In the era of digitalization, retail banks are looking for new sources of profitable growth. The use of ecosystems is one of the solutions that guarantees a stable future. McKinsey estimates that they will generate about 30% of global corporate revenue by 2025. Banks are aware of the importance of digital transformation but, at the same time, don’t always see how ecosystems can help their business. We will tell you how digital ecosystems are changing the financial sector and improving the quality of banking services.
What is meant by digital ecosystems?
A digital ecosystem is a customer-centric network of interconnected companies. The purpose of such cooperation is to offer their users valuable services. The digital ecosystems can consist of suppliers, customers, trading partners, and so on.
For example, in 2018, the Spanish bank BBVA implemented several ecosystems, one of which was Valora. This offering helps clients to explore the real estate market and decide on buying or renting real estate. With the app, users analyze costs, plan repairs or equipment upgrading, and much more.
In the non-banking sector, an example of a well-organized ecosystem is Uber. Uber not only has its app integrated with Apple and Android platforms, offering a convenient payment system, but also works with restaurants and parcel delivery firms. Uber also uses Alexa and Google Maps to track passengers and shipments.
As for banks, their typical digital ecosystem includes such banking apps as a mobile wallet, a passbook, network banking, expense manager, and so on. In such a way, institutions try to create value for users. But do banks themselves enjoy profound benefits? Let’s consider four main advantages of digital ecosystems for the financial sector.
1. Digital ecosystems help banks retain customers.
Banks realize that it’s necessary to make the use of services convenient to attract and retain customers. Modern technologies and a difficult situation in the world over the past year have created new consumers. They prefer online transactions via mobile banking over going to a branch.
Thanks to innovation, banks are no longer limited geographically and are expanding their audience. At the same time, analysts see the future of customer acquisition in mobile apps. According to a study by Insider Intelligence, 89% of respondents use mobile banking. It’s available 24/7 and helps clients better control their spending. The introduction of chatbots and other useful features also helps to retain customers and improve the quality of service.
2. All participants in digital ecosystems benefit.
As we wrote above, there are three main participants in a digital ecosystem: a bank, a third-party provider, and a customer. Everyone benefits from the introduction of such a model of cooperation. Customers receive favorable offers covering a wide range of services through banking apps. Banks acquire loyal customers who won’t give up on them for less advantageous alternatives. External partners benefit from the provided customer data. For example, an airline will know whom to offer a travel class upgrade to after analyzing the information.
3. Digital ecosystems enable banks to stand out.
When banks create ecosystems, they explore the service market, analyze their offerings, come up with unique solutions, and then start building. By adding external services to basic finance functions, retail banks can make a unique offering that will meet the needs of target customers. Being visible is an important advantage in a competitive environment.
4. Digital ecosystems improve the quality of banking systems.
Banks choose for themselves which apps to cooperate with. Working with tech partners can expand the digital organization of services, improve system quality, and reduce customer acquisition costs. For example, Citibank — the largest international bank — partnered with Google, offering users of Google Pay electronic checking and savings accounts. This solution allowed the financial institution to provide branded services and consulting through the Google platform and significantly expand its reach to digital clients.
Building a digital ecosystem is not the only development strategy for banks, but 88% of financial institutions see it as an important way to interact with customers. In addition, 89% of CEOs believe that customer-centric digital ecosystems are the main profit engine in banking. In a world of connected platforms, banks can’t do everything on their own and may need an ecosystem strategy to survive.
