Innovative banks are leveraging big data to revolutionise their processes and business structure and the online marketplace is part of that transformation. If you haven’t already recognised the opportunities this will bring, you need to or you will get left behind in this break with the past.
Online marketplaces are basically digital business e-commerce sites where regular public sales of products or services take place provided by multiple third parties. Transactions are processed by the marketplace operator, very much like a traditional auction house. Instead of customers having to visit multiple providers, all the offers are grouped in one place, matched on supply and demand. Orders are fulfilled by the participating vendors.
Online models have been around for some time, with the likes of DesignCrowd, where designers compete to design logos, websites etc; or IdeaConnection, where specialists solve research and technical challenges. In both examples, a company describes its needs, the marketplace participants compete with each other to propose the best solution, and the company finally selects the solution that best suits its needs. With the success of these and others it is little surprise that the financial services market has hooked on to the model.
The idea with the online financial market is that a potential customer can feed in their data such as age, salary, dependents etc. to find a car loan, for example, and the relevant offers will pop up. No more trawling internet sites for hours to find the best deals.
The online marketplace puts the customer firmly in the driving seat, unlike the traditional way they secured financial packages. The concept lends itself to the banking sector. It centralises and streamlines the whole process and makes it much more efficient.
In this age of so called ‘digital convenience’, the majority of customers pay little or no thought to the brand that is providing them with the finances. They just want the fastest and easiest route to the lowest interest rate loan possible. The online financial marketplace will give them the consumerisation of technology they have come to expect from apps on their smartphone - intuitive, easy-to-understand and with no frills or fuss.
You won’t be the only one in the ring
We anticipate that the first round of online financial services marketplaces will be niche, covering areas such as wealth management, foreign exchange, lending and payments. The market will be immature to start with and some may even fail at their endeavours. But this does not mean you should sit back and watch them try. Once the market starts to become more sophisticated - and we believe this will not take long - we will see full ‘e-marketplace banks’ established.
We saw the arrival of the PDA device, but it did not take long before it morphed into the smartphone and Apple arrived with the iPhone, the first to use a multi-touch interface, and the rest, as they say, is history.
All this is not going to happen overnight, of course. But once these marketplaces have carved a secure positon in a particular area, they will quickly offer a larger menu of products and services, based on customer demand. Full retail banking marketplace banks will emerge. They will only have to produce the basics themselves, such as debit/credit cards and current accounts, and possibly digital wallets.
Other products will be made available by third parties, such as traditional banks, financial institutions, and emerging financial technology (Fintech) challengers. This will allow such a marketplace bank to offer the combination of products and services that best suits the customer demand.
Traditional banks are definitely in the key position to take up frontrunner positons. But don’t be fooled into thinking they won’t be given a run for their money. New, innovative competitors, peer-to-peer companies, such as Funding Circle or Lending Club, will also take to the ring, seeing out a competitive opportunity.
Don’t forget this new breed of contenders do have the regulatory license to provide lending, payments and other services, and the ability to offer strong annuity facilities. Philippe Gelis, co-founder and CEO of the leading Forex online marketplace, Kantox, has gone on record as saying that the first true marketplace bank will be opened by a Fintech start-up. Why? Because ‘it is too disruptive and the risk of cannibalisation is too high to see a bank assuming the risk,’ he said.
Call to arms
This change in the financial vista is happening now. We believe that they will start to appear over the next couple of years and we will see marketplace banks as commonplace by 2020.
Competitors in the emerging online finance marketplace will need to be agile and well resourced, both in terms of technology and data management. If you can’t provide fully automated bid administration and risk management, you won’t be able to play the game. It is that simple.
This new wave of marketplace banks will also need a new credit model to target valuable customers and retain them. In addition, they will need to be able to gauge their exposure in terms of liquidity, so that real-time decisions can be made on the value of a specific customer and the financial packages that can be offered. If you can’t do this efficiently with smart technology, you will lose out to a competitor. It really will be a ‘dog-eats-dog’ business.
At the same time, customers will demand instant gratification. Products will need to be simple, easy to understand, modular and transparent. From the onset, e-enabled customers will be seeking out deals they comprehend quickly, without endless small print and penalties. Yes, they can offer up-sell and advice, but it will be the marketplace banks that can satisfy the demands of unpredictable customers, who expect the ultimate in customer service that will win. This definitely is not a brand war.
All this requires ‘best in show’ real-time analytics. Financial institutions who haven’t got this on their radar, should make it a priority. This fast moving market will belong to those that have the technological backbone and skills to come up with new business strategies on the hoof in a 24/7 connected world.
Ponder as your peril
Those that hold back and debate, will not get a chance to enter the game. Robust marketing and a CRM platform is essential; one based on advanced analytics, and that can deal with big data, and with a sturdy risk management strategy, is a must.
It is, therefore, paramount that you start now, as opposed to sitting on the fence and seeing who makes the first move. Others are already putting their infrastructure in place ready for the starting flag to go down.
In just five years online banking exchange players could have the biggest slice of the market. Are you ready to take this challenge head on?