Shifting Paradigms in Banking: How New Service Concepts and Formats Enhance the Value of Financial Services

Abstract

Mutated market conditions, the advent of new players, and a significant regulatory push have changed the banking industry profoundly in the past fifteen years. Banking business models have shifted from a vertical integrated paradigm, where production and distribution mostly belong to the same entity, to a platform driven model in which a combination of modular solutions can take place and evolve consequently according to an ecosystem market approach. A higher level of openness toward third parties and an increasing number of modular services bundled together have rebooted the way financial service formats can be conceived, delivered, and consumed by individuals. Digital platforms are driving open innovation and different formats are evolving in the market, driven by multilateral relationships. In this regard, open banking is becoming increasingly popular in many jurisdictions, especially in regard to stages of development, approaches, and scope. This paper explores how, through an affiliative approach, banks are seeking to retain customer loyalty as they respond to the ways in which FinTechs and BigTechs have developed more innovative financial service formats. This is also boosted by new legal frameworks—such as open banking and open finance—where many new services will be developed thanks to the sharing of customer-permissioned data, by offering customers new, more efficient payments; improved online account services, and other set of new services. The first part of this chapter highlights which trends are impacting the next banking frameworks as well as the evolving relationships between banks and FinTechs. The second part outlines the main outcomes of the evolution of new financial services and their impacts on value chains. Finally, the last section presents conclusions and describes upcoming opportunities for all the players, and identifies the next big challenge as the ability of these services to make a difference so that differentiation in value propositions, features, etc., is needed to give the customer a reason to choose a particular service.KeywordsFintechUnbundlingRe-bundlingOpen bankingOpen financePlatformEcosystemContextual banking