Source : Trends
KBC broadcasts football via its mobile app, Belfius enters into a strategic alliance with Proximus. The major banks want to become service platforms, hoping to reach more customers and generate revenue from services other than banking. Whether or not there is money to be made with these services is another matter.
“Dear sir, here’s a piece of the e-mail I sent to my relationship manager at KBC. “I hope I can come to you in the future and not be sent to Kate.” It’s one of the mails that arrived in our mailbox after KBC announced at the end of June that customers will soon be able to call on a digital voice assistant driven by artificial intelligence. Kate embodies KBC’s digital acceleration. She will guide customers through existing and new services.
Last weekend it was also announced that Football clips are part of the mobile app’s new package. Furthermore, the bank announced that another 54 manned branches in Flanders and Brussels will close this year, or one in seven.
What are the banks doing that they would rather invest tens of millions in a virtual assistant and in football rights than in customer proximity? “We are in a new phase of the digital transformation,” says Bjorn Cumps, Professor of Financial Innovation at Vlerick Business School.
“In recent years, banks have focused on offering their banking and insurance products digitally on their own app, which they complement with new services such as the sale of public transport tickets,” Cumps explains. “But a customer doesn’t change banks for that. Over time, it turns out that the app of one bank does not differ much from the other”.
That’s why the banks are going further and further in their offer of non-banking services. On the KBC app, you can now also buy cinema tickets at Kinepolis. It’s even better if a bank can offer something exclusive. KBC found this in the purchase of a piece of the football rights. Non-KBC customers will also be able to view the footage for a small fee.
“It’s about reaching as many potential customers as possible,” says Stefan Dierckx, the CEO of Projective, a consultant for financial institutions. “The low-interest rate is squeezing interest income, so the banks have to look for other income. In the first instance, this means expanding the range to include non-banking products. The next step is to work with non-bank players so you can also appeal to their customers”.
Cumps: “The banks are looking at how to distribute their products and services through non-financial channels. And then you end up with business concepts such as service platforms and ecosystems, where there is cross-fertilisation between companies with different or complementary products and services. They are actually trying to build a portfolio of collaborative models, around certain themes (such as housing and mobility) and with partners”.
A good example is the collaboration between Belfius and Proximus. “Belfius reaches many more potential customers via Proximus than via its own channels”, says Dierckx. “Proximus in turn can acquire customers from the Belfius customer base. But the most important gain for Proximus is the higher retention of existing customers. Customers who purchase both telecom and banking services are less likely to change supplier”.
Eventually, Belfius will build a new mobile bank for Proximus, while Belfius customers will benefit from exclusive telecom and data bundles. “At first sight, this seems a bit odd: Belfius is creating a competitor for itself on behalf of Proximus”, notes Cumps. “But it could be a way to develop into a provider of banking software to third parties (banking as a service)”.
In short: Belfius becomes a software and IT company on a part-time basis. “The bank of the future is like a big box of lego blocks,” Cumps explains. “Each block stands for a certain competence or expertise. By combining a number of competencies, for example in IT, banks can develop new activities that generate new income. This makes them less dependent on their pure banking business”.
What the alliance with Proximus shows, according to Dierckx, is that the mentality at banks such as Belfius is changing: “Many banks regard their app as sacred. They want to keep the contact with the end customer in their hands at all costs. But then you limit your offer to those users and you can’t easily go wider. Belfius shows that it is willing to give up that direct contact. The new platform will run on Belfius banking services, but they are moving into the background.”
This is a breakthrough, according to Stefan Dierckx: “The future lies with platforms and ecosystems that offer a direct channel to a large group of end customers. Banking services will be integrated into them, from their facilitating function and in the background. The focus will not be on the banking service, but on the total service to the end customer”.
And then there are many opportunities for the banks to collaborate: car dealers offering credit at the time of purchase, credit facilities on large purchases from e-commerce players, the financing of solar panels in collaboration with energy suppliers, the integration of banking services on platforms for bookkeepers (see KBC’s collaboration with Bright Analytics) or selling home loans via real estate websites (see Belfius’ participation in Immovlan).
CKV wants to be on as many platforms as possible
Rudi Deruytter, the CEO of CKV from Waregem, Belgium’s smallest bank, is a big supporter of the sharing and platform idea. The bank collects some of its deposits in Germany via online platforms for savers such as raisin.com and zinspilot.de. They offer their customers a choice of high-yield savings accounts with various European banks.
“The platform takes full responsibility for marketing and communication,” explains Deruytter. “They identify the customer and review the offer and the creditworthiness of the banks. They are strong in data analysis, know how to reach their users and provide an experience around the website. In the long term, I hope to find the way to such platforms with our credit offer”.
CKV has an unusual business model. The bank specialises in providing credit to private individuals and entrepreneurs with temporary financial problems: “People with assets, but who are confronted with liquidity shortages due to circumstances – usually illness, unemployment or a divorce – can come to us at critical moments. Because of the higher risk, loans at CKV are more expensive than at any other bank, we are very transparent about that. But usually those other banks don’t follow through.”
“I actually want to market CKV on as many digital platforms as possible as the Belgian market leader in problem loans,” says Deruytter. “If someone is in financial difficulties, he should think of CKV. I strongly believe in shared platforms and the co-creation that goes with them. Companies that work together in the service of the customer, that’s where I think the future lies. And technology makes that possible.”
Large banks want to be dominant
Deruytter wants CKV to be able to talk to any platform to fit its services into it. This attitude contrasts sharply with that of certain large banks. Listening to Ralph Hamers, ING‘s former CEO, or Johan Thijs, KBC’s top executive, you’ll understand that they want their bank to play a leading role in the platform economy. During a recent strategic update, Thijs mainly talked about how good Amazon and Alibaba are. These large-scale consumer platforms are seen as role models. With the purchase of the football rights, KBC once again shows that the bank wants to be at the centre of the ecosystem: the KBC app as the core of a service and entertainment platform.
“Large banks make the mistake of wanting to be the first-line platform to the customer. But KBC will never be Amazon or WeChat. I think it would be wiser to look for partners with a broader customer base and more scale, selectively or not,” says Deruytter.
“Every major bank wants its own platform and wants its platform to be dominant,” says Bjorn Cumps. “That’s a short-term reflex that can make cooperation in an ecosystem difficult. If you’re too dominant and crush your partners, that kind of collaboration doesn’t work. You can’t be too quick to take too much money.”
“Banks want to be tech companies, but they don’t have the culture of tech companies,” warns Cumps. “Our bankers easily mirror Amazon and Alibaba. Those companies have proven that they have a long-term vision and a lot of patience. At banks, projects still have to pay off quickly. However, generating new income very quickly is not the logic of an ecosystem, where cooperation is important and income must be distributed”.
The question remains whether the new platform approach also includes a revenue model for the banks. “Everything will depend on the reaction of the customers”, Dierckx thinks. “There is unmistakably more ease of use. If you can search for and buy a home on one internet platform, and are immediately offered a good home loan, a consumer will appreciate that. But I don’t know if every private customer will go along with that.”
Does a KBC customer expect his bank to broadcast football matches? “Much of what’s happening in the banking industry today doesn’t happen at the customer’s request or because the customer is waiting for it,” smiles Cumps. “The strategy is driven by rapid technological evolution, increasing competition from outside the financial sector and international business trends. Chances are that the end customer will initially have to find his way through a jumble of platforms and ecosystems. The banks want to break out of their sector, but so do companies in other sectors”.
Whether this strategy contains a future earnings model for the banks is still unclear, says Cumps: “At the moment, it’s mainly experimenting and learning. The transformation has begun, but it is still unclear how to make money with it. I think that the CEOs of Belfius and Proximus don’t really know where their collaboration will end at the moment either”.
“It’s the flight ahead”, Dierckx says. “If we don’t do it, neo-banks like N26 or Revolut will do it. The investment in mobile channels could still motivate the banks because it yielded them significant savings. In the coming years, however, they will have to continue to invest both in their own platform and in working with partners, without this leading to cost reductions. Hence the need to focus on new revenues, through new services, more paying services and the broadening of the customer base”.
“A real-life banker who gives personal advice will become a luxury product and will only be available to the happy few”, Deruytter predicts. “All other customers of large banks will be served through algorithms and a standardised offering. (Ironically) the digital assistant will answer all your questions. However, for small niche players such as CKV, this doesn’t need to be a disadvantage. There will always be a market for customisation”.