History has witnessed some great innovations in the global banking payments business over the last 20+ years with the advent of information technology, but the next wave of technology disruption that has hit the market promises to completely change the way banking is done in the future.

1. Transform or perish: NextGen Banking through disruptive technology
History has witnessed some great innovations in the global banking payments business over the
last 20+ years with the advent of information technology, but the next wave of technology
disruption that has hit the market promises to completely change the way banking is done in the
future.
The market is unbundling and players are riding high on Big Tech, a wave of companies driving
large societal change. It is imperative for banks to address the following transformation paths to
stay relevant in business –
Speed
The global adoption of real-time payments with 5 to 10 second SLAs has already started to
change the future of payments.
Key imperatives for banks:
 Faster and guaranteed payments across domestic and cross-border corridors
 Extended processing windows (24x7)
Access
Open banking is driving the way financial data is created, shared and accessed; creating a
whole new platform that relies on networks instead of centralization.
Key imperatives for banks:
 Regulatory push is driving a ‘de-walled’ approach
 Convergence of payment types is expected to accelerate
Pipes to Platforms
The traditional business model, driven mainly by brick and mortar and in some cases assisted
by an online presence, has been a linear flow of value created upstream and consumed down-
stream. These are pipes where optimizing conversion funnels to grow is the primary business
strategy.
As information technology profoundly reduced the need to own physical infrastructure and
assets, Platform Thinking has emerged. Platform businesses bring together producers and
consumers in high-value exchanges. The strategy here is to build network effects before you
optimize conversions.
Key imperatives for banks:
 Business model drivers moving from reach to ‘network effects’
 Piggybacking on GAFA (Google, Amazon, Facebook and Apple) networks driving re-
alignment
‘Ops-Light’ Approach

2. The focus is on improving operations efficiency and reducing running costs by moving labour-
intensive work to in-house software-based services or to ‘as a service’ models.
Key imperatives for banks:
Adoptions of various approaches to lower run costs - RPA, AI, ML, Lean
All banks must embark on these transformation paths or perish. But legacy banking technology
infrastructure is complex and are a clear roadblock for established banks to move towards rapid
digital transformation.
To build a digital transformation strategy, Boston Consulting Group recommends that banks
focus on four priorities:
 Reinvent the consumer journey
 Leverage the power of data
 Redefine the operating model
 Build a digital-driven organization
The road to transformation is not going to be easy. While banks have invested heavily in legacy
technologies and are figuring out ways to integrate with the new ways of doing business, they
must contend with a series of challenges that are eating away their market share:
 Player to Processor integration: Big Tech players like GAFA are actively collaborating
with payment processors to further leverage their ‘network effects’. E.g. Whatsapp
collaborating with NPCI to launch payment services etc.
 Platform consolidation: At the same time platform providers are consolidating to build
scale and coverage. E.g. Mastercard acquires vocalink, Misys and D+H combined to
become Finastra and so on.
 Online Presence to Platform provider: Digital banks and FinTechs are already in play
including some of the established banks launching their own online-only banks. But
success will be in building network effects.
Matured markets invested in legacy technologies will have a greater challenge to adopt
compared to emerging economies where tech adoption is at a nascent stage. The winners here
will be those who have the appetite to invest and be agile in adapting to the changing
ecosystem. Quite obviously the biggest beneficiary will be the consumer who will be spoilt with a
choice of innovative products.
References:
https://www.wired.com/insights/2013/10/why-business-models-fail-pipes-vs-platforms/
https://www.investopedia.com/terms/o/open-banking.asp
https://hbr.org/2016/04/pipelines-platforms-and-the-new-rules-of-strategy