CONNECTED & OPEN BANKING
Why connected banking is the future
By Raju Vegesna
I
n 1994, in the heyday of Microsoft Windows PC, Bill Gates bragged that “banks are dinosaurs… we can bypass them”. With digital money increasingly found inside the smartphones of today’s consumer, it seems his 26-year-old prediction came true. Cash and traditional bank deposits are now competing with Big Tech “e-money” from the likes of Apple, Amazon and Facebook. While customers are embracing FinTech solutions for their convenience and ease of use, traditional banks are building their own digital strategies and leveraging traditional in-person touchpoints at branch offices. Big Tech’s strategy is to instead seize customer relationships within their online, mobile platforms and offer a seamless on-the-go financial service experience. As Bill Gates surmised, Big Tech would indeed challenge big banks. Despite Apple, Amazon and Facebook’s entry into financial services, let’s explore why “connected banks” are still likely to lead the digital economy of the future.
Legacy and trust Unlike Big Tech, traditional banks have existing relationships with customers that span years, if not decades. Through these longlasting financial relationships customers develop trust with their respective banks. Within this traditional model, banks introduce other banking products to customers that provide stickiness for all their financial 10
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needs. Subsequently, customers are unlikely to leave their banks and take their financial services elsewhere. Now let’s compare the same customer’s relationship with Big Tech: an industry fraught with privacy issues and breaches of trust. Do people really want to give Facebook access to their financial data? I think not. Given the speed at which this industry is moving, most banks simply do not have the money and time to create sophisticated digital platforms from scratch. The ideal scenario is merging the technology of Big Tech within the platforms of big banks. But banks are more likely to embrace technology from FinTech vendors that easily integrate into their own digital banking platforms: which may not necessarily be from Big Tech companies. New digital services should be built by FinTech vendors that understand banks’ legacy systems. By adding new technology within the constraints of specific banking platforms, these suppliers can add their expertise to existing digital banking ecosystems.
Acquisitions and upsells Banks are known to do “banking things” well, such as issuing large loans, risk intermediation and liquidity transformation. What they are not known for is innovation and, let’s face it, providing superior customer service. It is no wonder that most of the connected banking solutions occur through acquisitions, rather than being built internally. Banks understand that the expectations of the modern banking customer SPRING 2020
