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Industry roundup: 12 November

The reshape and fragmentation of the banking value chain into digital-only players

Banking models have been very traditional for many years, with a standard way to distribute products and services. However, banks are slowly migrating towards a digitization of their current product and service offerings to their clients. According to a report by Accenture (NYSE: CAN), “Banks could increase annual revenues by nearly 4% by embracing innovative business models of digital-only players, an opportunity to reap an additional US $18 billion in revenues by 2025.” (Graph illustration by Business Wire)

The report, which analyzes trade models of over 200 conventional banks and over 200 digital-only players in 11 countries across North America, Europe, Asia-Pacific, and Latin America, recognized two commerce models. The first model, vertically integrated firms, represents conventional and linear types where firms sell only their own products, disseminate products from other providers, and provide technology processes to others. On the other hand, the second model is non-linear, where firms instill their recommendations into third-party services, such as BNPL (buy now, pay later) into merchant services. It was noted that a combination of the two models help grow revenues by partnering with third parties and unbundling product and services.

Michael Abbot, senior managing director at Accenture, said, “on the surface, the banking industry appears healthy, with big banks posting robust revenues and profits. But a closer look reveals that the combination of low interest rates, fee compression from increased competition, undifferentiated product offerings is slowly eroding banks’ share of gross domestic product.” In order for conventional banks to stay on top of current trends and customer needs, firms must respond faster to the rapidly changing market by analyzing and reimagining their product offerings forthe new ways customers do business.

Accenture’s report recommends many ways conventional banks can leverage their expertise to be able to distinguish them from the competition and create a more flexible model. Banks are advised from the report by Accenture to implement one or more of the following models:

  1. Sell only products that the bank produces and control all layers in the value chain, from manufacturing to distribution, with a key value driver being the ability to consolidate via M&A and take market share.
  2. Build a distribution-driven ecosystem, distributing banking and financial products from other companies, and create a marketplace to distribute non-banking products.
  3. Seek scale by delivering technology or business processes to other companies.
  4. Create new propositions by building or bundling fragmented products and services, which can be distributed by the bank or third parties.

Dilnisin Bayel, managing director of Accenture’s Strategy & Consulting group in the U.K., said, “to capture growth, traditional banks need to go beyond becoming the best digital versions of themselves and become adept at operating multiple business models simultaneously. This will require that they shift their perspective to consider adaptive models that put product innovation, embedded distribution, purpose, and sustainability at the forefront.” In order for banks to grow successfully in the fast paced digital space, they should look at transforming their current business model.

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Mastercard announces additional development of its BNPL program

Buy Now Pay Later (BNPL) is a program designed to provide consumers with more digital payment options at in-store or online checkout. With the development of Mastercard Installments, banks, lenders, fintechs and wallets are able to offer flexible installment choices, including zero-percent interest and pay-in-four model, to millions of consumers and merchants globally. Mastercard’s partnership with American Airlines, CSI, Fiserv and TSYS in the U.S. and partnership with Hummgroup and Limepay in Australia help create a secure and competitive BNPL experience to their participating partners throughout the network.

“The program’s unique, open-loop model provides lenders, merchants and consumers alike the ability to enjoy the benefits of BNPL purchasing, with the security and consumer protections they’ve come to expect from Mastercard” said Craig Vosburg, Chief Product Officer, Mastercard. Additionally, consumers have the BNPL capability through their bank’s app or at instant checkout. Programs like this continue to illustrate versatility and flexibility towards providing consumers with a secure payment mechanism.

According to Mastercard, pre-approved installments can be used directly on a merchant’s website or can be stored in digital wallets. Additional enhancements to Mastercard Installments will further expand their Application Programming Interface (API) standards in BNPL to include installment calculation and multiple repayment options.

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