From „Transaction Banking“ to „Banking Services“
The bank’s core business is currently facing key challenges: sales drop due to regulatory changes and present interest rates, new competitors in the shape of small but financially very strong Fintech start-ups, innovation pressure by means of amazingly rapid technology developments and, most of all, customers with downright new demands. Banks see their existing transaction-based business models in jeopardy and have to act fast and professional in order to not further lose touch with the ongoing market developments.
But, possibilities for growth and profit generation within the current transaction-based business model are limited – the European regulation of transaction fees is reflected in the profit and loss statement of transaction-based commercial models. Even measures for pure cost optimisation will be insufficient compared to the growing complexity in payment transactions due to the expanding subject areas, lack of resources and considerable backlogs in investments.
Whilst the banks have to cope with more and more regulatory boundaries, new rivals and Fintech start-ups are spreading like wild fire, and smartly and successfully use the existing payment transaction infrastructure of the banks as the basis for their own business models. Numerous small, very specialised competitors currently enter the banking and payment transaction market, aiming to close the gaps between current offers and products of traditional providers such as banks or insurances and the educated “digital” customer who is looking for convenient ways to manage his banking and financial business.
In the past, the customised configuration of products was only possible for selected items such as cars or sneakers. Today, the smartphone provides entirely new ways for the consumer to step into the services creation process and engage themselves in the value chain in “real time”. The financial industry already offers initial conceptual approaches and is piloting the first “new” financial products (i.e. Consorsbank), but overall, the industry is still in its infancy.
New business models have to put more focus on the customer, on his desires and his individual user behaviour. Banks still own their customer’s trust when it comes to money and payments, but even more so, they have access to a comprehensive stock of relevant data which, once processed, provide valuable “Customer Insights”. These allow banks – in cooperation with merchant partners – to precisely meet their customer’s individual desires.
New market players such as Fintech start-ups have recognised the potential in payment transactions and offer numerous tailor-made products in payment, loans, P2P payment etc. to the customers, even mobile-only giro accounts. If banks do not want to lose their customers and subsequently market share, they urgently have to review and considerably adjust their product and services models. Payment transactions of the future can be described as a „new loyalty approach for bank customers“ – with stronger recognition of customer desires, with tailor-made financial offers, personalised additional services and user friendly applications to support consumer’s financial budgeting.
With this approach, banks have a good chance to strengthen their position between merchant and consumer business even better than today. With new “retail banking models” they can create a basis for strengthening the loyalty of their customers and out of this customer relationship can generate lasting income beyond the customer life cycle. This is the only way to ideally overcompensate the soon to be expected loss in transaction-based revenue.
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