humans from the human lifecycle perspective, from our spending or investment habits our risk profile, combining these new perspectives in completely different business models.