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The rise of customer-oriented banking - electronic markets are paving the way for change in the financial industry

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The banking industry has been a pioneer in adopting electronic markets with exchanges, clearinghouses, and multilateral trading facilities having become the backbone of today’s globally integrated financial transactions. While most banks use the services of these electronic markets to handle interbank processes, they still strive for bilateral relations in the field of customer-facing processes. This position paper argues that the financial crises, the changing behavior of customers, upcoming innovations based on information technology (IT) and financial services offered by non-banks are strong drivers towards more customerorientation in the financial industry. A large variety of banking IT innovations has emerged and illustrates that traditional banks are expected to have less power to impede competition at the customer interface and in consequence need to re-position themselves. Building on these developments on the one hand and existing electronic market infrastructures in the banking industry on the other, the concept of a customer-oriented financial market infrastructure is proposed as a possible future solution. The impact is illustrated using a competitive analysis of the banking industry and analogies to the media industry where new entrants from the computing industry have caused disruptive changes. Besides describing the threat to existing banks, the position paper also discusses the perspectives for banks.
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The Rise of Customer-Oriented Banking
Electronic Markets are Paving the Way
Rainer Alt, Leipzig University, rainer.alt@uni-leipzig.de
Thomas Puschmann, Business Engineering Institute St.Gallen, thomas.puschmann@bei-sg.ch
Published in: Electronic Markets 22(2012)4, pp. 203-215. DOI:10.1007/s12525-012-0106-2
Abstract:
The banking industry has been a pioneer in adopting electronic markets with exchanges, clearinghouses,
and multilateral trading facilities having become the backbone of today’s globally integrated financial
transactions. While most banks use the services of these electronic markets to handle interbank processes,
they still strive for bilateral relations in the field of customer-facing processes. This position paper argues
that the financial crises, the changing behavior of customers, upcoming innovations based on information
technology (IT) and financial services offered by non-banks are strong drivers towards more customer-
orientation in the financial industry. A large variety of banking IT innovations has emerged and illustrates
that traditional banks are expected to have less power to impede competition at the customer interface and
in consequence need to re-position themselves. Building on these developments on the one hand and exist-
ing electronic market infrastructures in the banking industry on the other, the concept of a customer-
oriented financial market infrastructure is proposed as a possible future solution. The impact is illustrated
using a competitive analysis of the banking industry and analogies to the media industry where new en-
trants from the computing industry have caused disruptive changes. Besides describing the threat to exist-
ing banks, the position paper also discusses the perspectives for banks.
Keywords: electronic markets, banking IT innovation, customer relationships, banking, social networks,
disintermediation
Transformation of the banking industry
The innovative application of information technology (IT) has a strong transformation potential. This ap-
plies, in particular, to electronic markets which have changed entire industries. Among the prominent ex-
amples are the computerized reservation systems in the travel industry, the ordering systems in the phar-
maceutical industry, the electronic home shopping systems in retailing as well as the electronic stock mar-
kets in the financial sector (Malone et al., 1987). More recently, the convergence of the media, computer
and telecommunication industry has replaced the traditional physical distribution of content (Allon &
Gurvich, 2007) and physical media, such as CDs, books and DVDs as well as many of the physical stores.
A major actor in this shift has been Apple Corporation which not only is a manufacturer of hardware solu-
tions, but has also become the worlds largest distributor of multimedia content and software. Apple has
used the potential of disruptive technologies, such as the MP3 format, mobile user devices (iPhone, iPad),
and electronic markets (iTunes, AppStore) to transform the media industry. These disruptive technologies
often feature inferior performance in the early stages of their evolution (e.g. flat screen TVs first had a
lower resolution than conventional tube TVs) and their potentials are typically underestimated (Bower &
Christensen, 1995). In addition, the analysis of several cases indicates a high transformative potential of IT
on business models and value chains in service businesses (e.g. (Osterwalder & Pigneur, 2011),
(Kagermann et al., 2011)) which especially applies to the financial industry (Tallon, 2010).
This position paper identifies a similar IT-induced disruption for the banking industry. The banking indus-
try has been among the pioneers in IT adoption. One prominent explanation is that the banking business is
essentially an information business where most processes may be IT-supported. Over the last decades
banks have undertaken large investments in IT and developed individual applications to support their di-
verse business. On the one hand, large retail banks, such as Bank of America, use scale (6,139 branches
and 18,685 automated teller machines (ATMs)) to pursue a business model based on location and access
(Tallon, 2010); on the other, small banks, such as private banks in Switzerland, focus on close customer
relationships based on trust, personal interaction, familiarity, flexibility, and commitment. Although even
large retail banks claim to offer relationship banking, a differentiated high-quality service is known to be
incompatible with low-cost strategies (e.g. (Porter, 1980), (White, 1998)) and in addition profoundly relies
on human capital in the banking industry. Despite banks having strongly invested in IT infrastructure, web-
sites, and online banking platforms to offer customers personalized services via electronic channels, these
systems mainly focus on operational functionalities around established banking products, e.g. a bank’s
checking or securities account. From a functional point of view it merely presents an electronic extension
of the physical counter in a branch bank and is embedded in a bank’s customer retention strategy which
usually prevents comparing and managing competing banks and their products.
Drivers of Transformation
While banks have successfully established joint electronic infrastructures for supporting interbank-
relations, they tend to resist joint IT-based innovations at the customer interface. The financial market in-
frastructures in the payment sector (e.g. the SWIFT network) and the securities industry (e.g. Euroclear,
Clearstream), as well as the various national providers of electronic stock exchanges (e.g. Deutsche Börse
in Germany or SIX in Switzerland), provide efficient services to the entire banking industry with some
partly owned by banks. In contrast, banks are seeking differentiation at the customer interface and have
little interest in unlocking their customers. The last two decades have seen multiple visions for “banking in
the future” (e.g. (Gates, 1995), (Evans & Wurster, 1999)) that conceived banking from a customer perspec-
tive, however banks were successful in defending their established models. This position paper supposes
that four drivers have become sufficiently prevalent to induce a stronger transformation in the forthcoming
years. These drivers are the consequences of the financial crises, the changing behavior of banking cus-
tomers, the pace of diffusing innovative downstream IT-solutions, and the emergence of non-banks. Later
Porter's Five Forces model is used to discuss the impact of these drivers in more detail.
The first driver refers to the consequences of the financial crises. Since 2007 the financial industry has
repeatedly experienced severe disruptions and economic as well as regulatory forces imply changes to the
way banking has been done in the past. This applies to policies in awarding credits, in proprietary and al-
gorithmic trading, and instruments for risk management, but also to a stronger definition of a bank’s core
competencies (Wallace & Herrick, 2009). The pressure to conform to high levels of equity capital, to limit
the hazardous high-margin investment banking and to operate with low margins in many commodity-like
products, increases the need to identify profitable and varying services towards customers. Among the
strategies is the development of solutions that support customers more intuitively in general and that offer
profound advice. They lead to large, highly efficient banks on the one hand and profitable niche banks on
the other, but eliminate undifferentiated banks “in the middle” (Hedley et al., 2006).
Second, the behavior of banking customers is changing. In view of the so-called “digital natives”, the use
of electronic channels is expected to grow and these technology-affine customers will become more in-
formed and also demand more transparency (Hedley et al. 2006). An illustration of these developments is
provided by Memberlink, the online social network of the Institute for Private Investors (IPI) in the US,
which is used by more than 90% of its members to request references of customer advisors/banks, to com-
pare fees, and to unravel opaque charges. As stated by IPI, “Greater transparency in the wealth manage-
ment industry is arguably the most applauded of the unintended consequences [of Memberlink]” (Fischer,
2010). Another study of the Spanish market reveals that most bank customers (97%) use multiple channels
to interact with their bank (Cortiñas et al., 2010). 52% of these customers use physical banks and ATMs
and approximately one third more (88%) uses the online channel in addition. However, current studies
report that innovative services, such as personal finance management, mobile payment, crowd funding etc.
that are valued by digital natives” are usually not within the scope of the established IT systems offered
by banks (e.g. (Anand, 2011), (Hoppermann, 2011), (McKinsey & Company, 2010)). Together with the
third and the fourth driver this already points to critical future challenges for banks.
Third, the pace of diffusion of innovative downstream IT solutions which directly involve banking custom-
ers has increased. Driven by widely accepted technological innovations on the hardware side, such as
smartphones, tablet computers, touch-sensitive screens, a variety of community-based solutions has
emerged on the software side. One example refers to “User Generated Content” (UGC) websites which
enable a paradigm change in the generation, organization and transfer of information and media as well as
in the social interaction between users. Out of the top ten global traffic generating websites, six are based
on UGC (Alexa, 2012). The technological infrastructures, the types of web applications, and the resulting
user experiences through UGC websites are commonly summarized as “Web 2.0” or “Social Web”
(OReilly, 2007). These applications are believed to re-shape the consumer-supplier relationships of all
organizations and businesses (McAfee, 2006). In an analysis of banking-related web applications for cus-
tomer interaction a recent study of eleven cases observes social pressure on organizations to quickly adopt
social web technologies ((Stone, 2009), see also (Seo & Rietsema, 2010)). Another broadly available
community example refers to the software ecosystems
1
. In analogy to the "platform-as-a-service" concept,
operating platforms are increasingly ecosystems which also comprise electronic marketplaces, such as the
Apple AppStore or the Google Play marketplace (e.g. (Basole & Karla, 2011), (Karhu & Botero 2011)).
They are innovative distribution platforms and already feature a broad variety of financial services.
Fourth, non-banks are emerging and provide innovative IT solutions. While online banking systems are
still limited to payment transactions and security order management systems, third party social web appli-
cations, such as online investment communities and peer-to-peer business models, are emerging which
include the possibility to compare bank products and to obtain neutral advice. These banking innovations
are mostly provided by new actors for a realm of financial customer processes. Among the examples are
services, such as Covestor or Prosper, the collaboration of Google, Citibank and Mastercard to establish a
mobile payment system, Vodafone’s plan to provide a banking infrastructure for Africa and Facebook
which is developing its own currency “Facebook Credits. All these providers enter the banking market
with new IT-based business models. This is not surprising because many banking products, such as savings
accounts or loans, are information-based commodities and may be accessed by customers from any device
and purchased from any financial service provider in the market. In fact, during the past decade many
banks have already reduced their degree of vertical integration and either outsourced parts of their highly
integrated business or insourced others to also develop an offering to other banks. The traditionally highly
vertically integrated value chains of banks are already on the way to becoming more disaggregated.
Overall, these drivers create a dynamic environment in an industry that was stable and protected for many
decades. Vertical disintegration, specialization, and growing competition with customer-oriented solutions
are important developments towards more customer-orientation. To back this reasoning and to derive pos-
1
A business ecosystem can be defined as an “economic community supported by a foundation of interacting organizations and
individuals - the organisms of the business world. The economic community produces goods and services of value to customers,
sible implications, the following sections first summarize the current stage of electronic market develop-
ment in the banking industry. Second, an overview of IT-based innovations in the banking industry is giv-
en. Third, the shape of a possible customer-oriented financial market infrastructure which includes an
evaluation of potential actors as well as consequences for banks is depicted, and, finally, the conclusions
summarize four findings that pave the way towards customer-oriented banking.
Electronic markets in the banking industry
Electronic markets are well known in the financial industry especially in the area of stock trading. Since
the first electronic stock exchange Nasdaq started operations in 1971, the sector has seen the takeover by
electronic markets at most traditional floors. Today, many national and global marketplaces exist, such as
Nasdaq, NYSE or CBOT in the US, Deutsche Börse in Germany or the London Stock Exchange in the UK.
Besides these official markets, several alternative electronic trading floors (referred to as multilateral trad-
ing facilities, MTF) have emerged, such as Turquoise or Chi-X, in an effort by banks to establish a more
efficient execution of securities and derivatives. In a broader context, these electronic markets are part of
so-called financial market infrastructures (FMI) which especially gained importance in the light of the
ongoing disintermediation in the financial sector. An FMI is an important element when capital markets
substitute lending and savings functions offered by banks (Gisiger & Weber, 2005). As banks were aware
that cost-efficiency dominates differentiation in these interbank processes, cooperation among banks has
led to electronic infrastructures for multiple banks and increasingly also non-banks. FMIs typically encom-
pass institutions for business-to-business (B2B) payment and securities processing among banks as well as
between banks and stock exchanges. They basically comprise three elements: the stock exchange, the
clearing and settlement provider (clearing organization) and the gross settlement payment system (payment
organization) (see Figure 1). FMIs are organized by actors within national markets and contribute to the
competitiveness of these markets (Gisiger & Weber, 2005). For example, the Swiss Value Chain (SVC) is
a joint venture of Swiss banks for the centralized processing of payment and securities transactions. The
SVC enables integrated real-time processes from a market sales order to the completion of the securities
transaction executed (see area 2 in Figure 1) (Gisiger & Weber, 2005). Parts of the SVC are audited by the
Swiss supervisory authority FINMA and all three FMI elements are bundled in one company called SIX.
Figure 1: Value chain of the banking industry
End customers only use FMI services via their banks which assemble many other services for their cus-
tomers, depicted in Figure 1 as relationship customer bank (dark grey shaded area 1) and bank - FMI
(dark grey shaded area 2). These usually consist of front office (e.g. marketing and customer service via
counter, online, adviser, call center), middle office (e.g. product development and market research, portfo-
lio and risk management) and back office (e.g. operations, transaction execution, support processes) ser-
vices. In the past, banks have established large IT departments and developed proprietary solutions to pro-
vide these services and to access the FMI or parts of it (e.g. electronic exchanges). More recently, standard
software packages (commonly referred to as core banking systems or solutions, CBS) have emerged, such
as Avaloq and Finnova in Switzerland, SAP and Finanz Informatik in Germany, Fidelity and Automated
Systems in the US, or Misys and Colvir in the UK. Following the idea of integrated enterprise systems
(Davenport, 1998), they implement cross-functional processes within banks based on a centralized data-
base. For customer interaction additional functionalities often enhance the basic customer management and
online banking functionalities of CBS with dedicated applications (e.g. customer relationship management
systems, online banking suites).
While these systems are relevant from the bank’s perspective, customer orientation implies the identifica-
tion and support of customer needs (Vandermerwe, 2000). As mentioned in the introductory section, cus-
tomers are inclined to have relationships with more banks as well as with other financial services providers
and value transparency and ease-of-use across all of their financial touch points (e.g. (Evans & Wurster,
1999), (Hedley et al., 2006)). However, what may be reasonable for dealing with one bank becomes diffi-
Personal finance
managementsolutions
Core banking
solutions
Bank 1
Bank 2
Bank n
Customer 1
Customer 2
Customer n
Online banking Bank 1
Online banking Bank 2
Online bankingBank n
1 2
Financial market
infrastructure
Clearing
organization
Stock
exchange(s)
Payment
organization
cult when customers have relationships with multiple banks. Among the problems of handling various
online banking systems are keeping up with different access and transactions codes or the heterogeneity of
interaction procedures with each online banking solution. Personal finance management (PFM) tools, such
as Quicken, Starmoney, Gnucash or iOutBank, are first solutions in this direction. They support customers
in conducting transactions as well as in account and depot administration with multiple banks. A prerequi-
site of this cross-bank scenario are shared interface standards among the participating banks, e.g. the
Homebanking Computer Interface (HBCI) standard in Germany. To date, the latter has important short-
comings. First, the information defined in these standards limit the multi-banking functionality of a PFM to
transaction information with little interactivity. Second, the standards are limited to payment data and do
not provide investment, financing or advisory related data. And third, the setup of each bank relationship
necessitates substantial technological skills of the internal IT functions or service providers, respectively.
Clearly on the one hand sophisticated solutions that integrate advanced financial products are required and
provide for more intuitive ease of use in managing financial relationships on the other.
Banking IT innovations
Since all customer touch points in the banking industry may be IT-supported, the diffusion of technological
innovations as mentioned above has important implications for the future interaction of a bank with its
customers. This applies to the clerk at the counter, the agent in the call center, the advisor in personal in-
terviews, as well as to the electronic channel itself. IT-based innovations at these touch points, referred to
as banking IT innovations, have emerged in a broad variety over the last five years. In order to analyze
the implications of these banking IT innovations a three step research procedure has been applied.
In a first step a literature review was undertaken to develop a classification scheme for a structured over-
view of these innovations (see Table 1). A widely used classification approach for customer interaction
distinguishes functional types of web-based applications, such as blogs, wikis, social networks or mash-ups
(see (Godwin-Jones, 2006), (Matuszak, 2007), (Zyl, 2009)). To assess the implications on the banking
industry, a set of dimensions was chosen which differentiates the provider from the customer processes.
The former distinguishes whether the service is offered from an established actor in the banking industry or
from third party providers (bank / non-bank) and the basic interaction pattern with the parties involved
(e.g. Business to Consumer (B2C) and Consumer to Consumer (C2C), see (Chan, 2005)). The latter lists
the financial processes from the customer perspective and reaches from financial information, planning and
advisory, payments, investments, to financing, and cross-process support (see (Chene et al., 2010),
(Kohlmann et al., 2010)).
The second step focused on collecting banking IT innovations according to the classification scheme that
matched the following three criteria: (1) it supports the interaction of a customer with a bank or a non-
bank, (2) it is related to any customer process concerned with financial services (financial information,
planning and advisory, payments, investments, to financing, and cross-process support) and (3) it is sup-
ported by IT. A variety of online databases, blogs, tweets, alerts and events was screened for this purpose
2
and some 120 innovations were identified and surveyed (see Table 1 which shows the most relevant repre-
sentatives). The collection phase was conducted from February 2011 to January 2012.
In a third step the banking IT innovations were reviewed with practitioners from the banking industry be-
ginning in February 2012 to validate the results and reveal practical relevance. In this process companies
from all tiers of the financial value chain were involved (e.g. retail banks, outsourcing provider, etc.). This
third step led to an iterative adaption of the classification scheme for the banking IT-innovations.
2
These sources comprised ABI/INFORM, ACM Portal: Digital Library, EBCSO, Emerald, blogs (electrouncle.wordpress.com,
der-bank-blog.de, blog.volksbank-buehl.de, thefinancialbrand.com, f-i-ts.de, lochmaier.wordpress.com, bankingreview.com.au,
netbanker.com, Delicious/Banker2.0, timschaefermedia.com, ambajorat.wordpress.com, gft-blog.de), tweets (#HLeichsenring,
#Yavalu, #LotharLochmaier, #FIDOR, #workforcetrends, #pascaldurrch), Google Alerts (Bank Innovation, bank*, neuheit*,
finanz*, innovati*, financ*, innovat*), events (Finovate USA and Europe, TechCrunch USA) and various online searches.
Customer
process
Provider
Financial Information
(service providing information
related to financial products,
services and providers)
Planning & Advisory
(services for analyzing, optimiz-
ing and planning to reach a
customer`s financial goals)
Payments
(services for the administration
and execution of bills and other
payments)
Financing
(services for the provision and
back payment of money)
Cross-process support
(services that may be applicable
in a variety of finance-related
processes)
Bank
B2C
Mobile information: many
banks offer mobile apps with
general service functionalities
(financial information, branch
locators, etc.)
Live messaging: ABN Amro
(NL), Rabobank (NL)
Instant messaging: National
City (US), Wells Fargo (US)
Video conferencing: BBVA
(ES), TD Canada Trust (CA),
Comdirect "Virtueller Schul-
terblick" (DE), SmartBanking
Bank Austria (AT)
Tablet advisory: Bank of
America (US), Credit Suisse
(CH), Deutsche Bank (DE),
Deutsche Vermögensberatung
(DE), PostFinance (CH)
Personal finance mgmt.:
BBVA (ES), PostFinance (CH)
Online payment: Comdirect
"Komfortüberweisung" (DE),
Dwolla (US), Bezahlcode (DE)
Remote deposit capture: Bank
of Manhattan (US), Credit
Suisse (CH), UBS Mobile
Banking (CH)
Mobile payment: ING Direct
Bump App (NL)
Electronic payment provider:
Dwolla (US), giropay (DE)
eWallet: American Express
Serve (US), Fidor (DE), Visa
(US)
Mortgage comparison: Comdi-
rect (DE), Targobank (DE),
Independent Bank (US)
Multi-bank integration: HDFC
One View (IN), Allianz Finan-
zen App (DE)
Live & mobile chat: Citigroup
(US)
Podcasts: Credit Suisse (CH),
Deutsche Bank (DE), HSBC
Private Bank (UK), UBS (CH)
RSS/Social media: Credit
Suisse (CH), Comdirect (DE),
Deutsche Bank (DE), Moven-
bank (US), UBS (CH)
Idea management: Common-
wealth Bank (AU), Deutsche
Bank (DE), UBS (CH)
C2C
Customer community: Comdi-
rect (DE), Fidor (DE),
Swissquote (CH)
Customer community: Bank of
America (US), Comdirect (DE),
Fidor (DE)
P2P-payment: Cashedge (US),
Fidor (DE), Movenbank (US)
P2P-lending: Auxmoney (DE),
Fidor (DE), Lendingclub (US),
Ratesetter (UK), Smava (DE),
Zopa (UK)
Forums: Comdirect (DE),
Maxblue (DE)
Social networks: Bank of
America (US), Barclays (UK),
BBVA (ES), Fidor (DE), First
Direct (CH), ING (NL), HSBC
(UK)
Financial data analytics:
Bundle (US)
Non-Bank
B2C
Financial literacy: Balance
Financial (US), Bill My Parents
(US), LoveMoney (UK), One-
View (DE), Standard Chartered
Breeze (UK)
Real-time videos: Thomson
Reuters Social (US)
Online research reports:
MyPrivateBanking (CH)
Client acquisition: LinkedIn
(US), Xing (DE), ASmallWorld
(US), ELEQT (UK), SCVNGR
(US)
Personal finance mgmt.:
Geezeo (US), HelpMyCash
(ES), Kontoblick (DE), Simplifi
(US), Meniga (IS), Mint (US),
Personal Capital (US), Strands
(US)
Payment code: Bezahlcode
(DE), Starbucks (US)
Expense trackers and budget-
ing: Budgetedge (US), Mvel-
opes (US), SponsorPay (DE),
Xpenser (US)
Checking account comparison:
Banrate.com (US), FindAbetter-
bank.com (US), Check24 (DE)
Interest rate comparison:
Comparis (CH), Canstar (CA),
Moneysupermarket (UK),
zinshund (DE)
Mortgage comparison: Bank-
rate.com (US, Check24 (DE),
Hypoplus (CH), Moneynet
(UK), Moneysupermarket (UK),
Money.com (UK), Uswitch (US)
Corporate financing: Finpoint
(DE)
Investment services: Assetinum
(CH)
Insurance services: Credit
Suisse (CH), Deutsche Bank
(DE), Postbank (DE), Wells
Fargo (US)
C2C
Community-based stock
analysis / prediction: Mood-
TRADE (US), Sentitrade (DE),
Stockpulse (DE), Stock Sonar
(IL), Stocktwits (DE)
Community-based advisory:
Fidor (DE), WhoFinance (DE)
Alternative currencies: Bitcoin
(US)
Mobile payment: Google
Wallet (US), iZettle (SE),
Square (US), Starbucks Card
Mobile (US)
Electronic payment providers:
Click&Buy (UK), Dwolla (US),
Giropay (DE), Mpass (DE),
Paypal (US), Popmoney (US),
Skrill (US)
Online finance advice: Credit
Karma (US), Savvymoney (US),
Studienkredite (DE), Virgin
Money (UK)
P2P-lending: Crowdcube (UK),
Lending Club (US), Prosper
(US), Smava (DE), Zopa (UK)
P2P-lending mortgages:
Money360.com (US)
Crowd funding: Kickstarter
(US), Seedmatch (DE)
Client advisor comparison:
Whofinance (DE)
Table 1: Classification and examples of banking IT-innovations
There are three aspects among the observations of the banking IT innovations.
First, many banking IT innovations focus on a specific customer need within a customer process. This is
not surprising since a bank customer looking to finance real estate has different needs to a customer simply
wanting to pay bills. Banking IT innovations provide support in targeted financial areas, such as financial
information, planning and advisory, payments or investments as well as financing. From the electronic
markets perspective, two types of innovations are relevant. On the one hand comparison services (e.g.
mortgage comparison) already provide a broad overview of the offerings in many national markets. On the
other hand, recent enhancements of PFM solutions, such as mint.com or Personal Capital, are web-based
and also consider the integration of services regarding typical life situations, such as education, work, habi-
tation, family or retirement. For example, this may include a stock portfolio which is hosted by a private
bank, cash-value life insurances from different insurers, a pension saving plan from a retail bank and a loan
on a private lending platform.
Second, a large number of banking IT innovations is based on mobile and, in particular, on social web
technologies (C2C processes). An example for the first category is a mobile payment application that is
offered by a bank (e.g. ING direct bump app). Social Web or Web 2.0 technologies contribute interacting
scenarios which enable virtual advisory and close interaction with and among customers. For example,
financial advisors interact with their customers in social networks (e.g. virtual advisory in Facebook from
ASB Bank in New Zealand), customers advise other customers in investment strategies (e.g. Marketocracy,
Covestor), customers lend money to other customers (e.g. Lending Club, Zopa), or customers organize
investment opportunities (e.g. Crowdcube). Even the development of new financial products involves cus-
tomers (e.g. ING-DiBa bank for private clients and Deutsche Bank for corporate clients) and point in the
direction of open innovation strategies (Chesbrough, 2003).
Third, although many of the existing solutions are already available on electronic market platforms, such as
the Apple AppStore or the Google Play marketplace, the existing banking IT innovations provided on
those platforms lack interoperability. They typically crowd a user’s desktop and are not linked, i.e. a cur-
rency converter app is not interoperable with the checking account app (Seo & Rietsema, 2010). Concern-
ing interoperability and standardization, a different degree of maturity can be observed in the customer
process categories. While the processes in the payments area are already standardized to a higher degree
(e.g. the HBCI standard mentioned above), the investment process has received less attention. One expla-
nation may be the introduction of many new product categories (e.g. structured products) in recent years.
In Switzerland, for example, every bank uses its own data feed for stock information from SIX. An even
lower degree of standardization can be found in the area of financing processes. Due to the lower and ir-
regular transaction volume most activities for closing a contract are still paper-based. Electronic services
are almost exclusively limited to mortgage or interest rate comparison.
Towards a customer-oriented financial market infrastructure
As electronic markets in the interbank area, the FMIs are infrastructures that support the search and the
determination of products and prices that provide the necessary services for logistics, settlement, and trust,
as well as the legal and regulatory environment. These functionalities are in line with the three generic
functions of an electronic market (Giaglis et al., 2002), namely market transparency, the use of services via
a shared transaction infrastructure, and the regulatory institutions which determine market access and over-
see the compliance with certain rules. In the following, these functions are helpful in determining the re-
quirements for a customer-oriented FMI (CFMI) which may be derived from the findings in the evaluation
of the banking IT innovations in Table 1 and, in contrast to FMIs which focus on banks and stock ex-
changes (dark grey shaded relationship area 2 in Figure 1), is positioned between end customers and banks
(dark grey shaded relationship area 1 in Figure 1).
Requirements
First, a CFMI attains market transparency by offering formalized procedures for describing, selecting and
contracting services from competing service providers. Following the order books and matching mecha-
nisms in the stock exchanges, a CFMI may comprise a common user interface, access across multiple
channels and providers, and a service directory or catalogue. For this purpose three requirements may be
derived from the banking IT innovations (see Figure 2).
(a) A common interface should help customers in navigating and managing their banking services. Similar
to an enhanced PFM, customers may import services in an integrated financial cockpit, which reaches be-
yond the existing transactional functionality to financial information, planning and advisory as well as to
payment, investment and financing services. This includes the possibility of defining or selecting specific
user processes which link individual services with a customer problem, such as liquidity planning across
various life events (e.g. investments, children) following certain goals (e.g. attain capital, resources). For
this purpose users might also upload their personal financial profiles and obtain suggestions based on the
collective intelligence of other users and the offerings in the market database.
(b) The future CFMI provides access across multiple channels and providers. This requirement follows
from the PFM developments and the interaction of customers with banks and non-banks via more than one
electronic channel. Most of the core banking solutions still lack the possibility to offer customers an inte-
grated view of different channels and providers (banks and non-banks). Yet the banking IT innovations
clearly illustrate that future banking processes will include a mix of channels which are in particular based
on mobile and social technologies. A future CFMI not only replicates existing banking channels (e.g.
online banking) on other channels, but takes into consideration that mobile and social technologies will
also shape and create new banking products (e.g. social lending, crowdsourcing, mobile payment, etc.). In
addition to existing multi-channel approaches pursued by banks in the past decade, customer-orientation
calls not only for the design of multiple channels. Cross-channel management posits that interactions, con-
figurations and knowledge should be available across all channels and switching channels should be possi-
ble without loss of information and redundant activities.
(c) The CFMI is an environment where services are interoperable and thus may be used in various combi-
nations via a service marketplace. An important enabler in this dimension is the concept of mass customi-
zation which aims to link diversity and standardization. One key element of mass customization is the de-
velopment of the solution space (Salvador et al., 2009). For constructing an individualized complex prod-
uct or service (product consisting of multiple modular components) customers require tools that support in
building the product outline from a pool of modules. Similar to electronic markets which enable a multi-
vendor catalog with standardized description schemes (e.g. the comparison sites mentioned above), the
construction process also requires the interoperability of the modules on a syntactic, semantic and pragmat-
ic level (Schubert & Legner, 2011). This means that standardization not only refers to technical protocols
or messages, but also to the business-relevant content and processes.
The second generic function of electronic markets is to provide a shared transaction infrastructure which
includes settlement services for the fulfillment of transactions. This includes handling the order execution
process and the entire payment process. Similar to the application stores in the consumer segment, the
CFMI should offer services for secure authentication, transactions and the administration of user data. Fol-
lowing the requirements derived above as well as the existing application stores, the infrastructure shapes
an ecosystem including web-based elements, mobile devices and communities on the social web.
Finally, electronic markets provide regulatory institutions for the organization of the entire transaction
environment. This includes institutional (e.g. rules for developing and releasing services, market supervi-
sion) and legal (e.g. regulatory compliance, contracts) services. It has to consider the nature of the banking
business which differs from other industries. Financial products entail money whereas music and books
from the media industry primarily serve entertainment purposes. Depending on the area (e.g. payments or
financing), financial services must comply with regulations and fall under the supervision of federal au-
thorities. An important responsibility in this domain is the process of releasing apps on the market platform
which involves regulatory and legal rules from national authorities, such as the European Banking Authori-
ty, FINMA in Switzerland, Bafin in Germany, the Financial Services Authority in the UK or the Federal
Reserve System in the US.
Figure 2 summarizes the elements of a CFMI in a future banking value chain. This scenario includes the
three generic functions of electronic markets, namely market transparency, a shared transaction infrastruc-
ture, and the regulatory institutions enriched by multiple electronic channels and non-banks as new ele-
ments.
Figure 2: Scenario of a future value chain in the banking industry
Potential Actors
Based on the evaluation of banking IT innovations, the core banking systems in the banking industry as
well as the existing FMI, several actors have the potential for influencing the genesis of a future CFMI.
First, actors with customer-oriented IT solutions, such as Apple, Google and Microsoft, and, to a certain
extent also PFM software companies and telecommunication providers, already have solutions in place at
the customer interface. Many providers are currently aiming at positioning themselves at the interface to
the customer. For example, Google has already collected bank licenses in more than 100 countries world-
wide, Facebook offers alternative currencies for its users and the Apple AppStore already counts almost
13,000 apps related to financial services (www.148apps.biz/app-store-metrics). These non-banks constant-
ly add new services and hardware for customer interaction. An example is the German telecommunications
provider Telekom who has developed a secure infrastructure for mobile payment which can be used by
many customers and banks. Remarkably, the structure of the existing software ecosystems already reflects
the three CFMI requirements (see Table 2). While the consumer companies could bring in competencies in
the areas of the common interface (e.g. for administrating the services), multiple channel and provider ac-
cess, and the shared transaction infrastructure (e.g. for charging the services), these consumer ecosystems
fail to offer a common frontend which is explicitly designed for the description and visualization of finan-
cial services. They lack interoperability among the included services in the service marketplace and the
institutional regimes are either loose (Google) or strict (Apple). In both cases the marketplace providers are
also the rule makers and, thus, these companies have individual interests without having the independence
of federal institutions that would be necessary as regulator institutions in the context of the CFMI.
Channel solutions /
interaction platforms
Common
interface
Customer 1
Customer 2
Customer n
Financial market
infrastructure
Clearing
organization
Stock
exchange(s)
Payment
organization
Online banking
Mobile banking
Social banking
Customer-oriented finan-
cial market infrastructure
Regulatory
institutions
Service
marketplace
Shared transaction
infrastructure
CBS or
other solutions
Core banking
solutions (CBS)
Bank
Non-bank
Ecosystems
CFMI requirements
Apple Ecosystem
Google Ecosystem
CFMI Ecosystem
Common interface & multiple channels and providers
iTunes
Play services
Consumer platform
Shared transaction infrastructure & service marketplace
iTunes and App Store
Play Store
Banking platform, FMI
Regulatory institution(s)
Apple
Google
FMI, Federal institution
Table 2: CFMI requirements and ecosystem actors
Second, actors with banking-oriented IT solutions benefit from the specificity of banking and interbank
operations. This critical domain-specific know-how is embedded in the broad variety of banking IT inno-
vations which was observed at banks as well as new financial service providers (see Table 1). To overcome
the current isolated solutions and to facilitate the aggregation of financial services, the core banking sys-
tems and the FMI could provide a valuable contribution. With the advent of standardized core banking
application systems, bank communities are emerging which use similar functionalities for front, middle
and back office processes of the same software. These service-oriented application solutions are accredited
enabling potentials for networking within financial value chains (Baskerville et al., 2010) and software
providers have already announced the launch of electronic marketplaces for using their modules. Among
the examples are the communities evolving around the core banking solutions of Finnova and Avaloq in
Switzerland or SAP in Germany (Redcommerce, 2011). They could contribute to the necessary standardi-
zation of service interfaces which is a prerequisite for the orchestration of services. In addition, FMI pro-
viders could extend parts of their solutions to a CFMI. In particular, this applies to the efficient and secure
market environments which are increasingly linked on an international level. First FMI services are already
offered to business customers, e.g. insurance companies have obtained direct access to the Swiss FMI
company SIX or corporate clients to 360t.com in Germany. If successful, FMI providers could include
traditional market actors, such as banks and exchanges, as well as third party providers from outside the
financial industry (e.g. crowd funding services, identity providers, etc.). While this points in the direction
of an all-in-one market (Koch & Schultze, 2011), the FMI solutions are specific to interbank processes and
lack functionality in the consumer segment. Thus, a collaborative approach as shown in Table 2 seems
promising for a CFMI ecosystem which comprises actors of consumer and banking platforms, the FMI
provider(s) and federal institutions.
Pressure on Banks
For traditional universal, retail and private banks, the customer-oriented future value chain has severe im-
plications. Similar to publishing companies in the media industry, banks are aggregators of (financial) con-
tent and services, and face the risk of disintermediation by non-banks or other new actors enabled by tech-
nological solutions. These either increase the efficiency of interaction (e.g. more convenience in conduct-
ing transactions and in managing financial services) and/or the quality of services (e.g. more profound
know-how and advice on financial products) as well as customer relations (e.g. increased loyalty to a pro-
vider, cross-selling). Discussed vividly in the literature on electronic markets (e.g. (Malone et al., 1987),
(Benjamin & Wigand, 1995), (Giaglis et al., 2002), (Glassberg & Merhout, 2007)), disintermediation sug-
gests that by reducing the costs of transaction and coordination in general, more coordination-intensive
patterns are feasible and that electronic markets may substitute existing intermediaries. In view of the ex-
isting FMI and increasingly disaggregated financial value chains, banks are merely aggregators of services
which may also be made available to customers via a CFMI. Customers would bundle applications from
different providers at the customer frontend and pre-defined interfaces between the applications in the
backend would make services interoperable. In case additional advice from experts is sought, this may be
acquired as a separate service an offering currently being developed by many financial service providers.
In order to derive a qualitative analysis on the competitive structure of the financial institutions' market
Porter's Five Forces model was chosen which has been used for analyzing industry structures in many cas-
es (e.g. Prasad 2011). Hence, the following discussion uses the elements of the Five Forces model to ex-
pound the pressure banks are facing in the context of a CFMI (see Figure 3).
Figure 3: Impact of the CFMI on the banking industry (based on (Porter, 2001))
As expected from prior research in electronic markets (e.g. (Bakos, 1991)) the bargaining power of buyers
grows by reducing switching costs and eliminating existing bilateral channel structures. Using a CFMI,
customers are able to manage multi-bank relationships and to flexibly configure financial services from
different vendors in one platform. Another factor that lowers the existing power of banks is the increased
rivalry among existing competitors due to the entry of numerous non-banks. The CFMI has the potential to
directly match buyers and sellers with increased effectiveness and lower transaction costs, leading to more
efficient markets, and as a result, the role of traditional market participants, in particular the banks, may be
reduced or even eliminated, finally leading to disintermediation (e.g. (Giaglis et al., 2002), (Sen & King,
2003)). What the Internet has already done on a more general level is to reduce the entry barrier in estab-
lished markets by opening a virtual shop presence at the fraction of the physical cost. Similarly, financial
services can distribute their offerings via the open Internet or via a secure CFMI-environment. For exam-
ple, some automotive companies have started to establish their individual marketplaces for the distribution
of services to consumers. While establishing a closed infrastructure involves large costs, each step towards
more openness reduces the barriers to entry in the market and leads to a growing threat of substitute prod-
ucts or services with direct effects on the bargaining power of suppliers. Despite the growing bargaining
power of buyers over suppliers, new, purely Internet-based providers have access to more customers. For
Bargaining power of buyers
(e.g. business/end customers)
Rivalry among existing
competitors (e.g. retail banks)
Threat of substitute products or
services (e.g. banking IT innovations)
Barriers to entry
(e.g. electronic market platforms)
(+) Standardization of product descriptions and
interfaces reduces possibilities for
differentiation
(+) Market transparency leads to increased price
competition between financial service providers
(-/+) CFMI widens the geographic markets, thus
increases the number of competitors, but also
the reach to new customers
(+) Suppliers obtain access to end
customers via the CFMI, e.g. 360t.com
(-) CFMI tends to yield all banks and non-
banks equal access to suppliers
(-) Structured catalog on CFMI fosters the
standardization of products which
reduces possibilities for differentiation
(+) Increased threat from subsitutes, in
particular from consumer and IT market
segments (e.g. Apple, Google)
(+) New substitution threats, e.g. banking IT
innovations in payments and securities
(-) CFMI reduces barriers to entry, such as
the need for branches
(-) CFMI applications are difficult to keep
proprietary from new entrants
(-) CFMI enables market entry of numerous
new financial service providers
(+) Improved bargaining power of
customers , e.g. comparison sites,
multi-bank functionality in PFM
(+) CFMI reduces switching costs among
financial service providers
Bargaining power of suppliers
(e.g. upstream banks, FMI)
some suppliers it allows to reach end consumers for the first time. This applies to FMI providers that deliv-
er services not only to banks, but also to corporate customers.
3
Despite these developments foster the disintermediation of banks, the aggregation of the front-, middle-
and back-office processes still determines the competitive advantage of banks. This key knowledge in as-
sembling financial products is important for offering innovative financial products and for sourcing them
from an established network of partners (ecosystem). In particular, the knowledge of the banking business
is essential for constructing the joint syntax, semantic and pragmatic standards which are required in a
CFMI. Actors with a non-bank history typically lack a similar breadth and depth regarding their insights in
the banking business. General B2C marketplaces from Apple, Facebook or Googleare broad in scope, but
have only limited specificity in terms of financial products and many banking IT innovations contribute a
narrow, but deep financial offering. Although the services from existing FMIs represent the backbone of
today’s and tomorrow`s financial transactions, the FMI providers still feature a strong national basis and
only future competition will bring more cooperation as well as consolidation among the FMI providers.
Conclusions
In summary, the advent of customer-oriented electronic markets in the banking industry is expected to
have important implications for banks and established financial service providers. At least four factors will
determine this transformation: the financial crises, the behavior of banking customers, the pace of diffusing
innovative downstream IT solutions, and the emergence of non-banks as financial service providers. The
growing pressure on banks makes defending the established business models increasingly challenging. In
the past, electronic markets transformed the entire trading and execution of financial B2B transactions with
physical floors almost disappearing at most exchanges. Since banks are primarily aggregators of infor-
mation-based goods at the front-end, B2C electronic markets are expected to have a solid impact in this
3
This development is less prevalent if banks are shareholders of the FMI providers. For example, this applies to SIX in Switzer-
land.
area. Banks as well as non-banks will use the opportunity towards more customer-orientation and recent
electronic markets in the consumer segment have been extensively adopted. However, these consumer
markets only represent first elements for a future CFMI. The domain-specific knowledge of banks, as well
as financial service providers in general, could still prove necessary in realizing a CFMI. In summary, four
findings point at paving the way towards a customer-oriented way of banking in this position paper.
First, the convergence of several enabling technological elements (e.g. smartphones, tablet computers,
touch-sensitive and three-dimensional displays), user-oriented design concepts (e.g. gamification and sim-
plification) and community approaches (e.g. social communities, app store platforms) leads to the devel-
opment of a CFMI. The recent software ecosystems which comprise electronic markets, have amplified the
disruptive potential of digital compression standards in the media industry and could have similar effects in
the banking industry, too. However, the position paper argues that a simple transfer of existing consumer
solutions to the banking sector is unlikely since financial products are specific information goods. A CFMI
has higher requirements regarding trust, security, and the complexity of banking processes. Cooperation
between actors with consumer access and know-how on the one hand, and financial experience and credi-
bility on the other, could therefore become important for realizing a CFMI.
Second, a CFMI supports in arranging modular IT-based financial products around customer processes. A
major prerequisite for configuring services around customer processes is the interoperability of applica-
tions in the CFMI. The growing attention of this app interoperability is reflected in the discussions with-
in developer communities (e.g. Android native mobile apps) and standardizations in the social and seman-
tic web (e.g. OpenID for social profiles and the Unified Service Description Language (USDL) as a stand-
ard for business and IT services description). Another major development is the availability of electronic
authentication mechanisms, such as electronic passports, etc., that will allow customers to easily register
for new services of any provider on the CFMI. Furthermore, novel security mechanisms not only allow
unidirectional secure communication and transactions between customers and banks / non-banks, but also
enable new ways of bidirectional processes, such as customer advisory, etc.
Third, the financial value chains will become more global. FMIs are already shifting from a national to an
international focus with regions becoming more important (Americas, Asia, Europe). Although the merger
of Deutsche Börse and NYSE was aborted, other FMIs (e.g. London and Toronto or Singapore and Aus-
tralia) have integrated their business models. The position paper argues that a traditional FMI will not only
remain important in the interbank market, but that FMI providers might also target business customers with
their services. They could place services on a CFMI or even act as providers of the CFMI. Since the FMIs
lack knowledge on the end customer market and front-office applications have short lifecycles, the cooper-
ation with actors that contribute customer-oriented competencies in the areas of common interface, channel
integration, or platform operation is suggested in this position paper. Cross-border presence will foster
market transparency for more participants, create the necessary economies of scale and also calls for supra-
national supervision authorities which oversee the CFMI.
Fourth, from a conceptual perspective B2B and B2C markets comply with the basic electronic market
functionalities, i.e. the matching of buyers and sellers (e.g. product configurators, order books), the facilita-
tion of transactions (e.g. online banking) and the institutional infrastructure (e.g. security services). This
could also imply that both marketplaces could be linked and that end customers obtain direct access to FMI
services (e.g. securities processing services) via the CFMI. Contrary to this a multiple marketplace scenario
seems more realistic. The discussion in the position paper endorses a high level three-tier value chain
where electronic markets address different participants: customers, banks and non-banks as well as inter-
bank providers. In addition to the existing markets in the interbank segment, current developments point at
evolving banking communities as well as the CFMI for end customers. Only some infrastructure services
(e.g. security, trust, regulation) have the potential to be replicated across multiple markets.
These findings emphasize that banks are under pressure to define their future strategies. As shown by the
evaluation of banking IT-innovations, traditional actors from the banking industry, such as Credit Suisse,
Deutsche Bank, UBS etc. have already initiated first solutions. Innovation at the customer interface is be-
coming a competitive necessity and non-banks as well as FMI providers will be competitors and partners at
the same time. In any case, cooperation in defining and providing a CFMI, in collaborating with customers
and offering services on this platform requires a mindset other than simply striving for bilateral customer
retention. This collaborative approach would combine the platform providers expertise from the customer
segment, the (non-)banks as specialists for financial services and federal institutions who oversee the trans-
actions in the CFMI ecosystem. After replacing physical cashier desks by ATMs, physical deposit slips by
online banking, the application of information technology could again lead to an innovative disruption of
the banking industry. Like in the travel or the media industry, electronic markets might be about to change
another entire industry.
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Purpose: The fourth industrial revolution (4IR) enables firms to leverage various emerging technologies to reduce operating costs, improve business efficiencies and gain competitive advantage. This article uncovers the determinants influencing emerging technology adoption, particularly artificial intelligence (AI), cloud computing and distributed ledger technologies (DLT), in South African (SA) financial services firms. Design/methodology/approach: Seventeen technology experts from the SA banking, insurance, financial technology and financial regulation and compliance sectors were interviewed. A semi-structured interview was used to conduct one-on-one interviews, followed by a focus group interview. Qualitative data were analysed using a thematic network analysis. Findings/results: The results revealed that the determinants – adopter traits, technology usability, industry characteristics, organisational leadership and organisational characteristics – were influential towards technology adoption. It is suggested that the new model could be strengthened further by incorporating a new construct, leadership diversity, which had not been previously proposed in the literature. Practical implications: By understanding the influential adoption determinants, leaders can take bold, calculated risks in adopting AI, cloud computing and DLT. However, the importance, prior to adopting these technologies, of clearly understanding the need for them, and their business benefits is also emphasised. Originality/value: Research on the adoption of AI, cloud computing and DLT in the SA financial sector is limited. This article leverages the models of the diffusion of innovations (DOI), the technology–organisation–environment (TOE) and the technology readiness index (TRI) to propose a new model that illustrates technology adoption in the SA financial sector at individual and firm levels.
... In addition to the 2008 financial crisis contributing towards the emergence of fintech, Alt and Puschmann (2012) indicate that this global disaster along with the continuously evolving behaviour of banking customers, the emergence of nonbanking FSPs and the rate at which innovative information technology (IT) solutions are diffusing into downstream financial processes is driving the sector towards a more customer-oriented landscape. A customer-oriented financial services infrastructure increases the bargaining power of technology end-users by introducing new interfaces to which they can access financial services, thereby generating opportunities for fintech start-up firms to penetrate the sector (Alt & Puschmann, 2012). ...
... In addition to the 2008 financial crisis contributing towards the emergence of fintech, Alt and Puschmann (2012) indicate that this global disaster along with the continuously evolving behaviour of banking customers, the emergence of nonbanking FSPs and the rate at which innovative information technology (IT) solutions are diffusing into downstream financial processes is driving the sector towards a more customer-oriented landscape. A customer-oriented financial services infrastructure increases the bargaining power of technology end-users by introducing new interfaces to which they can access financial services, thereby generating opportunities for fintech start-up firms to penetrate the sector (Alt & Puschmann, 2012). The adoption of fintech solutions in the sector has also generated concerns regarding the extent to which financial regulators supervise these technologies. ...
... Partnerships between financial regulators and fintech firms have had the potential to strengthen innovation in the sector (Saksonova & Kuzmina-Merlino, 2017). Alt and Puschmann (2012) indicated that the evolving needs of banking customers enabled fintech firms to enter the market and offer customer-oriented financial solutions. It is proposed that industry characteristics (Proposition P3) will influence AI, cloud computing and DLT adoption. ...
Article
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Purpose: The fourth industrial revolution (4IR) enables firms to leverage various emerging technologies to reduce operating costs, improve business efficiencies and gain competitive advantage. This article uncovers the determinants influencing emerging technology adoption, particularly artificial intelligence (AI), cloud computing and distributed ledger technologies (DLT), in South African (SA) financial services firms. Design/methodology/approach: Seventeen technology experts from the SA banking, insurance, financial technology and financial regulation and compliance sectors were interviewed. A semi-structured interview was used to conduct one-on-one interviews, followed by a focus group interview. Qualitative data were analysed using a thematic network analysis. Findings/results: The results revealed that the determinants – adopter traits, technology usability, industry characteristics, organisational leadership and organisational characteristics – were influential towards technology adoption. It is suggested that the new model could be strengthened further by incorporating a new construct, leadership diversity, which had not been previously proposed in the literature. Practical implications: By understanding the influential adoption determinants, leaders can take bold, calculated risks in adopting AI, cloud computing and DLT. However, the importance, prior to adopting these technologies, of clearly understanding the need for them, and their business benefits is also emphasised. Originality/value: Research on the adoption of AI, cloud computing and DLT in the SA financial sector is limited. This article leverages the models of the diffusion of innovations (DOI), the technology–organisation–environment (TOE) and the technology readiness index (TRI) to propose a new model that illustrates technology adoption in the SA financial sector at individual and firm levels.
... ( Credits" in selected countries. Alt and Puschmann (2012) observed three aspects of the banking IT innovations in the new social media paradigm. First, most banking IT innovations focus on a specific customer need within a customer process. ...
... Third, low interoperability and standardization in the existing banking IT innovations are provided on 30 those platforms. These determinants (Tufano, 2003;Mention and Torkkeli, 2012;Alt and Puschmann, 2012) are important in this study especially given the need to analyze and explain why one bank is more or less innovative than another bank. ...
Thesis
Cette recherche vise à comprendre le processus et le modèle d'innovation financière adoptés parles grandes banques commerciales et les grandes entreprises FinTech opérant en Chine. Une étude qualitative basée sur le modèle de processus, la méthode des cas étendus et l'approche des études de cas multiples est appliquée. Six banques sont sélectionnées sur la base de afin d'identifier les thèmes et les modèles basés sur des comparaisons par paire et pragmatiques. Les principales théories appliquées sont celles de l'innovation et du changement institutionnel.Le choix du modèle d'innovation est affecté par la structure institutionnelle, la propriété, latrajectoire, le modèle d'entreprise, l'approche réglementaire et les objectifs d'innovation de la banque étudiée. La réglementation peut être un catalyseur ou un frein à l'innovation financière, selon le degré de cohérence entre la stratégie d'innovation des banques et la politique du gouvernement local. La pression sur les performances stimule l'innovation, tandis que la bureaucratie et la trajectoire organisationnelles constituent des obstacles majeurs à l'innovation.
... The term "FinTech" is an abbreviation of ''financial technology'' and is, of course, also used in traditional banking and financial companies. The term, however, is particularly applicable to new challenger companies that are utilizing and drive the digital transformation (Alt and Puschmann, 2012). In this report, FinTechs are firms that use different types of software or hardware to facilitate financial services, such as bill payment, investment, crowdfunding, retail banking, or the use of cryptocurrencies. ...
... If we look at research on the most recent wave of services, referred to as FinTech 3.0 (or even 3.5) 1 , these studies often identify crowdfunding and blockchain as two particularly prominent technologies (Alt and Puschmann, 2012;Cai, 2018;. Crowdfunding is a technology, based on different types of peer-to-peer networks, closely tied to the business models we associate with FinTechs. ...
... The wider context of the Fintech development By describing the role of digital technologies, regulation and the industrial relations settings, the following chapter aims to put the FinTech development and FinTech companies into context. Starting with the technological dimension, we may define "FinTechs" as a term for new challenging companies using different types of software or hardware to facilitate financial services, such as bill payment, investment, crowdfunding, retail banking, or the use of cryptocurrencies (Alt and Puschmann, 2012;Hsu, 2018). FinTechs are developing and facilitating services in broader ecosystems of actors sharing data with each other, involving e.g., traditional banks and insurance companies. ...
... Crowdfunding and blockchain are particularly prominent technologies in this development (Alt and Puschmann, 2012;Cai, 2018). Crowdfunding is a technology based on different types of peer-to-peer networks. ...
Technical Report
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The report confirms an extensive digital transformation of financial services in all four countries studied, but our findings still suggest that FinTech companies do not necessarily disrupt existing businesses – at least not in a radical fashion. As the FinTech niche in all four countries appears to consolidate and influence the emergence of a new business ecology – in which conventional banks continue to play a key role – our analysis rather suggests that the development consists of an intense and innovative differentiation of market services. FinTechs primarily position themselves as partners to established businesses, providing technical solutions or even ideas that are bought by banks and thus co-opted or integrated through strategic partnerships (cf. Brandl and Hornuf, 2020; Hornuf et al., 2020). They also forge a position as intermediaries between the bank and the customer, utilizing open banking solutions based on customer and account-information from traditional banks. In doing so, they are shaping both a possibility to add new services, and for customers to utilize and get an overview of services from different actors on the market (cf. Lomachynska, 2020).
... However, as digitalization is changing the nature of product and service offerings in banking, customer preferences for traditional products such as checking accounts may also have changed. Based on digital financial technologies, new market players ("Fintech") have introduced new innovative offerings to the banking industry (e.g., Alt and Puschmann 2012;Gomber et al. 2018). ...
... The research can be roughly divided into two research streams: (1) IS studies on the impact of IT on CI (e.g., Ryu and Lee 2018;Theotokis et al. 2008;Wells et al. 1999), (2) In the first stream of research, studies examine the changing customer interaction based on digital technologies more generally Alt and Puschmann 2012;Nüesch et al. 2015). We especially will look at the role of IT in customer interactions (Wells et al. 1999). ...
Thesis
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Traditional organizations are strongly encouraged by emerging digital customer behavior and digital competition to transform their businesses for the digital age. Incumbents are particularly exposed to the field of tension between maintaining and renewing their business model. Banking is one of the industries most affected by digitalization, with a large stream of digital innovations around Fintech. Most research contributions focus on digital innovations, such as Fintech, but there are only a few studies on the related challenges and perspectives of incumbent organizations, such as traditional banks. Against this background, this dissertation examines the specific causes, effects and solutions for traditional banks in digital transformation − an underrepresented research area so far. The first part of the thesis examines how digitalization has changed the latent customer expectations in banking and studies the underlying technological drivers of evolving business-to-consumer (B2C) business models. Online consumer reviews are systematized to identify latent concepts of customer behavior and future decision paths as strategic digitalization effects. Furthermore, the service attribute preferences, the impact of influencing factors and the underlying customer segments are uncovered for checking accounts in a discrete choice experiment. The dissertation contributes here to customer behavior research in digital transformation, moving beyond the technology acceptance model. In addition, the dissertation systematizes value proposition types in the evolving discourse around smart products and services as key drivers of business models and market power in the platform economy. The second part of the thesis focuses on the effects of digital transformation on the strategy development of financial service providers, which are classified along with their firm performance levels. Standard types are derived based on fuzzy-set qualitative comparative analysis (fsQCA), with facade digitalization as one typical standard type for low performing incumbent banks that lack a holistic strategic response to digital transformation. Based on this, the contradictory impact of digitalization measures on key business figures is examined for German savings banks, confirming that the shift towards digital customer interaction was not accompanied by new revenue models diminishing bank profitability. The dissertation further contributes to the discourse on digitalized work designs and the consequences for job perceptions in banking customer advisory. The threefold impact of the IT support perceived in customer interaction on the job satisfaction of customer advisors is disentangled. In the third part of the dissertation, solutions are developed design-oriented for core action areas of digitalized business models, i.e., data and platforms. A consolidated taxonomy for data-driven business models and a future reference model for digital banking have been developed. The impact of the platform economy is demonstrated here using the example of the market entry by Bigtech. The role-based e3-value modeling is extended by meta-roles and role segments and linked to value co-creation mapping in VDML. In this way, the dissertation extends enterprise modeling research on platform ecosystems and value co-creation using the example of banking.
... Moreover, digital disruption is said to redefine industries (Basole and Patel, 2018;Bouwman et al., 2018) to deconstruct their value chains, generate new business architectures, engage in complex collaborations, and adopt new business models. From the customer's perspective, it has also unbundled services so that instead of one service provider, several potential service providers are available for them to choose from and rebundle the service (Alt and Puschmann, 2012;Basole and Patel, 2018), which highlights the customer's central role in integrating services according to their value formation processes as a central actor in their ecosystem (Akaka et al., 2021;Vargo and Lusch, 2017;Heinonen and Strandvik, 2020). Our data strengthen the previous notions that digitalization enables the customer to be a more active subject in their value formation (see also Boot, 2017;Payne et al., 2008), placing the customer at the centre of the ecosystem and in the role of an orchestrator of ecosystem resources. ...
Article
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Digitalization and related transformation in services is disrupting existing businesses and changing the positions and roles of incumbent and new players in the industry, as well as customers. This study aims to create an understanding of how digitalization has driven change in customer value creation, and how companies can enhance customers’ digital value creation in the present situation. For this purpose, we conduct a qualitative inquiry and use inductive logic with rich data from the represented industry – the financial sector – which enables us to detect the evolution of value creation during the last thirty years from an executive perspective. Our contribution is based on defining change processes involved in the evolution of customer value creation due to digitalization and revealing its microfoundations.
... Banks are not only vulnerable to the innovators that focus on efficiency improvements of existing financial services. Even the unfavorable position of a "dumb pipe" that only processes payments while leaving the high margin business to other market players is under pressure by the emerging cryptocurrencies [2]. ...
Article
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Payment data is one of the most valuable assets that retail banks can leverage as the major competitive advantage with respect to new entrants such as Fintech companies or giant internet companies. In marketing, the value behind data relates to the power of encoding customer preferences: the better you know your customer, the better your marketing strategy. In this paper, we present a B2B2C lead generation application based on payment transaction data within the online banking system. In this approach, the bank is an intermediary between its private customers and merchants. The bank uses its competence in Machine Learning driven marketing to build a lead generation application that helps merchants run data driven campaigns through the banking channels to reach retail customers. The bank’s retail customers trade the utility hidden in its payment transaction data for special offers and discounts offered by merchants. During the entire process banks protects the privacy of the retail customer.
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"Financial Technology (FinTech) has brought a revolution in the financial sector including incremental technological innovations in financial services. FinTech has triggered significant changes in the way financial sector is designed and it operates in the digital era. By increasing speed and reducing costs, FinTech has strongly influenced consumers to move towards digitalization. This has had as result the development of more tailored financial services addressed to individuals. For this purpose, a minimum level of financial literacy is considered a key driver of consumer behaviour. The main objective of this study is to analyse the impact of FinTech revolution on the labour market. In this paper, we have performed the statistical analysis of secondary data for EU-28 Member States (including United Kingdom) within the interval comprised between 2017 and 2019 with the aim to identify which is the level of labour substitution triggered by FinTech and its short-and medium-term effects on the labour market in the financial sector. Conclusions of this study revealed that although a higher level of digitalization is associated with a lower number of individuals employed in the financial sector, especially in the countries with the highest degree of digitalisation in the EU-28 (Digital Frontrunners), there are still a number of IT professionals performing operational tasks."
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Checking account providers must understand the importance of digital and non-digital service attributes across different customer segments to achieve a product-market fit in digitalization. In particular, various latent personal characteristics influence customer choices in digital banking. However, there is only limited research on banking customer behavior beyond the technology acceptance model, and none that explores customer preferences for checking accounts experimentally. Against this background, we present the results of a discrete choice experiment on customer preferences towards checking accounts in Germany. The outcome of the paper is a detailed quantitative assessment of the relationships between checking account service attributes and a set of latent influencing factors on choice. While customer service experience, the scope of services, and professional expertise are identified as re-occurring critical aspects for customers when choosing their banking service provider, the type of provider and digital product innovation showed little impact on customer choice overall. In multigroup analyses, we reveal the moderating impact of influencing factors on the preference of checking account service attributes. Additional segmentation analyses point to six customer segments from which four still prefer a traditional operating model. The largest segment of traditional product-innovative customers prefers digitalized, i.e., data-driven checking accounts in a mixed-mode with human customer advisory and on-site branch services from a traditional bank. At the other end of the spectrum, a small innovative Fintech customer segment, influenced by non-pragmatism and social norms, prefers a purely digital operating model with data-driven applications in banking.
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In recent years, we have seen the rise of Web 2.0, in which users become co-creators and software turns into services. During the last two years, we have also witnessed the phenomenal success of Apple's App Store for which people produce the applications and can also create business of them. While the technologies and business services related to these phenomena have been studied separately, we suggest that the underlying digital ecosystem that ties them together has not been made explicit. In this paper, we provide a conceptual model of a digital ecosystem for understanding how companies can co-create business with people. To construct such a model, we use multiple case study approach and explore two cases: an ecosystem around smart phone application market App Store and an ecosystem around bioinformatics service registry BioCatalogue. Our results suggest that the required technical solutions and business services are now available. However, to make business flourish, the orchestration of the overall ecosystem is also essential and needs to be taken care of.
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Purpose – This article examines the trends that will likely define the future of the retail banking industry in the next decade and the strategic imperatives for success. Design/methodology/approach – Scenario technology and trend analysis. Findings – Large players will generate higher aggregate profits by reaping the benefits of super scale, while niche players will aggressively pursue the most desirable customers by addressing their needs in distinct ways – those in the middle will get squeezed. Research limitations/implications – Combining the results of the IBM CEO survey with market research and interviews with industry executives, the authors have identified five key areas of ongoing innovation that have the potential to fuel enormous growth for the retail banking industry: retail payments, mortgage loans, account and product integration, global expansion and the customer experience. Practical implications – There are four strategic imperatives banks must follow to cultivate innovation and position themselves for sustainable growth. Originality/value – All banks, but small and medium sized banks especially, will have to specialize and focus on their core strengths – those activities in which they excel – and partner with best-in-class specialists for everything else.