The Burning Platform of Retail Banking

By Magne Angelshaug and Tina Saebi

Without argue, digitalisation has changed many aspects of our everyday lives. With these changes come different challenges and one of the most challenged industries is banking – particularly retail banking. Magne Angelshaug and Tina Saebi discuss how retail banking, through open innovation, could possibly cope with the difficulties brought by their “burning platform”.


“Banking is necessary, banks are not” (Bill Gates, 1994)


Something major is happening in the realm of banking. While retail banks have grown accustomed to dealing with competition from other banks, financial deregulations and economic downturns, something is different this time around. With rapid digitalisation, changes in consumer behaviour, and emerging financial technology (Fintech) – players such as Affirm and Square, the battle is being fought on grounds of new and disruptive business models. Nowhere is this more visible than in the area of retail banking.1 The prediction from Bill Gates is arguably starting to ring true. Most retail banks are not equipped to respond to these new threats and many will struggle to survive the next decade. One major hurdle lies in the lack of innovative capability necessary to uproot and reinvent old business models. Building this kind of capability requires a focused and long-term commitment in what is a new area for many banks. But, even if the commitment is there, attempting to build such capability solely in-house can be costly and slow, if at all feasible. Hence in this article, we first briefly describe the “burning platform” of retail banking and argue how adopting open innovation practices can help banks invigorate their business models and thereby regain their competitive edge.


Fuel for the Flame

What is “fuelling” the change in retail banking? Figure 1 illustrates the main change drivers along the banking value chain.  



Figure 1: Drivers of change impacting the value chain


Changing Customer Demands. The millennial customer, which is the emerging customer base in the retail banking industry, demands simpler and more seamless services. This customer segment is associated with statements such as “understand me”, “make it simple or just fix it for me”. Digitalisation and online activity has impacted virtually all parts of their everyday life and therefore, banking services must also be digital and easily accessible. The widespread use of smart phones is rapidly making mobile banking the digital channel of choice, not just for the millennials, but across age-groups. A study from 2015 showed that one in four consumers in Western Europe uses mobile banking in some form.2 In Norway for example, mobile banking has by far surpassed all other forms of direct bank distribution. But, for full-service banking, all forms of direct distribution are under threat. Customer behaviour is inevitably converging towards cherry-picking the best services for the relevant context. They will choose banking services that are optimised for and available in the situation where the need arises (like when buying a new car or planning a holiday), as opposed to the current situation, where banks still expect customers to seek them out to choose from a standardised set of bundled services.

Currently, banks are not in the position to offer customised services for all contexts where the need for banking services arises. In the era of digital shifts, the context will be controlled by a myriad of local and global (non-bank) players. For example, Facebook and Snapchat offer digital payment services optimised for their own platforms. Arguably, this is just the beginning. Social media, together with other platforms such as Google and Apple, are well positioned to take the next steps as context-based distributors of many more banking services.

Emerging Technologies. New technologies in banking are eroding industry barriers and giving rise to new business models. These opportunities are strongly exploited by new Fintech players worldwide. Incumbent retail banks are, in contrast, slow in their adaptation. For example,

with cloud-based “off the shelf” core banking solutions, suppliers such as Mambu lay the ground work for this change. And as distribution is already going digital, new providers can easily reach their target audiences. Other technology trends include robo-advice for low-cost savings and investment services, and big data for advanced customer-data analytics. US based Betterment and Simple are niche players building on these types of technologies. Much more is on the horizon. Some emerging technologies that will soon get to prove their commercial worth in banking include developments in Artificial intelligence (AI) and Machine learning (ML), and the blurring of boundaries between the physical world and software through the Internet of Things (IoT).

New Regulations  In many parts of the world, new regulation will have a profound effect on competition in banking. New regulations are increasing consumer protection and opening up parts of the industry to increased transparency and competition, which raises serious questions about the long-term viability and sustainability of the banks’ current business models. To make matters worse, the incumbents’ organisation and talent are most often focused solely on securing compliance in face of the new regulations, while new opportunities that may follow as a consequence of regulation remain unexplored. Key developments in the European regulative area include the European Payment Services Directive (PSD2) and Markets in Financial Instruments Directive (MIFID2): both having significant impact on competition and business models in the industry. In addition, regulation targeting the area of knowing your customer (KYC) has been an important driver for development in electronic identification (eID). The solutions for customer identification will be critical enablers in the future of digital banking, as customers will be able to get a frictionless identification experience in their transactions and interactions with service providers anytime, anywhere and on any device.

These are just a few change drivers that are perhaps the most visible as of today. Add to these possible future trends, and we gain a picture of a challenging business landscape where incumbents must be able and willing to change on a much more fundamental level in order to stay relevant. But what is it that makes this so difficult for most banks out there? Some of the answers are to be found within their business models.

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About the Authors

Magne Angelshaug is a Research Fellow at the Norwegian School of Economics (NHH) and the Center for Service Innovation (CSI). He has a professional background in Consulting and Senior Management in the Norwegian financial industry. His research focuses on business model innovation in digital services through open innovation practices. 

Tina Saebi is Associate Professor in International Strategy at the Norwegian School of Economics (NHH) and Research Director for the theme Business Model Innovation at the Center for Service Innovation (CSI). Her research focuses on business model design for entrepreneurs as well as the drivers, barriers and facilitators of business model innovation in established, international companies.


1. This area encompasses the provision of banking and financial products to individual consumers and to some degree small businesses.
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