Digitisation is driving the convergence of industries across the globe resulting in traditional financial services groups contending with a range of new competitors.
The implications could be dire for financial services organisations that are unwilling to adapt their strategies in these changing times, according to the findings of a report by world-renowned platform economy expert Sangeet Paul Choudary and Standard Bank’s Wholesale Clients Digital unit.
The paper, titled “The Power of the Platform Economy for Financial Services”, looks at the fast-growing platform economy, in which value-creating interactions are facilitated by digital intermediaries. It unpacks the new opportunities this presents for financial services institutions to deepen their customer relationships and tap into non-traditional revenue streams.
This follows a paper released last year, titled “Can Africa take the platform economy forward?”, which analysed the challenges facing the continent’s platform economy, the path it is likely to follow, and the untapped opportunities for long-established organisations.
The platform economy has gained further relevance amid the Covid-19 crisis, and is increasingly shaping how financial products are distributed, how customers are served, and how underlying financial infrastructure is scaled.
“The pandemic has also reaffirmed that digital technology has the innate ability to bring us closer together – to be more human and connected, not less,” says Margaret Nienaber, chief executive: client solutions at Standard Bank Group.
“At Standard Bank, we are aiming to find a balance between being truly human and truly digital. With digital disruption impacting the industry, clients expect personalised experiences at any time on their preferred touch points.”
As the financial services industry is unbundled, and as value is directed towards new business models, the vertically integrated value chain of the industry is being transformed into a layered financial services value stack. To succeed in this new world, financial services providers need to understand the dynamics of the platform business and chose their position within the value stack.
There are four common types of strategies pursued by financial services firms in the platform economy:
* Transforming into a platform business to unlock new growth opportunities.
* Partnering with other incumbent firms to collectively meet the needs of clients.
* Developing capabilities that other platforms need that can be licensed as a service across ecosystems.
* Defending an existing value chain position and continuing to build scale as a product provider.
Most financial services organisations will need to adopt a combination of these strategies to effectively compete in today’s world.
“Traditional schools of strategy are changing and the days of chasing sustainable competitive advantage are over,” says Kent Marais, head of digital channels for wholesale clients digital at Standard Bank Group. “Instead, organisations must strive for temporary positions of competitive advantage and remain agile, combining offensive and defensive strategies.”
There can be no doubt that the platform economy is here and changing the rules of the game.
However, to succeed, platform businesses require strong partnerships to be established at various levels of the value chain. Knowledge, capability and skills are still being developed in this space and therefore organisations must actively develop and partner to leverage the requisite skills to make the platform economy a success.
“Historically, a bank’s competitors were other banks, competing across sectors and markets. However, organisations are shifting their thinking and seeing the world in a set of ecosystems that work across industries to make a value proposition,” says Jonathan Lamb, executive: platform business lead for wholesale clients digital at Standard Bank Group. “Ecosystems are not built around products, but around customer value propositions. Therefore, there is a need to supplement existing products with partner products to deliver end to end solutions.”
Looking to the future, Sangeet Paul Choudary says: “The platform economy in financial services has been shaped by regulation and innovation in other markets across the world. In 2020, the pandemic initially stalled big-tech regulation, but 2021 is the year when regulation takes centre stage, starting with what’s happening in China.
“Platforms must figure out how to co-exist with regulation and ensure a more equitable way to distribute wealth and ensure incentives for the ecosystem to take risks.”