In my previous two posts, I talked about how banks can take advantage of customer mindsets—customers’ attitudes and approaches to money and financial services—to remain competitive in the era of Google, Apple, Facebook and Amazon (GAFA). Building a customer mindset segmentation model can help banks fine-tune their offerings and improve the customer experience.

A further step banks can take is to understand the roles they can play in financial services. We have identified five roles that are non-exclusive—banks can choose a single role or combine roles to fit their unique requirements and strategic vision.

Relationship Player

In this role, banks are at the coal-face of the relationship with customers, where they and other players (GAFAs and FinTechs) create compelling interactions and customer journeys. While this is the traditional role of a bank (together with manufacturing, addressed below), this is the area that has experienced the most upheaval.

GAFAs and FinTechs now provide amazing experiences, some that are truly C2B (Consumer-to-Business). For example, they encourage customers to rate products and transactions, and use those ratings when they make new purchases. As a customer, would you buy a 2-star financial product, if you could get a 5-star one for the same interest rate? Others are using alternative data-sets to better understand the customer they’re servicing.

Examples of organizations that fill this role include financial services players such as Moven, Simple, OnDeck and Kickstarter, as well as the likes of Amazon, Uber and Airbnb.

Platform Provider

Although I have decoupled this role from the experiential one, experiential players typically run platforms beneath the experiential layer. By platform we mean “open” platforms, where sellers, buyers and content providers interact, create and sell products and services, and share value.

TransferWise, Lending Club, eBay, Amazon and Uber are leading examples of companies that have taken on this role. The test here, in my opinion, is the ability to “flick a switch” on the platform and open up to new products or markets. Look at how Amazon, Uber and Netflix have ramped up over time to increase their scope and customer base.

Core Financial Services Manufacturer

This is the traditional role of banks—packaging and providing regulatory-compliant financial services. It is about producing current accounts, cards and credit.

In my view, this role produces an interesting conundrum for many systemic banks: creating financial vehicles, which are expensive to service due to legacy systems and regulatory burdens (think stress tests), that end up powering GAFA and FinTech transactions. For example, consider the card that sits behind your Amazon wallet, Apple Pay or Moven, or the account that powers your PayPal transactions. Additionally, there is the question of how being regulated influences innovation, new thinking and risk-taking throughout the business.

Innovation Playmaker

Here we look at a diverse set of approaches that operate across the innovation value chain, from incubators and accelerators, to venture capitalists and service providers, to nascent FinTechs, such as those in the areas of space, manpower and advice.

Leading players include Andreessen Horowitz, AngelList and Kickstarter, as well as the established innovation arms of leading banks such as CitiVentures and BBVA Ventures. Even an Idea Hub, from Idea Bank in Poland, or an Umpqua Bank store could be delivering a piece of the innovation agenda.

Digital ID Enabler

Banks already have a whole set of processes in place to manage and safeguard identity, from payments initiation to know-your-customer (KYC), to confidentiality and privacy. The question is if there is space for banks to play a valuable role in the digital identity value chain. And looking beyond the current push from some governments, is there space for yet another digital ID, which you might use once a week or less, in an environment where you use your Google, Apple, Facebook and Amazon IDs multiple times a day?

At the very least, banks could leverage their physical network to support digital ID KYC processes, whether the ID belongs to the bank or a GAFA.

What do these roles mean for banks?

The key thing for banks to understand is which roles they wish to pursue and if it is to their advantage to adopt them all. Although the decoupling of manufacturing from distribution (experience and platform) is a reality in a lot of industries, banks are still very vertically integrated, only able to sell products, such as mortgages, that are their own. Moreover, the manufacturing part is a burden in terms of cost-to-serve (until legacy is replaced with new infrastructure) and regulation, which possibly points toward industrialized outfits with modern, resilient and low cost operations hitting high volumes.

In this new era, where companies must be accessible 24/7, the financial services industry can learn much from GAFA about the innovative ways they position themselves in their customers’ lives. For banking executives, this means focusing their investment strategies and creating new business models—based in part on their selection of role—that will multiply interactions with customers, generate valuable data and drive cross- and up-selling opportunities.

In my next post, I’ll explore the Digital ID Enabler role, which I see as offering interesting angles for banks.

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