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Service-Providing and outsourcing opportunities in the banking sector – Part I

Difficult times for banks. The existing business models are becoming less and less profitable and the new business models are either specified by the regulator or demanded by the customers. Gone are the days when banks could be successful as universal banks. A special business model has developed not least based on regulatory requirements that could again become a source of income for banks, which at the same time establishes them as an important pillar of society.

This applies to the provision of infrastructure and services not only to private customers but also to Fintechs, banks and specialist institutions. This sounds little disruptive at first, but on closer inspection it is. But let’s look at the development historically:

The bank outsources some of its processes

Banks have initially begun to outsource their own processes to third parties. This concerned individual processes such as “onboarding of employees”, PC provisioning, programming services or other procurement services. So, while at the beginning banks were still outsourcing services oneself, the question soon arose as to whether a bank does not want to be active as an outsourcing provider itself. And they learned in the years before how to manage outsourcers.

The problem, however, was that banks are IT-heavy and have to use their core banking system to provide IT services. It turned out that existing core banking systems were rarely able to offer external interfaces or, for example, were not suitable for multiple clients. It was therefore good that the EU adopted the so-called PSD2 Directive, which obliges banks to give external service providers access to their systems.  

The bank as an outsourcing platform

Within the framework of the revised Payment Services Directive (PSD2) of the European Banking Authority, certified third party service providers were enabled to request account information and trigger payments upon customer consent. These services are provided via a dedicated Access-to-Account interface between third-party vendors and banks. API is the abbreviation for Application Programming Interface. Developers can access the functions of an application via an API interface. The API defines the correct way for a developer to write a program that requests services from a system (core banking system) or other application.

It is primarily through this standardisation and specifications that banks have recognised the significance of this development, namely that they can offer infrastructure and additional services as service-providers.

The bank as a Service-Provider

Third-parties no longer have to set-up their own (cost-intensive) banking-infrastructure, but they can rent or buy services from the service provider (i.e. the bank). The bank can achieve significantly higher margins for not only leasing-out infrastructure, i.e. for access to the platform for e.g. payment services, but also by offering third party providers banking services.

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Integrated Reporting can’t be stopped

A financial report primarily looks at the company itself, while a non-financial report looks beyond the company’s boundaries. Non-financial reporting – basically – has nothing to do with sustainability reporting: however the sustainability report can be a non-financial report that explains the values associated with sustainability.

Years ago, attempts were made to see the benefits of sustainability reporting in risk prevention. But pure risk avoidance is not a good advisor. We live in a time in which the democratization of decision-making processes is advancing: The customer decides at the POS. Business events postulate:  So far banks have told customers what to do; now customers are telling banks what to do.

In corporate reporting, too, the customer will set the tone more and more. It is not a question of whether your stakeholders expect more co-determination, as they did a few years ago, but only how much. Do not be afraid of losing control but see this as an opportunity.

The choice is yours: You can either continue to make annual reports for investors only or you can go beyond the company boundaries and analyse the impact your company has on society. Don’t bore anyone with reporting on committee meetings, don’t tell anyone about human rights you’ve never really contributed to as a company, and don’t pretend you can avoid corruption in your company if you haven’t. Instead, report on your performance, its impact on society, and the benefits you bring as a company.

The integrated report – which integrates financials and non-financials – will become more and more the reporting standard, as it makes sense to look at the financials through the non-financials. And NGOs and other stakeholders are now demanding change.

When preparing an integrated report, do not hide behind the scientific aspect of reporting, but concentrate on things that are essential. In the organization you need your own department for impact analysis of your company. Continue reading

ecommerce

etailers vs retailers

In the etailers versus retailers war, the etailers are winning. Market shares for everything ecommerce are growing. Tech solutions have concentrated efforts on customer management and marketing software for ecommerce platforms. Consumers have responded by shopping online in their pajamas in the middle of the global night from every possible corner of the world.

Big data analysis and trend and pattern prediction using deep neural networks will continue to form a growing part of planning and market analysis. Human-AI hybrid management teams will become more common. We may see something similar in the way stakeholders are planning and implementing complex infrastructure development now. Business may find itself regularly collaborating with government, education, and the private sector to plan, manage and fund business projects. This collaborative organizational model will allow the heavy burdens of regulatory compliance, funding, public opinion, environmental impact, and other challenges to be met by a team with a variety of skills. This new collaborative model can reduce the risks associated with the digital transformation of business.

There are, however, some limitations and challenges that remain. Some industries are very well suited to ecommerce, and some are less so. Who are the winners so far?

Medical and Legal Ecommerce

Consultations with experts–doctors, lawyers, accountants, and other specialty information brokers are very well suited to ecommerce applications. In the US, the federal government recently passed a bill allowing insurance reimbursement through Tricare, one of the federal insurance programs, for telemedicine. This bill signals tacit approval for these services, and they have responded by developing very workable systems for both medical and mental health visits. Tech such as video conferencing allows face to face meetings, and systems have been put into place to limit the possibility of diversion or misuse, such as the restriction on prescribing controlled substances through a teleconference. Tech which allows interstate prescribing electronically to drug stores who are in the system, such as the chain drug stores and those registered with the large insurance providers, means medicines are available immediately after a visit. New technologies allow home-bound patients to deliver results of weights, blood pressure readings, and blood samples to the medical provider through electronic systems.

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