Digital Transformation to Keep up Revenue

The Winner Still Takes it All ….

It is commonly known that in times of low interests and intense regulations financial sector in Europe seeks for new ways to keep up profitability. Beyond low interests and increasing regulatory requirements also all of us know about the additional pressure digitalization is creating on the financial sector. Many articles, strategies and discussions have been published around that in the past few years. Well, there is no other answer yet to this new challenges then that one which all of us have learned somewhere in the past. A company may either reduce expenditures or increase earnings to affect profitability positively. That is what strategy is all about: Find ways to increase earning or reduce expenditures. Which processes are to be redesigned? Which systems are to be replaced? Which services are to be introduced and to whom Retail, SME or large enterprises? Having a look at the strategic answers banks and insurers find around these questions one very quickly may perceive that pretty much all of them start modernizing their IT. They do this because the hope to achieve several goals at once. They all hope to increase efficiency and reduce costs. They either have missed to replace IT in the past twenty years and hence carry a lot of technical debts or even if they have done that once during that period they need to redo because of the speed of technological progress. On the other hand they hope to create a set of new business areas where they might produce new sources of revenue. New IT may allow banks and insurers to expose parts of their business to the public so other companies might mash them up with other services and create new value propositions which in return will help banks and insurers to benefit from those kinds of network economics. Such kind of network effect for instance might appear by taking new FinTechs and InsurTechs into account. Those startups create new value propositions mostly for SME and retails business and they have a significant demand for foundation services they usually cannot provide themselves in first place. Working together with startups in almost all cases means bringing up new services for SME and retail and this fits to the strategy. ING for instance mainly targets SME for creating new business. ING is going to spend up to 800 million Euros for continued digital transformation until 2021 implementing new lending platforms for SME and consumers. Other banks and insurers are doing similiar things. Indeed there are bunch of initiatives like ING’s. Banks and insurers are introducing new core systems. They will be exposing their services semipublicly soon. They will operate clouds where third party applications can run. We will see a bunch of announcements for new application marketplaces operated by insurers and banks where developers offer new cloud based apps using the exposed services and cloud operating models. They might also use existing marketplaces such as SAP’s HANA or Salesforce’s AppExchange. I am very curious which one of those projects will succeed and which ones of those succeeded initiatives will actually survive. The principles of network economics teach us the winner takes it all. Hence, not all of them can win. And what I actually am asking myself is what if a developer decides to use services exposed by different banks and insurers in one single application simultaneously? Where does she publish the application? Does he publish and offer it on the marketplace of Bank A or Insurer B? On whose cloud will that application run when each bank or insurer offers its own cloud? How can hybric clouds or multi clouds establish solutions which really work?