Technology has had a significant impact on the banking industry, transforming the way that banks operate and serve their customers.
Banks are adapting to the continuously changing technological environment to offer new products and services, enhance security as well as provide improved efficiency and greater convenience to customers.
According to a new report, Invisible Finance and Banking, Banking as a Service, Industry Platforms, and Embedded Banking are the new banking models with great potential in 2023.
Invisible Finance is a completely new Financial Services business model that currently only exists at the experimental fringes of the world’s economy. It refers to financial services that are seamlessly integrated into other products or platforms, such that the customer may not even be aware that they are using a banking service.
The Next Generation Banking: From Traditional Banking To Invisible Finance report describes invisible finance as a non-financial product or service that includes an indistinguishable finance capability. Invisible finance makes financial services more convenient and accessible for customers, as they can access them through products or platforms that they are already using such as e-commerce websites. It can also allow financial institutions to reach new customers and expand their reach, as their services are offered through a variety of different channels.
“Invisible Banking connects banking products with non-financial products and services. From a customer experience perspective, they become invisible. The focus is on connecting and integrating Financial Services advisory and products with life-event-driven products and transactions. They should integrate in a way that makes them available but does not take focus from the main product, service, or transaction. Life events like buying a house, marriage, vacation, and leisure activities are all perfect opportunities for Invisible Banking,” the report authored by Michael Zwiefler and Alexandra Rockermeier says.
The report notes that, although Invisible Finance is currently beyond the considerations of most bank CEOs, there is a strong case for starting to evaluate and strategize. This is due to both the incredible opportunity to grow a bank’s business and at the significant threat to its existence. Our research shows that these “Next-generation Banking Models” require a fundamentally different approach to business strategy, as well as both the financial and operating models.
Embedded banking is defined as the integration of banking services into third-party platforms or products through APIs (Application Programming Interfaces) or SDKs (Software Development Kits).
With the proliferation of fintech companies that offer a wide array of financial services, including personal finance management, investment, and lending, through mobile apps and websites, embedded banking is set to become more entrenched in many years to come.
What’s more? The report highlights that “The integration of new data sources and sensors opens entirely new banking product features (e.g., dynamic credit lines based on e-commerce data) or even new product categories (e.g., dynamic project finance through IoT devices),”
Banking as a Service (Baas)
According to the report, Banking as a Service is not only its own Next-generation Business Model, but it also enables other new business models. Using Baas, banks can leverage their investments in IT by getting other banks (e.g., smaller regional or local banks) to switch from their outdated IT to modern platforms.
“Smaller local or regional banks can barely afford to keep their IT compliant with constantly increasing regulations. But with BaaS, they can leverage a modern banking platform with a variable cost base. BaaS also enables firms without a banking license to offer financial services products. A large retail chain can use consumer financing (buy now pay later, branded credit cards, consumer loans) to increase overall customer experience, drive sales, and increase profitability.
Platform Business Models are a major force in our economy. Companies like Amazon and Apple have mastered the platform approach.
The report says that consumers now find it hard to escape platform business models due to their optimal customer experience.
“Consumer Platforms play a dominant role in our economy, and many of these platforms have a clear strategy to replace banks for Financial Services needs through their own financial products (see BaaS),” the authors say.
To take advantage of this trend, Michael and Alexandra opine that, “Banks can build industry platforms that bring all players within an industry and across the entire value chain together. Co-creation on these platforms can make them “game changers” for industries, enabling co-creation along the entire industry value chain. Banks can then infuse their financial expertise, advice, and products and leverage a significant data monetization opportunity for creating new revenue streams”.