The Intelligent Future of the Financial Industry – the Business Ecosystem
An ecosystem is a set of relationships between individual components that achieves its full effect only through their interactions. For a better understanding I would like to use the production of honey as an illustrative example. For the final product honey, a diligent hive, a reliable beekeeper, a suitable infrastructure with bee boxes and honeycombs, the harvesting and bottling of the nectar, as well as good marketing and sales are required in advance. The end customer can therefore only enjoy the finished honey when all the subcomponents interact successfully.
This article is specifically dedicated to the topic of business ecosystems. At CC Ecosystem, we understand ecosystems as dynamically evolving value networks of diverse participants that pursue an overarching goal with the help of a common organizational and transactional infrastructure, often in the form of a digital platform (Auge-Dickhut & Burkhalter, 2019). The ecosystem concept can be illustrated, for example, by the customer journey that a customer goes through when purchasing a home. In addition to pure financing by a financial institution, on which banks would classically focus, a housing ecosystem includes many other services that form a meaningful and unified overall concept. This could look as follows:
A family wants to buy a home and is thinking about the following points: maximum purchase price, house or apartment, future place of residence, financing and security for the family (list not exhaustive). Based on the family’s needs, an integrative purchase or construction process can now be shown, which serves as an orientation and interactively accompanies them during the entire project phase. This can be done in the form of a visual timeline on a specially built platform. The latter contains all available services, which are digitally networked within it.
In connection with the search for the right home, some search engines in the financial sector already exist at the present time that aggregate real estate listings and add further search criteria, such as commute to work, nature, surroundings or bus stops. However, the buyer cannot contact the seller directly via the corresponding websites, but is first redirected to an external real estate portal. However, it is advisable not to separate real estate sales and the addition of supplementary services, but to create one platform that provides registered users with a broad network of other involved entities in the real estate sector in addition to pure real estate sales. The orchestrator of this ecosystem could collect data and search requests, share them with other ecosystem participants depending on the design, and use them for specific customer offers. For example, a bank could learn in advance that a large sum of money will soon flow from a sale, possibly not only from its own customers.
In the following, I would like to take a closer look at possible subsystems that could be integrated into the ecosystem. My aim is to show to what extent synergies can be used within the ecosystem. When buying a property, for example, the price plays a big role for customers, as no one wants to overpay for their home. Therefore, it is a frequent request of customers to receive an estimate of the market value of an interesting property. Currently, the main focus here is on services with end-to-end processes, practical applications and quick decisions. Among them are startups, such as Immosparrow or PriceHubble. In the area of financing, there are also young, digital providers that offer great support via smart software and data analysis. In the area of renting apartments or houses, there are platforms such as homegate or flatfox. Existing janitors and property managers can also be integrated into the ecosystem for management purposes. Start-ups such as Knip (inactive), resurance, or SafeSide offer optimal insurance for the family and the new home. MOVU could be involved in the system around the topic of relocation. Before moving into an existing property, additional renovations or other changes are usually required. Therefore, the inclusion of partners such as Renovero would also be interesting for customers, as the need for renovation in Switzerland is likely to continue to increase in the coming years and such providers will be needed more and more often. Also not to be neglected are the increasing energy modernizations in connection with the topic of sustainability. This is exactly where the added value of an ecosystem can be seen. No matter what specific occasion leads the customer to the ecosystem or how the customer becomes aware of the ecosystem, he or she is given access to all the providers and services integrated in it. Regardless of whether the customer is considering financing, a sale, a renovation, a move, or an insurance policy, an ecosystem can integrate all housing-related services relevant to a customer and automatically guide the customer to services that are relevant to him or her in the context of his or her customer journey.
Furthermore, topics such as smart home and IoT could become another useful and innovative addition around the topic of housing. Digital helpers such as Google Home, Alexa or Apple HomePod are becoming increasingly popular. Monitoring one’s own home via cameras on the smartphone or controlling lights, doors, windows or the room temperature via voice commands is just a small selection of the possible additional functions. In the future, these little helpers will also be used to place stock market orders, payments and other paid orders. Financial transactions or contract management in the background via blockchain and smart contracts could also be applied to all other services within an ecosystem.
Beyond the financial sector, however, the involvement of service providers from other sectors can also bring enormous added value. Since the Federal Council’s announcement of October 17, 2018, about a possible liberalization of the electricity market for private individuals – the last announcement about the consultation appeared on June 18, 2021 – we see a great opportunity for an additional expansion of the housing ecosystem. Today, Swiss citizens are dependent on regional electricity suppliers. In the future, they may be able to choose for themselves where they want to get their electricity from. A new market is emerging. I imagine a Comparis for electricity, like Verifox in Germany. An online comparison portal including a continuous process with contract issuance and switching. As soon as the price-sensitive Swiss can choose for themselves, they will want to compare their costs. If one offers such access within an ecosystem, the individual participants gain access to countless other homeowners who will use their services sooner or later.
The glimpse into the housing ecosystem is just one example of many possible networked systems. Regarding a possible ecosystem that incorporates the area of investments or yield optimization, I am thinking of Alibaba. Customers can already open payroll accounts there and transfer funds. If they don’t have enough money to make a purchase, they are given the option at checkout to take out a loan from Kabbage or directly from Alibaba via Pay Later (BNPL). If there is money left over at the end of the month, they simply invest it in the money market fund set up by Alibaba. There would be many other partners here, which could be added to an investment ecosystem to offer an attractive overall package. The integration of such financial services “at your fingertips” is often called embedded finance.
In summary, an ecosystem is a network of all relevant services in a specific market area. No matter through which access a customer enters the ecosystem, the entire system benefits from the work and offerings of the participating partners. Based on these synergies, each individual cooperation partner has the opportunity to gain access to additional customers and valuable data and can thus offer customized services.
What Are the Advantages for the Customer?
Customers receive all services from a single source or from an ecosystem. Depending on the orientation of the ecosystem, the orchestrator can ensure the security and professionalism of the participating services, for example, by checking providers or strategically selecting contributors. Based on evaluations and customer feedback, the service can be constantly improved and renewed.
What Are the Advantages for the Provider?
The participating companies gain additional customers as well as additional income from any brokerage commissions. An ecosystem therefore depends on the reputation of each individual partner, which is why they all strive to perform their services to the fullest satisfaction of the customer.
What Are the Advantages of Developing Such a Platform?
If a bank were to orchestrate an ecosystem in the area of housing, it would gain access to potential new customers on the one hand. On the other hand, the ecosystem would give it the opportunity to offer attractive services beyond the topic of finance and thus retain existing or new customers. Furthermore, the bank would generate additional sources of revenue by referring customers to the partners involved. Above all, knowledge about the platform users and their intentions is also valuable knowledge for a bank, allowing it to be informed promptly about the plans of interested parties. Thus, the bank succeeds in being the first to learn of the family’s purchase intentions as soon as they launch search requests, insurance inquiries or appraisals in the ecosystem. However, since a single platform usually prevails over its competitors in a given field (Zillmann, 2020), a bank should carefully consider before embarking on such a project whether it has the capabilities to orchestrate it and whether it wants to risk losing the competition against another platform in the end. The role of contributor as a provider of finance solutions also represents a rewarding and, moreover, comparatively low-risk positioning opportunity within an ecosystem.
This article was originally published on LinkedIn in January 2019 and was part of the Swiss Bankers Association’s blogparade on Open Banking. This version has been updated and revised.
Auge-Dickhut, S. & Burkhalter, M. (2019). Ecosystems – Positionierungsmöglichkeiten für die Finanzindustrie. ccecosystems.news. https://ccecosystems.news/ecosystems-positionierungsmoeglichkeiten-fuer-die-finanzindustrie/
Zillmann, M. (2020). Digital Outlook 2025: Financial Services. Strategien von Banken & Versicherungen für ihren Weg in eine digitale Zukunft. Lünendonk & Hossenfelder. https://www.luenendonk.de/produkte/studien-publikationen/luenendonk-studie-2020-digital-outlook-2025-financial-services/