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20. February 2018

The Digital Bank – How to make Business Models fit for the Future

In mid-90s Bill Gates made a statement that “Banking is necessary, banks are not”. What sounded provocative back then is a reality today. Some banks have been proactive in embracing digital transformation. Yet many traditional banks are not heading in this direction. We at ITONICS advise numerous banks on how to make their business models fit for the digital future. Our software solutions help our clients not merely keeping up with digitization, but becoming pioneers in the fintech industry. In this blog article, we summarize our findings and lessons learned about this topic.

Time to reboot

Stringent requirements, legacy systems, and complex structures are sometimes making life difficult even for innovative masterminds in the banking sector. As a result: the process of digitalization slows down and already established solutions become overprotected against modernization. Digitalization prompts business model innovation as well – not only in the banking sector but also for rental car businesses, travel agencies, wholesale, and retail operators, basically everywhere. Digitalization reduces customer loyalty and increases cost pressure and transparency. Time and again, we witnessed that companies have lost sight of their customers’ needs over the years and are then taken by surprise if their customers turn elsewhere.

Benefit from your strength

Compared to start-ups established banks also have advantages; excellent market access, reliable and established products, established brands and hence customer confidence as well as the budget to bring innovations to market. If these core competencies are combined with a sustainable innovation management, such banks are on the right track. One important question is: “Who are the most innovative and relevant market participants in my business field today and in the future?” In most cases, they tend to look no further than their own peer group. Things get a little more difficult when you are looking for the hottest and most relevant fintechs around the world. Market monitoring and contacts to potential cooperation partners and, in particular, to all partners along the value chain are therefore essential to be able to play in the top league on a permanent basis.

Trends, technologies and startups to watch

Many newcomers in the banking sector experiment with new technologies, e.g. open APIs, artificial intelligence, chatbots, cryptocurrencies, machine learning, big data, and come up with completely new ways of delivering business value. Understanding these insights can add value to a company’s own innovation activities. But how do you identify and manage new trends and cutting-edge technologies that deliver real business value? One possibility is through so-called startup scouting.

The market environment for banks has changed massively in all areas of value creation as a result of the fintech boom in recent years. Therefore, not only trends and technologies should be monitored but also start-ups. Startups have generated a lot of noise lately – also outside the banking sector. In one way or another, they will inevitably affect the way we all do business. Although the scouting of a company’s startup environment drives competitive advantage and should be taken seriously by all big market players, it is still highly underrepresented in many industries. Monitoring the startup environment is an indispensable tool to understand the corporate landscape and point the way into the future. It can put technologies into play that are not available to a company today but ready to deliver real business value and answers questions about who or what could disrupt a business. For example, if a company is interested in blockchain or other technology areas but doesn’t have access to the necessary competencies, it can be an opportunity to partner with or invest in startups. By collaborating with these newcomers, banks can improve their own business while taking advantage of the innovative tools, competencies and workarounds created by startups.

Where is the love?

In a world where technology becomes fascination and people become second, one question arises: What about the human factor? No doubt, it still plays a major role, especially in corporate banking. Nevertheless, this sector is subject to change. ITONICS CEO Dr. Michael Durst on this:

“Not everything can be digitized. But everything that can be digitized will be …

… but anything that cannot be digitized or automated will dramatically increase in value!”

Commodities, portfolio management, standard processes, payment or standard customer services will be digitized. This will inevitably result in the total transparency of services banks deliver, low margins and a rapid interchangeability of retail banks. So the human factor – or in other words everything that cannot be digitized – will make a difference. Retail banking customers will continue to have a strong individual need for advice and solutions that standard services and products do not offer. If banks continue to convey fault tolerance, respect, courage, passion and the willingness to make sacrifices for their customers through their own employees, the human factor will become the strongest unique selling proposition in the future. Love is the answer.