Extending the bank: Key drivers, technologies and steps

What does it mean to extend the bank? Traditionally, banks have manufactured, distributed and managed all of their own products and services. The concept of extend describes how this traditional model is changing as the value chain becomes unbundled, the bank ecosystem expands, and other parties become involved in these activities either in collaboration or competition with the bank.

Insight from the most recent CGI Client Global Insights reveal that banks are looking for ways to engage partners and develop new value propositions. Partners can stimulate and enable banks to offer new products and services or acquire new banking capabilities. While banks seek to remain central players in the overall ecosystem, they understand the value partners can add.

Extending the bank also involves extending its reach to customers. Banks have a great opportunity to extend their customer base through transformation, using open APIs and high quality, meaningful data.

Key drivers behind extending the bank

Regulation such as the second Payment Services Directive in Europe and the move to open banking in the UK and Australia are clear forces behind extending the bank. New regulation is stimulating innovation and competition, driving new banking models, products, services and customer experiences. There also are broader market trends, such as the emergence of new sources of competition, including the global technology companies that are changing how customers shop for and purchase traditional products and services across all industry sectors. In addition, there are social and demographic drivers changing customer expectations and demands for different forms of banking, such as the desire for fully mobile, on-the-go banking.

With the move to digitalization, we also see a shift in customer focus—from the service provider to the service, and from the financial product to the customer need. Take mortgages as an example. A customer wants to buy a house and needs a mortgage to finance the transaction. The customer’s focus is on the entire experience—the property’s location, its affordability, the speed of the purchase, the moving process, the setup of utilities services, etc.—rather than on who provides the mortgage itself. The financial side of transactions has become less central, along with the traditional financial role of banks, as customers continually seek a better experience and digitalization expands across all activities. To stay competitive, banks are under pressure to extend their traditional financial role accordingly.

Role of emerging technology in extending the bank

Emerging technology plays a major role in extending the bank, as it is difficult to implement some of these concepts in an older style technology world. Predicting demand and its timing is difficult, so on-demand cloud architecture is important. Security, open source, APIs, XML and authorization protocols are other key technology considerations, along with a new technology framework in a supporting role.

Many banks have legacy constraints, which can slow them down in extending their business. These constraints are not only technology related, but also process related. Both new technologies and processes are required to extend the bank successfully.

In addition, thinking and operating in siloes can be a hindrance. A holistic, big picture business and technology view is required. Also, agile product development and DevOps technologies and processes can help banks move faster in preparing for and implementing the necessary changes while minimizing risks.

Steps for extending the bank

Extension is an inevitable strategy and process that banks will need to pursue, but not necessarily right away. Our recommendation is to start thinking about the big picture and your future role. Do you want to be a product manufacturer, distributor or both? How do you want to collaborate with others? Then, think about the technology you will need. What type of software, for example, will you need to connect with third parties? Business processes for allowing access, consent, data security models and regulatory compliance also are key considerations.

There are banking leaders that are already extending, so this concept isn’t merely theoretical. Leaders are implementing these ideas now, and it’s important to start planning now. Extending the bank involves a new kind of strategy and business model. It’s not about technology, but rather planning the bank’s long-term view. How does it see the ecosystem and its role within it? What’s needed to enable that role?

CGI helps banks with their conceptualization and design process from the beginning. We bring together the lines of business, IT and subject matter experts to design new business models and services and implement the right supporting business and IT architecture. To discuss your organization’s extension opportunities and our work in this area, feel free to contact me.