Banking
New revenue models can help banks survive the GAFA threat

By Martin Häring, Chief Marketing Officer, Finastra
No bank can remain in business with outdated technology. This was one of the key findings of a survey on Open Banking and PSD2 published by the European Financial Management Association (Efma) earlier this year.
The survey also identified the ‘Bank-as-a-Platform’ model as a key strategy to manage, run and scale a bank’s operations under the new regulation.
The reality is that the traditional banking business model is no longer sustainable and must be modernized if banks are to cope with growing competition and customer expectations.S succeeding in the open banking era will no longer solely depend on a bank’s reputation, but largely in the approach they take.
As big tech – especially the “GAFA” firms (Google, Amazon, Facebook, Apple) – have set the standard for a platform economy, now banks too must adapt their approach in order to keep up with their customers’ expectations. The ever-growing customer-bases, large-scale brand loyalty, and comprehensive platforms of the tech giants poses a daunting threat to financial services institutions. With firms such as Amazon exploring the potential behind checking accounts it’s not too far a stretch to imagine how customers could use one of the tech giants as their interface to the wider world. Banks need to be alert to the risk of losing the direct relationship with the customer and becoming a commodity service provider behind the scenes.
What key takeaways can we learn about platform-based business models and how can banks implement them to remain competitive?
Bank-as-a-Platform
Open banking is drastically changing not only how a bank delivers services to its customers, but also how consumers perceive and interact with their bank. Those banks that fail to capitalize on the opportunity of the regulation face losing out to those that offer better customer experiences and more innovative services.
The ‘Bank-as-a-Platform’ approach seeks to solves this challenge and provide banks with a competitive edge: enabling third party participants to connect, interact and create value together in a platform-based ecosystem. By sharing access to their own APIs and those of innovative fintechs and third parties, banks can open entirely new avenues to generate revenue, accelerate innovation and deliver the types of new services customers crave.
A squeeze on margins across the board and historically low interest rates have impacted bank profitability, therefore it is crucial for banks to start pursuing new partnerships and revenue streams. This will enable them to better compete with possible threats from tech giants exploring options in financial services. With the potential to cross-subsidise banking services if they were to offer them, banks should take a similar approach to the tech giants via the use of a platform. The use of open APIs will enable banks to identify possibilities to cross sell services, opening a variety of opportunities through the platform, such as offering a loan when customers are looking to buy a new car. Making these transactions as frictionless as possible through the use APIs will also be key to success.
Senior banking professionals surveyed by Efma also agreed that an out-of-the-box, platform-based approach will be vital to compete against the threat of these tech giants.
Identifying new opportunities
Putting this idea into practice, just last year, Alipay (a subsidiary of Alibaba) introduced its ‘smile to pay’ service, showcasing an innovative example of using a platform approach to generate new revenue streams. The service uses facial recognition technology, enabling customers to quickly pay by simply smiling. It’s not just the technology itself that makes the service innovative, but the entire business model that’s enabling it.
Alipay doesn’t provide the underlying technology, it is created and managed by a third-party start-up integrated into Alipay’s platform. Alipay just charges a small percentage on every transaction.
Services such as this have the potential to generate significant revenue in the long-term, given the potentially large frequency and volume of transactions delivered through Alipay’s platform. And this is just one example of third-party integration – building up a number of such services has great potential to greatly increase revenue streams. This is the model that banks are competing with and should use as an example.
Collaboration breeds innovation
Innovation has long been, and still is a big problem for incumbent banks. As Gareth Lodge, Senior Analyst at Celent highlighted in a recent report, it has been a problem they have faced now for over a generation. Whether a bank has an innovative culture or not, ultimately it is the technology they have that will hinder their efforts.
In this respect, working with nimble, innovative fintech players will be essential to addressing these innovation challenges. Through platform-based ecosystems that enable fintechs and other third-parties to share ideas and concepts, banks will be able to pioneer new services to customers, improve their business proposition and generate new opportunities for revenue – just as Alipay has done.
There is also growing recognition amongst influencers that the ‘bank-as-a-platform’ approach will play a major role in the industry. Earlier this year Celent surveyed senior management in banks across the world finding that 85% of respondents would be open to a platform-based approach.
Ultimately, those banks with the vision to capitalize on this new era of platformification to innovate their business model and uncover new sustainable revenue streams, will be best placed to compete, collaborate and thrive in the future, alongside the digital giants.
Banking
Commerzbank to lose 1.7 million clients by 2024 – Welt am Sonntag

FRANKFURT (Reuters) – Commerzbank expects to lose 1.7 million customers by 2024 as part of its current restructuring, resulting in a 300 million euro ($364 million) hit to revenue, weekly Welt am Sonntag reported, citing sources close to the bank.
The lender hopes to offset the drop by growing its loan business as well as by expanding its business with corporate and very wealthy clients, the report said, without giving any further detail of why customer numbers were expected to decline.
It also didn’t say if any specific category of client was most likely to be lost.
Commerzbank declined to comment.
According to the bank’s website it serves around 11.6 million private and small-business customers in Germany and more than 70,000 corporate and other institutional clients worldwide, so the reported loss of customers would suggest a drop of around 15%.
The bank earlier this month reported a $3.3 billion fourth-quarter loss, sinking further into the red as it continued a major restructuring and dealt with the fallout of the COVID-19 pandemic.
The bank’s restructuring plan involves cutting 10,000 jobs and closing hundreds of branches in the hope it can remain independent.
($1 = 0.8253 euros)
(Reporting by Christoph Steitz and Tom Sims; Editing by David Holmes)
Banking
Citigroup considering divestiture of some foreign consumer units – Bloomberg Law

(Reuters) – Citigroup Inc is considering divesting some international consumer units, Bloomberg Law reported on Friday, citing people familiar with the matter.
The discussions are around divesting units across retail banking in the Asia-Pacific region, the report https://bit.ly/3pD57WP said.
“As our incoming CEO Jane Fraser said in January, we are undertaking a dispassionate and thorough review of our strategy,” a Citigroup spokesperson told Reuters.
“Many different options are being considered and we will take the right amount of time before making any decisions.”
The move, part of Fraser’s attempt to simplify the bank, can see units in South Korea, Thailand, the Philippines and Australia being divested, the Bloomberg report said.
However, no decision has been made, according to the report.
Revenue from Citi’s consumer banking business in Asia declined 15% to $1.55 billion in the fourth quarter of 2020.
The divestitures could be spaced out over time or the bank could end up keeping all of its existing units, the Bloomberg report said.
The firm is also reviewing consumer operations in Mexico, though a sale there is less likely, the report said, citing one of the people.
Last month, New York-based Citigroup beat profit estimates but issued a gloomy forecast for expenses. Finance head Mark Mason said the lender’s expenses could rise in 2021 in the range of 2% to 3%, weighing on its operating margins. (https://reut.rs/2ZwXRB1)
(Reporting by Niket Nishant in Bengaluru; Editing by Maju Samuel)
Banking
European shares end higher on strong earnings, positive data

By Sagarika Jaisinghani and Ambar Warrick
(Reuters) – Euro zone shares rose on Friday, marking a third week of gains, as data showed factory activity in February jumped to a three-year high, while upbeat quarterly earnings boosted confidence in a broader economic recovery.
The euro zone index was up 0.9%, with strong earnings from companies such as Acciona and Hermes brewing some optimism over an eventual economic recovery.
The pan-European STOXX 600 index rose 0.5%, as regional factory activity was seen reaching a three-year high on strong demand for manufactured goods at home and overseas.
Another reading showed the euro zone’s current account surplus widened in December on a rise in trade surplus and a narrower deficit in secondary income.
Still, the STOXX 600 marked small gains for the week, having dropped for the past three sessions as investor concern grew over rising inflation and a rocky COVID-19 vaccine rollout.
But basic resources stocks outpaced their peers this week with a 7% jump, as improving industrial activity across the globe drove up commodity prices.
“This week’s slightly adverse price action has all the hallmarks of a loss of momentum temporarily and not a structural turn,” said Jeffrey Halley, senior market analyst at OANDA.
“There is not a major central bank in the world thinking about taking their foot off the monetary spigot, except perhaps China. (Markets) will remain awash in zero percent central bank money through all of 2021 (and) a lot of that will head to the equity market.”
Minutes of the European Central Bank’s January meeting, released on Thursday, showed policymakers expressed fresh concerns over the euro’s strength but appeared relaxed over the recent rise in government bond yields.
The bank’s relaxed stance was justified by the euro zone economy requiring continued monetary and fiscal support, as evidenced by a contraction in the bloc’s dominant services industry in February.
The STOXX 600 has rebounded more than 50% since crashing to multi-year lows in March 2020, with hopes of a global economic rebound this year sparking demand for sectors such as energy, mining, banks and industrial goods.
London’s FTSE 100 lagged regional bourses on Friday due to a slump in January retail sales and as the pound jumped to its highest against the dollar in nearly three years. [.L] [GBP/]
French carmaker Renault tumbled more than 4% after posting a record annual loss of 8 billion euros ($9.68 billion), while food group Danone and German insurer Allianz rose following upbeat trading forecasts.
(Reporting by Sagarika Jaisinghani in Bengaluru; Editing by Sriraj Kalluvila and Shailesh Kuber)