Strategic Role Profiles in the Context of Open Banking for Swiss Banks
This is the second part of a three-part series of articles in which I present the findings surrounding my master thesis on “Implications of Open Banking on the Business Model of Swiss Universal Banks” at the University of St.Gallen (click here for the first part).
According to my chosen definition, Open Banking describes a collaborative concept under which banking data is exchanged between two or more parties via Application Programming Interfaces (APIs) in order to provide added value for the end customer. Open Banking originated in the UK and subsequently became relevant for all EU member states and their financial institutions via the Payment Service Directive 2 (PSD2 for short) in 2018. In the context of my master thesis, I was interested in the following three questions:
- What impact does Open Banking have on the business model of Swiss universal banks?
- Are there strategic role profiles that a bank can exercise in the context of Open Banking?
- If so, which role profile is suitable for which bank and why?
In today’s paper, we turn to my second research question and focus on the strategic role profiles for banks in the context of open banking.
In the literature, four strategic role profiles can be distinguished which are available to traditional financial institutions to engage in the context of open banking. The four role profiles are shown in figure 1 and can be distinguished with regard to the dimensions distribution and service creation (Gozman, Hedman & Sylvest, 2018, pp. 2-10). The individual roles are explained below. In addition, their influences on the business model of banks are illustrated using the banking model introduced in the first article.
The Individualist is a traditional financial institution that does not operate Open Banking. These banks create all products and services “in-house” and distribute them to their customers via their own channels (e.g., e-banking, mobile banking). Collaboration with third parties is only sporadic and mostly via proprietary interfaces. At most, the bank uses standardized APIs, which have become established on the market, for more efficient internal processing. In Switzerland, the majority of financial institutions currently operate in this role with regard to the banking-specific areas of payment, investment and financing (Gozman, Hedman & Sylvest, 2018). For this role, there are therefore no changes to the business model (see Figure 3 “Banking model” in Part 1).
The producer is a bank that operates “banking-as-a-service”. In this context, the bank’s products and services are not only distributed via its own channels, but also via distribution channels of third-party companies. A classic example in this context is the initiation of payments from a bank account via a third-party application, which can be found in the context of PSD2 in the European Union. Here, the bank acts as a service provider for third-party companies and enables them to integrate banking products and services into their value chains (keyword “embedded banking”). This results in convenient processes for bank customers that are free of media discontinuity. In return, companies benefit from integration and processing efficiencies.
If we look at the business model of a producer (Figure 2), the processes surrounding the distribution, settlement and processing (including support) of transactions in particular are changing. Distribution now also takes place via third-party companies that integrate the bank’s products and services into their own channels and value chains. The initialization and recording of transactions thus take place at the collaboration partner. The transaction is then checked, approved and processed by the bank. Depending on the contract constellation, first and/or second level support is provided at the bank. The adjustments in the business model are colored orange below. The blue elements refer to the general implications of open banking for the business model of banks, which were explained in detail in Part 1 of this series of articles.
Banks acting as distributors in the context of Open Banking use the standardized APIs established on the market to integrate products and services from third-party companies. This enables them to present a broader range of products and services to their own customers and to strengthen their own customer interface. A classic example in this context is “Bancassurance”. Here, insurance products are offered in the bank’s applications. For example, mortgage customers are given the option of taking out a death risk policy when taking out or renewing their mortgage in order to secure the financing accordingly. Other examples include the integration of comprehensive tools for analyzing consumption and purchasing behavior (e.g., carbon footprint).
With regard to the business model of a bank, it is changing in the sense that new products and services are being sold by third-party companies. The entire sales process and the initialization and recording of transactions take place in the bank’s applications. Processing and all transaction-related processes are carried out by the third-party company. The changes are shown in yellow in Figure 3 below. The general implications of Open Banking at the strategic, operational and technical/cultural levels are again colored blue.
The strategic role profile “Platform” describes the bringing together of consumers and producers of products and services of all kinds. In this role, the bank acts as an intermediary and enables the provision and consumption of services via a platform. The bank’s own products and services can be integrated, or only products and services from third-party companies can be offered in the sense of a marketplace (e.g., private lending, offers from regional SMEs or craftsmen). A good example in this context is the mortgage platform of Thurgauer Kantonalbank brokermarkert.ch. The platform connects mortgage intermediaries such as Hypohaus or Finanzhandwerk with capital providers such as acrevis, Berner Kantonalbank, St.Galler Kantonalbank or Thurgauer Kantonalbank itself.
The literature emphasizes that the platform acts independently of a bank’s core business and that, accordingly, there are only complementary effects on the current business model. Looking at Alt and Zerndt’s banking model, corresponding additions can be made in green at the operational level (sales, settlement, support) and at the technical level (provision and operation of platform). The general implications of open banking (in blue) arise in particular when the bank’s own products and services are offered on the platform and thus have implications for today’s business model.
In summary, these role profiles open up a wide range of opportunities for Swiss banks to implement Open Banking. Different strategies can be selected for the individual banking areas and the role profiles can thus be combined to create a tailored target picture. In the next article, we will address the question of which role profiles are best suited for which bank groups in Switzerland.
Alt, R. & Zerndt, T. (2020). Banking model. In Gramlich, P., Gluchowski, A., Horsch, K., Schäfer, K. & Waschbuch, G. (Eds.), Gabler Banklexikon (15th ed.). Wiesbaden: Springer Fachmedien, 232-234. https://doi.org/10.1007/978-3-658-20041-1
Brokermarket. (n. d.). Wir sind die Abschluss-Plattform für Hypothekenvermittlungen. Retrieved July 31, 2023, from https://brokermarket.ch
Gozman, D., Hedman, J. & Sylvest, K. (2018). Open banking: emergent roles, risks & opportunities. Twenty-Sixth European Conference on Information Systems (ECIS2018), Portsmouth, UK, 2018.