Martin Zahner, Head of Software Exchange, Avaloq
Digitisation is relentlessly permeating all areas of life and business, changing them for ever. Financial institutions too are having to deal with the consequences and opportunities that come with digitalisation: new technologies, new customer behaviour and the disruptive force of fintechs. Being open to change and new technologies is vital for those organisations that want to successfully tie discerning customers in the digital future and remain being their preferred bank.
Technological integration and the omnichannel approach
Unlike new market participants and fintechs, which have used digital processes right from the outset to provide their customers with their offerings, it is important for many of the established banks to integrate the new digital banking opportunities into their existing channels. Banks opting for an omnichannel approach are doing so because they want to offer customers an end-to-end client experience. It does not matter which channel the customer wants to use to interact with their financial service provider, carry out transactions or seek advisory services – the new offering should always be well integrated.
However, integration is easier said than done. A number of banks – especially smaller institutions will likely find it too difficult to cope with the changes in the market and all the challenges of digitalisation on their own. Major banks frequently cooperate with fintech companies, or buy out the ones they find most interesting. In most cases, success is not just determined by the size of the project budget, but also by the ability to use the right talents and technologies.
Open innovation and ecosystems
There are ways for smaller institutions too to make their own use of what fintechstartups have achieved. This approach involves working closely together with other market participants to: exchange information about potential innovations and how to realise them or experiment with them, facilitate shorter time-to-market cycles for new ideas, and share project costs and risks. It has been utilised in a wide range of industries and is generally known as “open innovation”.
Functioning clusters of companies that interact using the open innovation approach are called ‘ecosystems’. These are places where companies can network to further and exchange their ideas and developments with other companies. A shared technology platform or a common market forms the basis for collaboration. Banks are constantly being challenged to respond to industry changes and to keep apace with technology and consumer demands. However, in the case of banks, the key question with open innovation is how they can be securely and sensibly integrated into core banking.
One way is through open application programming interfaces (APIs) such as those available on the Avaloq Banking Suite with open enable banking institutions to access the ecosystem in a neutral environment. This then facilitates meaningful cooperation, but does not force participants to establish close links. Banks retain their individuality, but profit from the solutions at the same time. The API then allow visitors to decide for themselves to what extent they play a part in the ecosystem.
The transparent innovation roadmap
By making innovation processes transparent in the ecosystem and inviting banks, fintech companies and software houses to collaborate there is a continuous exchange of information. This has become an ‘ innovation roadmap’ for banks.
In line with the main principle of open innovation, transparency is given great importance within the ecosystem. The status of innovation ideas and how banking institutions can participate in them must always be made transparent for market participants.
The digital future of banking: co-innovation
Banking is undergoing major changes as a result of digitalisation. Co-innovation can be an ideal way for a small to medium-sized bank to keep pace with larger competitors. Often smaller institutions might not be able to satisfy the wide variety of rapidly changing requirements over the customer’s entire life and demand cycles without external assistance – particularly if the new digital offerings and services are to be incorporated into a complex and established core banking system.
Open ecosystems could therefore prove to be the ideal approach to digitalisation. They allow for efficient co-innovation on the basis of a shared technological platform as well as open and transparent innovation processes – without neglecting the individual needs of institutions.