Why traditional banking doesn’t matter anymore

Essay on the future of banking

Traditional banking giants with siloed value chains will lose customer relationships through digital ecosystems at a significant pace in the near future. These banks can only remain competitive by establishing digital business models. This requires the integration into digital platforms, a superior customer experience, the unbundling of core banking, and the provision of microservices incorporated into other industries’ process chains.

Indeed, it is astounding that very well-known banking giants will soon lose a significant portion of their customer relationships and business. Some banks will even disappear. Consider this comparison: The mobile banking fintech N26 in Germany (founded 2014) already has a valuation of $3.5 bn with approx. 3.5 million customers and 1600 employees (per 07/19). N26 attributes their success to having “the best banking experience in the world”, which investors obviously honor. In contrast, many Eurozone’s top banks meanwhile have a market capitalization below 10 bn$, a base of 10 to 30 million customers, and up to 100,000 employees. Other fintech examples are Chime, Atom, Revolut and Monzo.

However, there are additional threats coming from tech giants like Google, Facebook, and Amazon who are already working on their own financial services products. Regulatory frameworks that no longer protect the legacy business are making this situation even worse. Renewals of regulations like PSD2 and PSD2 XS2A or the Open Banking Framework in the UK are the door openers for new business models in financial services. This would have been unthinkable in the past, and we are now facing the tipping point of this development in 2020.

The question of how technology trends might have an impact on banking business models has often been raised. Here we will look at how banking business models will evolve in the near future and, consequently, how technology, as the source of true disruption, must support this development.

In our Whitepaper “Essay on the future of banking” we focus on:

  • The paradigm shift in banking
  • The main technology principles
  • Essentials for the way forward

The paradigm shift in banking

From “Traditional Banking” to “Banking-as-a-Microservice”

We already experience the first customers wandering off to digital platforms. Most products are still coming from traditional banking giants with their full value chains and legacy core banking systems.

Digital banking platforms continue to enhance their product spectrum in partnership with traditional banks and other product-specific fintechs. In parallel, they also start building their own core banking environments. In 2020, the current paradigm “Banking-as-a-Platform” will become even more established as a standard model in the market, as we already move to the future paradigm “Banking-as-a-Microservice”.

B2B banking API platforms will provide 90% of the future banking value chain in terms of basic functions like customer management, account management, deposits management, regulatory interfaces, risk modules, etc.

Product banks, fintechs, and digital platforms will only make up 10% of the value chain on top of the standardized microservices themselves which are crucial for their unique services, i.e., their USP.

The main technology principles needed to stay relevant

How are traditional banks or fintechs able to shape this new future?

The main challenge of traditional banks in the new scenario is to define their role within new multipurpose digital platforms. This is completely contradictory to their current business model.

Let’s have a look at the four principles necessary to stay relevant:

  • Defining the banking digital platform business model
  • Superior Customer Experience
  • Banking microservices incorporated into other industries’ process chains
  • Unbundling Core Banking

Essentials for the way forward

Banking will continue to shift to digital banking platforms and to be integrated seamlessly into multipurpose platforms and other industries’ value chains.

Traditional banking doesn’t matter anymore – traditional banks matter, as they have the cash, the names, the trust, and the customer base! However, they need to gain significant speed to get ahead of this evolution.

Big techs will heavily influence this development, as they have cash, trust, and quite obviously the highest technology understanding.

Fintechs, insuretechs, etc. will function as disrupters in this market development, with the most successful of them being acquired by one of the big techs.

Building digital business models and integration into digital platforms, superior customer experience, providing microservices incorporated into other industries’ process chains, and unbundling core banking are the main principles to stay relevant. Buying XTechs is the fast track.

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Vison for Banking – Journey 2022

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Your contacts

Carlos von Prabucki
Global Financial Services COO
Head of Banking Iberia and South America region
carlos.von@atos.net

Gunnar Kill
Senior Director Digital Banking
gunnar.kill@atos.net