Ecosystems – How banks can differentiate themselves in the face of low interest rates and disruptive threats

For decades, established banks shared the cake among themselves. Now the market is facing a transformation. Margins are under pressure not only because of low interest rates. More and more innovative providers are capturing younger and older bank customers for themselves. Many financial experts agree: to counter the developments, banks can differentiate themselves by building ecosystems. In this way, they safeguard the interface to their customers and compensate for margin losses.
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Banks are facing a harsh headwind.

Interest rates have been on a dive for several years. An unmanageably large field of disruptive FinTechs is trying to get a piece of the pie from all sides. Established banks run the risk of becoming interchangeable commodities. The loyalty of their customers is declining, which substantially threatens the customer base. Without action, profits and their own slice of the pie will diminish very quickly.

FinTechs embrace niches.

  • Moneypark is successfully working to transform the Swiss mortgage market “from a paradise for banks to a paradise for customers”.
  • The offerings of smartphone banks like N26 or Revolut aim to attract as many customers as possible. Currently, their business is not yet profitable. The customer base will be monetised later with value-added services.
  • Wise – until recently Transferwise – is gaining more and more customers with its low fees on foreign transfers.

UBS is launching an offensive against the traditional mortgage business.

UBS has reacted. Its in-house FinTech Key4 by UBS is focusing on a partnership strategy. The goal is to establish an ecosystem around “Home and Living”. Mortgage offers from several cooperation partners with different terms are cleverly combined to create tailor-made complete offers. Partnerships with Houzy, Financescout24 or Homegate.ch offer customers various added values.

Possible fields of action for banks

Two fields of action are emerging for banks. On the one hand, they can invest in strengthening customer loyalty; on the other hand, they must prevent turnover from falling away. This is most likely to succeed through differentiation.

More time for personal customer service

To safeguard the interface with their customers and strengthen their loyalty, many banks invest in maintaining their valuable customer relationships. The digitalisation of processes initially increases efficiency. The time saved is used by bank advisors for the personal care of their customers. The number and quality of customer interactions should also be increased.

One-stop shop in all financial matters to safeguard the customer interface

The buzz word “ecosystems” is on everyone’s lips among industry experts. By establishing their own (digital) platforms, Swiss banks are playing one of their most important aces – the extraordinarily high trust of their clients. This puts them in an ideal position to establish themselves as a one-stop shop in all financial matters: Making as many services accessible as possible, as conveniently as possible, at the most favourable conditions.

Invcreasing customer convenience

In connection with life events – property purchase, marriage, birth, divorce, salary increase or retirement – everyone has certain financial needs. Banks, who have particularly good insights into the lives of their customers, often gain knowledge of these life events. This enables them to serve their needs at exactly the right time. This is highly appreciated by clients and strengthens their loyalty to the bank. The decisive factor is to raise the level of convenience for bank customers. Digitalisation plays a central role in this.

Shorten time-to-market through strategic partnerships

In order to avert the impending losses in time, speed is now paramount for banks. Developing and offering all services 100 per cent themselves is not in their core competence and would be far too costly. Therefore, banks have to focus on partnerships. Together with financial service providers, FinTechs, InsurTechs, legal advisors or craftsmen, exclusive services with convincing added value can be developed much faster and better. The new offers are bundled for bank customers on a digital platform or orchestrated by the bank advisors.

Conclusion – Ecosystems to strengthen competitiveness

No one knows how much time banks have left to successfully adapt to the new market conditions and prevent impending losses of customers and margins early on. Therefore, it makes sense for them to react today rather than tomorrow and to differentiate themselves through new value-creating services. In view of the situation and the required urgency, there is probably no way around partnerships with specialists.

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