Page 30 - Banking Finance May 2024

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and acquire new customers faster and more affordably than Recognizing the threat these challenges pose, several
with traditional product development and go-to-market established banks and financial institutions are beginning to
models. mobilize. However, only a few of the world's largest and
best-resourced banks are backing ecosystem development
Traditional companies are investing occasionally but in a concerted fashion-a discovery that should set off alarm
companies from outside the traditional banking arena are bells for the industry at large.
investing heavily. Big-techs, such as Google and Amazon, are
using their deep technical prowess to integrate payments Over the last six months, BCG analysed the activities of the
and financial services capabilities into a variety of ecosystem largest 100 financial institutions as defined by market
offerings. And financial technology companies are chipping capitalization at the end of 2021. Using public information
away at value chains that banks once dominated, attracting on business activities and partnerships, they assessed the
customers with niche services tailored to their specific extent to which banks were engaged with business
segment needs. ecosystems, whether by creating and orchestrating their
own or by contributing to those created by others. From this
Banks are holding back because of uncertainty. Given the analysis, BCG has examined the correlation between a bank's
risks of moving away from existing business models, the fear ecosystem engagement and its financial performance and
of cannibalization, and the intricacies of partner-based capital market valuation-and extracted a set of strategic
initiatives, not even the largest and best-resourced plays.
institutions are certain which approaches can deliver the
greatest risk-adjusted returns. Here are some key findings from our research.
Most banks are still in test-drive mode. This failure to
Ecosystems are the unavoidable next step in digital leap into the ecosystem movement in a targeted way
disruption for the financial services sector. The is leaving massive value creation at stake-and giving a
hyperconnectivity that digital tools and channels enable has significant leg up to peers that have embraced this shift.
blurred traditional boundaries between brick-and-mortar Winners could achieve superior market performance.
and web environments and between the four walls of an This stronger capital market performance is not just
enterprise and the wider value chain. driven by expectations of future earnings but also by
stronger fundamentals. Ecosystem investments and
Tech leaders have popularized the ecosystem concept, business model shifts can go hand in hand with strong
delighting consumers and business customers with "one-stop value for institutions.
shopping" experiences and integrated journeys that fold
partner-developed financial solutions into their online Competition for value is likely to intensify. Over the next
platforms, apps, and services. Today, with a swipe on a phone decade, expect ecosystems to drive a massive shift in
or the click of a few buttons, customers can complete many
financial activities without any direct engagement with a
bank.

This ecosystem innovation is giving bigtech and fintech
creators more market power. In China, for instance, Alipay
has largely replaced traditional short-term deposit,
payment, and credit card services. And in Singapore, DBS's
PayLah ecosystem allows customers to make cashless
payments at thousands of locations, interact with vendors
to get exclusive promotions, and integrate with other digital
wallets such as Google Pay.

Ecosystems are the next step in digital disruption for the
financial services sector.

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