In many ways banking has changed little over the past 1,000 years. Computers might have replaced abaci and parchments, but the underlying principles have remained consistent.

IBM’s research insights on the trend indicate that this (millennium of) constancy is changing at warp speed in ways that would have been inconceivable even over the recent past.

The report points to the fact that financial services are being mixed with services and products from other areas and industries — from healthcare and telephony, to mobility and media, retail and logistics.

Banking is also becoming embedded — sometimes almost invisibly — in non-bank business processes, resulting in emergence of new types of ecosystems, often based around platforms and network economics. Look at telephony businesses — it has over the years become a channel for engaging in healthcare discussions, while retailers are orchestrating payments systems and social media businesses — establishing new forms of currency.

Goldmine of data

“Organisations, virtually in every sector, seem to be contesting the relationship with customers, hoping to become not only the provider of their products but an entry point for other businesses. This cross-pollination of customer access is from insights gained from robust data,” reads the IBM research paper titled ‘Banking on the Platform Economy’.

“And bankers are sitting in a goldmine of data. While digitalisation has been central to banking since the introduction of ATMs, digital technologies have only now reached a level of sophistication and ubiquity, become more cognitive and are being driven mainly by the maturity of AI. These when applied at a scale and technology like Cloud, will bring a huge change to the core of banking, the organisation itself, driving major disruptions in fundamental market definitions, operations and business models,” said Arijit Bonnerjee, Director (Financial Services Sector), IBM India and SA.

Bonnerjee, who incidentally has also co-authored the report, said that the traditional banking value chain was decomposing into various constituent elements and many regulators were encouraging active disruption to boost necessary technological innovation. “An example of this trend is the development of IndiaStack, an open Application Programming Interface-based technology stack that has the potential to disrupt banking in India,” he said, and explained the several roles that banks could adopt within ecosystems and across platforms.

“The forward-thinking ones are rapidly evolving beyond traditional organisation structures to define or build inclusive, flexible ecosystems of financial or other capabilities,” he added.

Risk and opportunity

The insights further revealed that platform business models and the ecosystems that underpin them were disrupting the industry significantly; and bankers are seeing opportunity and risk in disruption.

Bankers had stated that platform business models would enable greater personalisation of products and services, facilitate connections to other industries, increase collaboration between partners and improve financial and technical scalability.

Listing the platforms, IBM tech-experts said the technology platform would help banks succeed in the “as-a-service” economy, while business process platforms would help solve problems that are shared between the various participants in the ecosystem and market platforms could become the vehicle for trusted economic and financial exchanges (again, between various participants in the ecosystem.)

While conceding the huge opportunity in platform business models, banking executives had said that the cultural differences between partners in the ecosystem could be a major inhibitor of platform business models, apart from trust and transparency and challenges associated with regulatory compliance.