The idea that financial institutions is going the way of other pervasive industries and services, such as electricity, gas and tele-communications seems like a broad departure from the role they’ve played in the economy to date. The article outlines how the core functionality of many financial institutions are being freed from a lot of the customer facing type of service that has been viewed as what the bank does. That core banking is on track to function as a utility is a novel concept, but central to ultimately fulfill the market demand for highly personalized financial services and solutions.
Not sexy, not high-growth, but certainly predictable, less risky, and highly compliant with balance sheet risk avoidance. Bank of New York Mellon and other processors already print money all day long from doing this (though they do this primarily for institutional clients; the value is clearest when end users do not conduct their own compliance, especially as business-to-business fintechs proliferate). Margins will be defendable and could expand as the market realizes the true value-add.
Mercator Advisory Group recognizes the wide spread in financial institutions as they evolve to having a more open interface with the third-party services that will provide the frameworks and financial services and products consumers will employ. Our close monitoring of this current in the marketplace will consolidated in an upcoming report later this month exploring banking as a platform and the foundational role it is migrating to the construction of financial application marketplaces and individualized solution sets.
Overview by Joseph Walent, Associate Director, Customer Interactions Advisory Service at Mercator Advisory Group
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