Ecosystems can help generate new revenue streams for banks

The COVID pandemic accelerated the customer demand seeking hyper-connected digital experiences, which could cut even across other industries. We highlighted this trend in our “Banking on the Cloud” ebook. Banks are accelerating the development of their strategies and solutions to deliver banking as a service (BaaS) and ecosystem banking capabilities to their customers and partners. In this blog, we dive deeper on how financial institutions are implementing their ecosystem strategy focusing on:

Ecosystem patterns adopted by the financial services firms
Key considerations for a successful ecosystem strategy
Amazon Web Services (AWS) reference architecture to accelerate the ecosystem build and scale efforts

How financial services firms are adopting ecosystem strategy

Verified Market Research, estimates a $2 trillion market for BaaS by 2028. This is further highlighted through a survey by Celent, where 23% of executives have called out that an ecosystem approach to growth is an urgent priority in 2023. Aligned to this priority, there are three common patterns that our AWS customers are embracing to accelerate their ecosystem strategy.

Building marketplaces to be the primary engagement channel for the customers: Itaú Unibanco, created the “Itaú Shop” in partnership with retailers where customers can search, select, purchase, customize payment terms and receive cashback offers on laptops, smartphones and appliances. Leveraging the power of AWS solutions, Itaú has developed an accelerated path to customer acquisition, revenue generation and helped reduce cost for end customers and partners through single channel delivery.
Embedding finance into ecosystem partners’ value chain: DBS Bank adopted a strategy to embed finance capabilities where partners can act as an extended bank channel. DBS marketplace, created by DBS Bank using AWS technologies, has scaled to over 400 partners to include services such as real estate, travel, automobile. This reduced the cost of customer acquisition and enhanced the share of digital customers from 33% to 48% over the last five years.
White labelling partner solutions within the offering portfolio: Some banks decide to adopt a phased approach towards an ecosystem build and may begin to offer white labeled products from their strategic partners. A leading Canadian bank launched a marketplace using AWS Cloud to enable FinTech partners to provide solutions to their customers. This initiative scaled to reach 3.2 million customers within two years from launch.

Key considerations for accelerating ecosystem business outcomes

Synthesizing the ecosystem patterns across major banks and applying an AWS practitioner point of view, following are the key considerations that a bank should consider to accelerate their business outcomes.

Ecosystem Model Selection: Banks today deploy multiple ecosystem models, be it offering embedded finance, API-driven white labeled products, full-service BaaS capabilities, or marketplace. An earlier section in this blog covered a few such examples. There is no one-size-fits-all solution. The first step in the ecosystem journey is for the bank to work backwards from their end customer’s needs. They should evaluate adjacent ecosystems, double down on their core offerings, and identify an appropriate partner strategy to unleash the desired ecosystem value to customers. As a result of this, banks could build one primary model or adopt multiple models and implement them in a pragmatic approach.

Experimentation and Scaling: Upon finalizing the ecosystem business model and the approach, the next important step is to foster an organization culture and environment to rapidly experiment and learn. This creates the foundation to accelerate technical velocity and scale ecosystem business models. To aid this rapid experimentation and scaling, banks can leverage pre-packaged solutions from AWS. For example, they could use AWS Data Exchange to subscribe to a variety of financial data sets including consumer spending patterns, personal income data, customer demographics, ESG (environmental, social, and governance) ratings, and financial APIs.

Partner Integration: Value delivered through an ecosystem business model is amplified through partner strategy. Banks should consider building an ecosystem that can facilitate easy inter-connectivity, and allow for open innovation with partners. One such example is, FinConecta, a FinTech provider who built their marketplace on AWS with an API driven pre-integrated partnership ecosystem. Banks partnering with FinConecta have the ability to launch solutions quickly on the marketplace, thereby creating a network effect between the customer, bank, and the partner.

Experience Optimization: The journey of ecosystems doesn’t stop with just launching them. It is a continuous effort to optimize the experience of all the personas involved. For instance, Klarna, a leading global payments and unsecured lending provider, leverages AWS data analytics and machine learning services. With AWS they can assess the interactions between 150+ million active consumers, 500,000 merchants in 45 countries, and constantly optimize the credit experience by making near real-time credit decisions while stopping fraud attempts.

Building a Marketplace Ecosystem on AWS

Now let’s look at how AWS can provide a jump start for banks with their ecosystem journey. Harnessing experience from banks, following is a reference architecture for banks to build their marketplace. This offers features and functionalities to integrate with FinTech organizations and partners through an open API platform. This architecture is built with a security first mindset, offering authentication through an identity provider and managing consent through a consent management system. The architecture also enables backend integration between the FinTech and the bank where they can share data to offer a more personalized customer experience.

High-level reference architecture

Bottom Line

While there are multiple paths for banks to adopt an ecosystem strategy, the best first step is to understand their end customer’s needs and identify adjacent ecosystems to offer an integrated experience. Then, the bank can accelerate their way forward by leveraging reference architectures and reusable solutions to build a scalable and reliable business ecosystem.

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