Natasja Fink Business Development Manager

The digital financial ecosystem under the microscope

In virtually all sectors, service providers now offer their customers many more options than before. Take the financial sector, for example. Banks have changed from what was a network of branches into an open platform with a complex digital ecosystem. This allows them to offer their customers an optimal customer experience that goes far beyond the “original” banking service as we know it from years ago.

But financial service providers aren’t simply transforming themselves into open platforms with associated ecosystems because they “think it would be a great thing to do”. On the contrary, to retain customers, they need to offer them a one-stop shop. First, consumers are looking for convenience and are looking to obtain as many services as possible through one purchase. Second, open banking and PSD2 (the second Payment Services Directive) force financial institutions to open their databases to external service providers if customers request it. And third, competition has increased dramatically as a result of the explosion in FinTech companies. FinTech is one of the driving forces behind the digitisation of the banking system, and FinTech providers are playing an absolutely key role in the digital ecosystems trend.

But where is the benefit for the service provider itself? What do they get out of a digital ecosystem?

What do digital ecosystems mean for the service provider?

In a digital ecosystem, be it healthy or otherwise, there are three types of stakeholders: the service provider itself, external service providers (third parties) and the customers. All benefit from digital ecosystems in their own way.

Customers benefit from digital ecosystems because they are offered more options via a single service provider. For example, you can use a bank app to check your bank account, view mortgages, take out loans and so on.

Service providers – the banks themselves – are broadening their service portfolio by allowing third parties to tag along. Nowadays, for example, banks offer many more services than the financial product.

External service providers are able to utilise digital ecosystems in order to expand the channels in which they actually offer their product. One example is Geldmaat, a universal ATM, which has established a partnership with all banks. Or Klarna, which, with its “pay later principle”, has partnerships with more than half of the major banks (openbanktracker 2022).

In a highly competitive market, financial service providers with a full package of services prevent customers from leaving them for a more complete competitor. At the same time, this allows them to create a more attractive market position that can ensure more customers.

 Digital ecosystems provide greater insight and market knowledge

This type of digital ecosystem generates a huge mountain of data, which is only going to become larger. Partners and third parties in these ecosystems exchange data, and anyone can add value to these data. For example, an insurer can segment its customers based on the times claims have been made by target group, and thereby adapt its product.

The data from all partners combined allows us to gain ever-increasing, and deeper, insights into the market. Service providers aren’t the only ones to benefit by putting their products or services together more efficiently: their customers also gain more detailed insights into their financial circumstances, for example. If a customer has several accounts or loans, a digital ecosystem will allow banks to give better advice to that customer, or raise the alarm earlier if necessary. This makes for a better customer experience.

More revenue thanks to digital ecosystems

Another – and far from the least important – benefit is the fact that, thanks to the partnerships enabled by a digital ecosystem, the service provider can engage in more upselling and cross-selling. After all, consumers are busy these days! And if their bank offers a full range of services, this will be the preferred option. 

By providing this form of “convenience banking”, banks are responding to the different life stages of their customers. These include marriage, buying a house, moving house, having children, buying a new car and so on. All these events have a financial element that requires interaction with a bank. For this interaction, third-party information is an opportunity to add value. For example, a bank can form partnerships with insurance companies, car companies, or even moving companies. This, in turn, creates cross-sell opportunities, profitable or otherwise, in the long run.

“Above all else, a digital ecosystem - particularly in the financial sector - has to be secure and compliant.”
A healthy digital ecosystem is a secure ecosystem

Banks today have, on average, more than 250 partnerships (Supervision open banking Sector, DNB), and this figure will only get bigger. This, however, creates an increasingly complex ecosystem, which is almost impossible for the bank to keep up with. This is also the reason why 42% of all European banks outsource their IT (Supervision open banking Sector, DNB).

Above all else, a digital ecosystem – particularly in the financial sector – has to be secure and compliant. By outsourcing, service providers themselves have less need to manage and maintain. After all, operating a well-functioning and secure ecosystem requires a considerable amount of care and attention. Any partnership in which data is exchanged is a security risk. Financial services providers also have to comply with requirements of De Nederlandsche Bank (DNB) and the Netherlands Authority for the Financial Markets (AFM).

A Managed Service Provider has all this knowledge in-house. It is able to ensure that a secure platform is available and fine-tune the cooperation with the various parties in an ecosystem. This allows financial service providers to focus on their core business of developing and delivering optimal financial services for increasingly demanding customers.

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