New Banking Ecosystems

Nikolay Korinets

Every bank is an ecosystem on its own. One can find several departments responsible for different activities in any banking institution. Since the end of the last century, we are seeing an increasing digitization of most major industries, and banks are not excluded from this process. Let’s see how these financial organizations improve and expand their ecosystems with today’s opportunities.

Every bank is an ecosystem on its own. One can find several departments responsible for different activities in any banking institution. Since the end of the last century, we are seeing an increasing digitization of most major industries, and banks are not excluded from this process. Let’s see how these financial organizations improve and expand their ecosystems with today’s opportunities.

To cement its position on the market, banks can create new businesses with a high level of independence. The rise of digital payments has made it possible to easily integrate various services with each other. As a result, a bank can possess a service similar to PayPal, an online marketplace (think of eBay) and an online streaming platform like Netflix. Naturally, all of these three parts of a bank ecosystem would not necessarily get to the level of Netflix or eBay, but the main stimulus for banks to start this expansion in the first place is their customer pool. Shared ownership means bonus programs and active purchases.

This was only an example of an extended banking ecosystem. Some institutions are more focused on improving their work for customers. Fintech startups and blockchain enterprises are becoming interesting for banks to invest because nobody wants to miss a good way to optimize business processing. As this happens, the ecosystem of a bank can be joined by much younger startups.

When correctly managed, a modern startup can achieve impressive results and become a full-fledged bank in less than a decade. Such is the case with N26, at first only a small German interface product which had a consistent strategy allowing to grow and expand its ecosystem far beyond the first version. The UK-based Monzo has, too, made a similar leap forward. A mobile application has evolved into a multi-million bank preparing to enter the United States market.

In the legal field, bank ecosystems can seem convoluted for a regular user: for each economic activity there must be an appropriate license, and in today’s market one can witness offshore banks with several licenses acquired in separate countries. This strategy started to make sense at the same time when working offshore became common. When an offshore bank wants to expand its range of services, the legal department is becoming busy with getting an appropriate permission allowing to operate in at least several states. Given the current global climate, it’s far easier than it was last century.

These three aspects of modern banking ecosystems development — new services, fintech upgrades and more tasks for corporate lawyers — are considered not only by new or second-grade banks. Even the industry locomotives are reviewing these opportunities. Despite the obvious indisputable benefits for clients (especially when it comes to faster transactions), working with personal data shared between the ecosystem members is a sensitive matter requiring solid security measures. This is exactly the reason why large traditional banks would not just open up an over-the-counter (OTC) currency trading platform, an option sometimes offered by neobanks.

The problem of data leaks is becoming even more pressing challenge for organizations with a wide range of interconnected services. To ensure that each ecosystem member is equally protected is quickly becoming one the most important goals of banking cybersecurity experts. More data protection means more responsibility in the long term. Attempts to steal the information about the bank clients by attacking a weaker part of the ecosystem should be prevented.

This is what brings us to the situation we see today: neobank startups are sometimes offering more services than old banks which have much more to lose. However, it would be a mistake to assume that conservative institutions are doing nothing to upgrade their ecosystem. 

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