The bank of the future will have to be very different from today's common structures and business models if it wants to compete successfully and to satisfy ever-changing customer needs.
It will consist of a construct of innovative and independent financial-technology (fintech) companies, such as Wealth Front, Lending Club, TransferWise, Betterment, moneymeets, Nutmeg, Simple, True Wealth, Credit Karma, Ohpen and Ally Bank, to name a few. If required, it will also include traditional financial service providers.
If necessary, this new bank will also go into partnerships with other non-banks (for instance, big Internet companies, such as Pay Apple, Amazon, PayPal, Facebook, Alibaba, and Google), in addition to its fintech partners. This way, it can respond and fulfill changing customer needs that are not yet covered in a satisfactory manner by existing fintech companies.
Many financial institutions, such as banks, already cooperate in some partnership with fintech firms. However, we propose a single-minded pursuit of primarily using only fintech firms as financial service providers.
The new proposed bank is named Best-in-Class Fintech Bank, and it differentiates itself from existing banking business models, including the ones that already have some form of partnership with fintech firms.
The big difference is that the majority or all of its offered financial services are provided by independent and innovative leading fintech companies.
Customers will benefit from a "supermarket of fintech partners."
The new bank will offer customers an "open fintech architecture." It is figuratively a logical development of the well-known open fund architecture but with the important difference that the best fintech companies are offered in place of the best fund products.
Traditional personal banking advisory can be included in the service mix.
For clients, the benefits of this new bank structure include having access to cheaper and better financial services, higher overall returns, greater transparency, and thus, a new and better customer experience.
Clients will also benefit from the pre-selection of the service providers, the consolidation of services, assets, and ad hoc reports.
For banks, the benefits are the reduction of costs and the ability to provide customers with independent best-in-class services. In addition, they will enjoy a continuously growing and up-to-date know-how acquired through the financial services partnerships.
The attractiveness, branding and competitive advantage of the new bank will be strengthened through the higher total return, the greater transparency, and the faster adaption to customer needs.
For the fintech partners, the benefits of being part of such a structure will be the access to more customers, faster reach of critical size, and a solid foundation for expansion and growth.
For a good example to show that service partners can work successfully within and for a larger structure, one needs to look no further than to large websites that use Google, Bing or Yahoo! Search as their default search engines. The search engine providers benefit from the partnership and still remain independent, strong and successful in their own right.
Important questions that need to be addressed are the issues of the organizational integration of financial service providers in the operational business, as well as the contractual obligations and responsibilities. This includes, for instance, the economic control, the fee structures, and the interaction between clients, bank, and fintech companies.
The banks are well advised to try to evaluate the business model of the Best-in-Class Fintech Bank as soon as possible.
It should be borne in mind that the young competitors do not need to adapt an old business model. They only need to implement their new business model, without the structural hurdles of old corporate power structures.
If in doubt, the bank management should remember that the young competition can and will move and seize opportunities much faster.
The proposed Best-in-Class Fintech Bank structure provides all parties with a win-win situation and, above all, a business model that can quickly adapt to customer needs and, not least, to the future.