Banks need to rethink their positions in the whole customer supply and value chain.
It is interesting that when we discuss innovation in finance, most of the conversation is about banking-as-a-service (BaaS), fintech and open banking. This conversation is coming from the wrong angle though — we should absolutely not be talking about open banking.
Instead, we should be talking about open commerce. Why? Because the emphasis is different.
BaaS, fintech and open banking are all focused on the supply side of offering financial services. Where is the focus on the demand side? More than this, the focus is on banking and finance. So, where is the focus on the customer?
When you approach this from the customer’s perspective, you realise that the whole supply and value chain is being turned upside down. It is more than business-to-business or business-to-consumer; it is everything from government to bank to business to citizen.
The issue for a traditional large bank is that it thinks it controls the whole supply and value chain
When you step back and view it that way, you begin to think differently. How do government programmes integrate with bank services? How do bank services integrate with the corporate treasury? How is the corporate treasury providing efficiency to the business? How is the business providing capabilities to their customers?
It is the whole supply and value chain. It is open commerce. It is everything.
From this perspective, you can begin to reimagine the entire chain. Picture thousands of pieces of processes being automated by software: some will make a payment; some does a delivery; some will record the payment; some will record the delivery. Moving up a level, some will check the payment versus delivery; another will check the delivery versus payment. The possibilities for integration are endless.
Similarly, this would happen between thousands of companies who are linked by the network of technologies at our disposal today. Some will orchestrate the processes, others will write the underlying software and others still will manage the integration. It is a new front-, middle- and back-office that mixes many players in a completely customer-focused supply and value chain.
This re-engineering is an interesting perspective for a bank, as these institutions have historically controlled their supply and value chains from end to end. Some still do, or try to, but all of us will have to let go eventually.
The future is one where the bank needs to orchestrate and focus on the parts of the chain where it fits in best. The rest might go to companies like Stripe or Adyen; some might go to Global Processing Services or Marqeta; some might go to the likes of eToro or ZuluTrade; and some might even come to the bank.
This new reconstructed world of supply chains and value chains demands three things: first, start with the customer view, customer journey and user experience; second, work out how to build the best chain to meet those needs; and third, identify who else needs to be involved to meet those needs and partner with them.
The issue for a traditional large bank is that it cannot start with that clean sheet of paper. It thinks it controls the whole supply and value chain, and does not want to release control or partner in an open system, and also struggles with how to build a new world based on a digital customer view.
Dealing with this issue may be difficult, but if we ignore it, we are offering ourselves to be acquired by those who do not.
Chris Skinner is an independent financial commentator and chairman of the London-based Financial Services Club.
