The Amazonization: The keys to a successful business model in the banking sector 💡

Change is weighing more and more on European banks and financial institutions that are losing their competitive edge. They’re currently experiencing difficulties with customer relations and regulations that increase requirements on payments and loans alone. Therefore, banks should look elsewhere. They need to take advantage of ongoing developments in Open Banking. Banks should become aggregators not only of their own products but of others’ products too. This means leveraging technology and regulations to determine where to increase profitability, while still providing excellent customer service.

A new business model: Amazonization 💡

Regulations such as PSD2 and Open Banking are changing what customers want while reshaping the banking landscape. This will lead to a significant change in banks’ future business models. New players, fintech companies, and neobanks, without any process or legacy backing, are taking advantage of the situation and entering the market with a robust online offer. In addition, they’re more transparent in terms of pricing and realize that data is their most valuable asset in developing their offerings. They also operate beyond their borders and are easy to use across Europe, whether opening an account, executing a transaction, or viewing accounts. 

Incumbent players in Europe are struggling with high costs and the need for considerable investment due to legacy IT systems and competition from new entrants. Nowadays, traditional banks are facing a multi-pronged attack on their operations from neo-banks (or Challenger Banks), fintech companies, and big tech. 

Amazonization as a response to market threats? The notion of Amazonization is a phenomenon born out of the large-scale disruption in the retail industry caused by Amazon. The company was born in the initial dot-com era, and its growth has been exponential since 2010, with the retail giant increasing more than fivefold in value. 

Amazonization refers to a shift in power to the customer. If you apply that shift to the financial services industry, platforms will become the dominant, customer-facing user interface. Platform customers will be able to search, buy and manage products. They will be offered the best price and value for their needs according to their parameters, which they set on the platform. In addition, they will be able to see other buyers’ comments and opinions before making their choice. European banks must adopt the concept of Amazonization and become product aggregators, thus providing one-stop-shopping to meet their customers’ banking needs. 

Turn to platform models? 👨‍💻

These platforms will provide transparency and the ability to compare. They will either be independently managed, offering only third-party products, or managed by financial services companies, offering their own and third-party products. The main platforms will cover most products on the market and will be easy to use. In order to adapt to this change, companies must promote the fact that they are customer-focused, that their products are easy to use, provide complete solutions and the best value. In addition, companies must be at the forefront of innovation and implementation of new technologies. 

The increased level of access to sophisticated technology means that marketplaces will become valuable comparison tools for financial services customers and new methods for distributing products. In other words, these platforms can become a one-stop-shop where customers can compare and purchase products. This approach provides customers better access to information and allows them to select products that suit them best. 

Generation Y is set to become the dominant consumer demographic, which will logically lead to the Amazonization of financial services. Changing attitudes of financial services customers will facilitate the transition to marketplaces where financial services providers can offer their products. Each product will be assigned a score based on defined KPIs, with the products offering the best value for the money at the top of the list. 

With data analysis taking center stage, financial services companies can now leverage customer data to meet customer expectations. The rise of Artificial Intelligence will further accelerate this process, with AI programs able to use this data to create a customer profile for each individual customer. AI will then be able to propose financial products for each individual, according to their customer profile. In this situation, the customer will only have to confirm the selection, thus accelerating the decision-making process and offering a more personalized service. 

With Amazonization, the European Union, with PSD2, has agreed on a new set of rules to strengthen the transparency and fairness of digital platforms. In this environment, financial services providers that offer the best products and best value will rise to the top by promoting innovation in the products they offer. In this future scenario, where data and digital platforms will be critical to success, technology players like Google, Apple, and Amazon will have the opportunity to provide marketplaces for financial products. From a financial services company’s perspective, now is the time to offer unique, captive products and become the best in its sector. Alternatively, financial services companies may seek to change completely, becoming an independent digital platform offering their own products and third-party services. 

The global banking infrastructure has undergone fundamental changes since the financial crisis. This will not only continue, but it will accelerate in the coming years. The future of banking is currently evolving, but we know that it will be very different, completely integrated into customers’ lives, and available 24/7. Due to technology, banks will have a light physical footprint and require an online presence beyond what they have today. The future of European banks will be modeled on platforms like Amazon. Their success lies in their ability to organize and analyze the mass of data at their disposal, using the information extracted from this data to further personalize and bring new offers to market in response to customer demand. 

The Aggregator-as-a-Platform for a true Amazonization of financial services  💳

European banks can no longer maintain their current business models if they want to survive in the future. Several platform banking models are available to financial institutions:

• Compliant Bank: Banks that choose this path choose to invest in procedures, processes, and compliance to open up the market and gain access to third-party back-office services.
• Aggregator: Banks that integrate information and initiate payment transactions on competitors’ checking accounts. These banks choose to partner with third parties, which can reduce development and innovation costs and improve their go-to-market strategy.
• Banking-a-as-Platform: Banks that invest in IT infrastructure and security to provide a compliant environment that benefits from network effects and economies of scale.
• Aggregator-as-a-Platform: High-volume banks that have a large cross-industry customer base and leverage their processing capacity and investments in technology and marketing.

In our opinion, banks have only one option if they really want to thrive, and that is to become an “Aggregator-as-a-Platform.” This means opening up their platforms to third-party products in addition to their own products and becoming a marketplace. 

This model will attract a new group of customers to banking by offering new value-added services. As a result, banks will benefit from the opportunity to truly monetize the mountain of data they’re sitting on. However, competition will intensify as more banks begin to take on this role. The new entrants are already well prepared. They are agile and technologically capable, but they don’t yet have the scale. 

To thrive in the coming years, banks must embrace Amazonization. This means becoming a product aggregator, a one-stop-shop for their customers’ banking needs. By focusing on becoming an open banking platform, tomorrow’s banks will leverage a sustainable, lean, and technology-intensive business model, offering best-of-breed products, whether their own or their partners’. 

Skaleet can now assist you in setting up an open banking platform to facilitate integrating your banking products and aggregating third-party financial services. With an “open data” philosophy, our platform easily manages the flow of information between entities. You’ll become a veritable “data player”, leveraging data to design personalized offers, provide new user experiences, and open up new avenues. Our technology platform will provide you with an open architecture allowing integration of financial products and services in a few days and a record time to market. 

Skaleet est aujourd’hui en mesure de vous accompagner dans la mise en place d’une plateforme bancaire ouverte facilitant l’intégration de vos produits bancaires et l'agrégation de services financiers tiers. Avec une philosophie “open data”, notre plateforme gère avec facilité la circulation des informations entre les entités, vous deviendrez un réel “data player” capable de s’appuyer sur des données pour concevoir des offres personnalisées et de lancer de nouvelles expériences et parcours utilisateurs. Notre plateforme technologique vous offrira une architecture ouverte permettant l’intégration de produits et services financiers en quelques jours et un time to market record. 

The Starling Bank success story 🚀

Founded in 2014 and voted best British bank in 2018, 2019, and 2020, Starling Bank now has more than 2 million customers, an unprecedented achievement in the banking world. Founder Anne Boden’s vision was quality of operational execution and technological innovation. While several factors can obviously explain the dazzling success of this British fintech company, the main reason for its meteoric rise could well lie in its business model as a pioneer. 

And for good reason. Just as Amazon, the American giant, managed to revolutionize e-commerce, the British scaleup is revolutionizing financial services by positioning itself, above all, as a financial marketplace, i.e., a marketplace where companies and individuals can access a range of third-party financial products and solutions directly within the Starling Bank application.

Let’s take a moment to analyze in-depth the reasons for Starling Bank’s success and the challenges its employees have brilliantly met over the past few years. 

A perfect product/market fit 👌

Amazon in e-commerce, Booking.com in online lodging reservations, and now Starling Bank in digital banking? Although the sectors differ, these three players have built their success on a specific business model, the marketplace, and a fundamental trend in our society, the Amazonization of services.

Because customers nowadays want access to a wide range of online offers from a single account, marketplaces are now very popular. 

Product selection, choice of manufacturer, comparison of services and pricing, financial marketplaces such as Starling Bank have adopted the traditional marketplace codes and applied them to financial management for individuals and companies. 

In a fast-paced fintech world where not a day goes by without launching a new service or adding a new feature, positioning oneself as a leader who orchestrates a customer’s ability to select and compare the latest offers, allows you to stand above the fray and skillfully ride the wave of innovation that’s sweeping through the financial world. 

Corporate, personal, solo, or joint account—whether it be in euros, dollars, or pounds sterling—with Starling Bank, the user only has to choose the type of bank account they want to open, and boom, they’re immediately presented with a selection of offers developed by partner financial services companies and the choices are seamlessly integrated into the customer’s application. 

Under these circumstances, when the options for the type of bank account are at your fingertips, customer support is available 24/7, and the company is a full-fledged, regulated bank, why not open an account that’s 100% online just to try it.

The Starling Bank offer is certainly attractive, but with such promises, the bank still has to resolve multiple challenges in order to deliver the expected results!

The challenges of financial marketplaces 🥊

Before diving into the details of the technical challenges of being a financial marketplace, let’s take a step back and engage in a brief ornithological lesson. 

Those of you who are English-speaking may have noticed that “Starling Bank” refers directly to a bird with very particular characteristics, the starling. 

And for good reason. Beyond its multiple social qualities, the starling is, above all, known for its impressive aerial choreography, during which several thousand birds synchronize their flight to perform a magnificent group ballet. This is a considerable logistical challenge and very close to the one taken up by the marketplaces. 

Indeed, how does one orchestrate several hundred, even thousands of services within a single application and yet offer a smooth and precise user experience? 

1. Microservices: Designing the marketplace as a set of independent microservices with limited interconnections makes it possible to develop an extremely agile structure. Working on one particular proprietary microservice does not risk destabilizing the entire structure, a benefit that allows one to innovate continually. What’s more, using microservices, above all, allows you to leverage services developed by partners to respond to a specific need or to land a new business opportunity, all because you reacted quickly.
2. Continuous Delivery: Thanks to a short development cycle, new features and services can be made available to customers almost immediately so that you get their feedback as quickly as possible. The cloud environment can be updated several times a day, and mobile applications can be updated weekly or monthly. This iterative development mode drastically reduces development time, risks, and costs (especially when the testing phase is automated). Moreover, this incremental approach allows us to evaluate a theory at a lower cost and solve complex problems step by step without ever losing sight of the consumers' expectations. 
   

In the coming years, further development of the Open Data concept should accelerate the marketplace model. Nonetheless, whatever the regulatory framework becomes or what changes bring, the marketplace concept will have to offer a wide range of products so that the customer can compare and choose according to customer reviews and their own personal needs.