The shift to customer-centric product propositions in an API-driven, ecosystem world is driving a dramatic shift in partnership strategies (such as discussed in this blog). For many banks this initially, started with collaboration with FinTechs to enhance or augment customer proposition, but is now extending to provide or use banking services within wider customer processes (such as embedded finance) with non-banking enterprises. For example, a bank may provide a car marketplace service where customers could search for, evaluate, sell/trade-in, purchase and finance a new car, as well as obtain supporting insurance and roadside assistance.
In such relationships, the customer may make a single transaction with price and billing managed as an integrated payment; however, behind this may be quite a complex value share agreement (value could be based on revenue or other agreed metrics). This may be based around specifics of the service obtained by the individual customer, but also be impacted by wider volumes of activity between the bank and the partner(s). Commission levels may vary depending on volume of business but may also be subject to conditions. These could include customer usage levels, customer retention beyond certain period(s), the extent of the relationship being two-way, as well as agreed service level agreements (SLAs) being met. This has important implications for both sales and servicing, requiring the bank to be able to easily agree, implement, maintain, and importantly co-innovate such partnerships.
An ecosystem approach requires new capabilities
There are some important technology considerations needed to operationalize these models. this does require development of new capabilities, although ideally banks need to incorporate these into the primary banking architecture (see Toward a New Retail Banking Architecture for more detail), rather than run as separate functions, so that areas like product management and origination can work across both internal and external product/services. Key considerations include:
Product and service catalog – the bank’s enterprise product catalog needs to be able to support both internal and partner (external) products and services, able to provide product information and definitions to sales/channels and product design/management functions.
Partner onboarding, contracting, and party management – banks need to be able to rapidly onboard new partners (akin to setting up a new corporate relationship) with automated process and a strong partner experience.
Pricing model and agreement set-up – banks need to be able to set-up pricing and revenue/value share models based on multiple parameters, such as events, product usage, or sales volume.
Commission and incentive management – banks need to simplify and streamline commissions and incentive management to be able to operate with multiple partners, but also be able to support more complex models as banks partnerships model mature.
Partner invoicing and settlement – banks need to automate monitoring and calculation processes (such as commitments) to provide transparent reporting for invoicing of payments (which may flow in both directions).
Resolution management – automated processes for dealing with exceptions, such as ability to roll-back pricing, recalculations, or implement corrections on a go-forward basis.
Banks should look to co-innovate with partners
As this ecosystem approach has emerged in recent years, many banks have started to develop such capabilities organically, gradually maturing as they get more experience. For example, API monetization arrangements often starts with flat-fee approaches (a one-off or fixed recurring fee for access to the API), before moving towards API usage-based models, and then finally revenue-share type arrangements based on value created. However, banks should look to incorporate such capabilities deliberately into their enterprise architecture and business models so that such partnerships can become an integral part of product management and innovation functions. Importantly, banks need to be able to co-innovate with partners, with the ability to adapt product catalog and pricing as propositions from either than bank or partners develop.