Reimagining business models for a post-COVID banking future

Banking was already in the throes of change when the pandemic hit. As nations went under lockdown and employees went home to a remote working model, businesses were forced to accelerate their digital transformation plans just to keep going.

The impact on financial services was swift and at scale, adding great momentum to the creation of digital banking business ecosystems. But to thrive in these ecosystems, banks need new and innovative digital business models.

Puneet Chhahira, Infosys Finacle

Puneet Chhahira, head of marketing and platform strategy at Infosys Finacle, talks with Benjamin Ensor of 11:FS about what those models look like, and the tech-stack and culture required to take them to success.

Puneet Chhahira: Today’s banking business leaders’ biggest challenge is keeping pace with change. Whichever way you look at the industry, from the standpoint of the consumer, the investor, or plain competitiveness, the traditional banking model does not look sustainable anymore, while innovative digital models are going from strength to strength.

Let’s look at the situation from the customer engagement viewpoint – 20 years ago, 50% of banking transactions occurred inside the branch; today 95% of transactions happen in digital channels. In the near future, 50% of bank transactions will move to non-bank, third party channels, thanks to embedded finance and open banking initiatives.

The pandemic has acted as a force multiplier of digital transformation. Every bank we have spoken to confirms a sharp acceleration in digital adoption across segments, as customers not only bank more on digital channels but also consume more products digitally.

Benjamin Ensor: Strategy is about choosing what you will do, and what you will not do. The universal banking model of serving all customer segments with all lines of business worked in a different world in the 1970s and 1980s when information and distribution barriers were high and it was hard for customers to find and reach banks.

The Internet has fundamentally changed banking, enabling a vast array of specialist providers to excel and thrive in different customer niches. Companies that try to offer everything to everyone, particularly those that try to do so alone, are likely to be mediocre at everything.

PC: There are significant opportunities that can be unlocked across all these business models. Also,  choices are not mutually exclusive, and most incumbents will play across at least a couple. But, at the same time, not all models are suitable for every incumbent.

Banks should introspect on the purpose of their organisation and the customers they serve. They should think about their customers’ evolving requirements and preferences and build a business model to suit that context.

Like most industries, banking is also going the way of digital ecosystems. Vertically integrated pipeline-based business models are being replaced by ecosystems formed around customers. Digital technologies are unlocking unprecedented opportunities to create, deliver, and realize value in new ways.

Benjamin Ensor, 11:FS

BE: The big shift is the shift in mindset. Traditional banks built products and expected customers to come (and they did come to branches, because there was no other way to get financial services). Top-down, hierarchical cultures slow and eventually starve innovation with sluggish, risk-averse and slow decision making.

Instead, banks need to evolve to customer-centric cultures where everyone is focused on solving for customer outcomes and serving customers’ Jobs to be Done. That requires a clear vision, purpose and mission from the top, shared values throughout the organisation, and incentives, metrics and team alignment that flow from having a clear vision and set of values.

PC: Various studies, including our own, consistently show that legacy technology is stifling innovation by creating siloes and making implementations costly, slow, and patchy. Organisations spend 70-90% of their IT budgets just to maintain these monolithic systems. Clearly, enterprises cannot sustain these stacks for much longer.

Instead of monolithic architectures, today’s banks need composable front-to-back digital banking components that are independently deployable and scalable. This means composing the tech landscape to suit your evolving industry context and modernising progressively, including the core back-ends.

BE: There is no silver bullet, but you have to start with culture. Without a clear and deliberate change to the culture and ways of working, and the change of mindset that flows from that, traditional companies won’t be able to innovate. But a great culture isn’t enough. Becoming a truly digital business is a long journey.

Established businesses that have changed their cultures and developed new business models have worked hard to drive change across the whole organisation: in culture, ways of working, talent and skills, org structures, governance, funding, metrics, risk management, data and technology.

Truly digital businesses operate fundamentally differently from traditional businesses. Evolving from one to the other takes years of painstaking, deliberate change. Driving that change takes leadership, and not every leader wants to drive that change.

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