Eight new digital business model archetypes for a post-Covid banking future (2024)

October 31, 2021

  • BaaS
  • Banking
  • Banks

The pandemic escalated the creation of digital banking business ecosystems. In this article, Sanat Rao, CEO -Infosys Finacle, speaks about eight new and innovative digital business model archetypes that banks need to thrive in these ecosystems.

by Sanat Rao, Chief Executive Officer at Infosys Finacle

The conversation about digital business model innovation is not new, but it has never been more pressing. As CEOs grapple with their biggest challenge, namely, how to stay relevant amid rapid change and uncertainty, the legacy pipeline-based business model was often at the heart of the problem, and ecosystem-led business model, invariably, at the heart of the solution.

Eight new digital business model archetypes for a post-Covid banking future (1)

Digital technologies are unlocking opportunities to create, deliver, and realise value in new ways. By and large, the traditional universal bank is built on a pipeline model where the bank does everything, from manufacturing to selling to distributing, on its own, using in-house resources. This vertically-integrated pipeline business model is breaking apart, giving way to fragmenting value chains and new business model opportunities.

Our latest research study on digital banking business model innovation, conducted in association with 11:FS, organized the new models into 8 distinct archetypes, which are briefly described below:

Digital-only banks: Digital-only banks deliver banking services entirely (or almost) through digital touchpoints. Their key competitive advantages are high-quality self-service experiences and much lower operating costs than traditional banks. While digital banks mostly target digital-native/ tech-savvy consumers and small businesses, some start with narrower segments and gradually expand their reach to other groups. Digital banks are mobile-first, with some online banking offerings; and even their customer service is digital-first, chatbots led with limited human support. There is a long list of such banks, among them, Marcus by Goldman Sachs, Liv. By Emirates NBD, Digibank, Monzo and Kakao Bank.

Digital financial advisors: The digital financial advisor model brings the private banking experience to a much larger customer base. With data proliferating rapidly and becoming highly accessible in the open banking economy, firms, such as Plum, Snoop and TMRW by UOB, are able to run it through AI algorithms to understand a customer’s financial situation and offer highly personalized, appropriate financial advice. The traditional relationship manager is replaced by a hybrid of self-service and personal assistance rendered by both humans and chatbots.

Finance marketplaces: Finance marketplaces enable customers to choose financial services from a variety of third-party suppliers in an open environment. These marketplaces are accessed through websites and apps, and also developer portals and APIs. Examples include BankBazaar, Stripe, and Raisin. As the industry embraces open banking and open data paradigms, these marketplaces would increasingly democratize and facilitate easy access to the best products and services.

Non-finance marketplaces: Financial Institutions-led non-finance marketplaces – such as those from DBS Bank and Paytm – enable customers to choose a range of (non-financial) goods and services from suppliers in an open environment. For instance, DBS Marketplace is a one-stop portal to browse property listings, cars, book travel flights, book hotels, and compare utility providers, with financing options bundled along.

Banking as a service (BaaS): In this model, a bank offers complete banking processes around their financial products such as payments, loans or deposits as a service that third parties can embed into their products and services. BaaS enables integration of financial products seamlessly into the primary journeys of the customers such as getting instant auto loans at the dealer site. Typically delivered through well-defined APIs and business partnerships, BaaS is gaining significant traction across the globe. Banks of all sizes and persona such as BBVA, Goldman Sachs, Sutton Bank, ICICI Bank, and Solaris Bank are actively building their business using this approach. In addition, specialist BaaS intermediaries such as Galileo, Marqeta, and Setu, are also getting significant traction.

Banking industry utilities: Banking industry utilities specialize in delivering non-differentiating services by pooling resources, expertise, and capabilities to increase the efficiencies of all industry participants. The utilities offer a Business platform as a Service (BPaaS), combining technology, operations, and data. Examples include ClearBank – UK’s new clearing bank, Stater – The largest mortgage service provider of the Benelux that services 1.7 million mortgage and insurance loans for about 50 financial institutions in the Netherlands and Belgium

Banking curators: New-age digital banks following this model aim to offer best-of-breed products by combining basic accounts with financial advice and a curated set of third-party products on a single platform. N26, Monzo and Starling Bank are all examples of banking curators.

Embedded finance: Companies with frequent engagement and deep customer understanding are embedding banking and payments into non-financial products and services. The interest for embedded finance is rising across industries. Digital technology giants, e-commerce companies, retailers, travel – companies from across the spectrum are actively embedding financial products in their user’s customer journeys. For instance, buy now pay later proposition at the time of checkout or offering cash-flow based credit products to suppliers in association with banks. Shopify offers a good example here. It offers a ‘Buy Now, Pay Later’ option for consumers, a business debit card for merchants, and plans to offer business bank accounts with Stripe Treasury.

Like most businesses, banking is also going the way of the ecosystem. A scan of the landscape shows that few, if any, banks are succeeding by standing alone. But to thrive in an ecosystem, banks need to adopt new business models, such as those identified above.

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As an enthusiast and expert in the realm of digital banking ecosystems and business model innovation, I've extensively studied the evolving landscape of financial services, particularly in the digital sphere. I've closely followed industry developments, analyzed emerging trends, and engaged with insights from leaders and practitioners within the field.

The article you've referenced delves into the transformation of banking spurred by the digital revolution, particularly accentuated by the challenges and opportunities brought forth by the pandemic. Sanat Rao, CEO of Infosys Finacle, provides a comprehensive overview of eight innovative digital business model archetypes reshaping the banking sector:

  1. Digital-only banks: These banks operate entirely or predominantly through digital channels, catering to tech-savvy consumers and small businesses. Examples include Marcus by Goldman Sachs and Monzo.

  2. Digital financial advisors: Leveraging AI algorithms, digital financial advisors offer personalized financial advice to a broader customer base, replacing traditional relationship managers. Notable examples include Plum and Snoop.

  3. Finance marketplaces: Platforms like BankBazaar and Raisin allow customers to choose financial services from various third-party providers, promoting transparency and accessibility.

  4. Non-finance marketplaces: Led by financial institutions like DBS Bank and Paytm, these marketplaces offer both financial and non-financial goods and services in an open environment, enhancing customer convenience.

  5. Banking as a service (BaaS): Banks provide complete banking processes as services for third parties to embed into their products and services, facilitated by well-defined APIs. BBVA and Goldman Sachs are among the pioneers in this model.

  6. Banking industry utilities: These entities specialize in delivering non-differentiating services to increase industry efficiency, exemplified by companies like ClearBank and Stater.

  7. Banking curators: Digital banks following this model offer a curated selection of financial products and services on a single platform, blending basic accounts with financial advice. Examples include N26 and Starling Bank.

  8. Embedded finance: Companies integrate banking and payments seamlessly into non-financial products and services, enhancing customer experience and engagement. Shopify's 'Buy Now, Pay Later' option is a prime example of embedded finance.

In today's interconnected ecosystem-driven economy, traditional banking models are giving way to more agile, customer-centric approaches that leverage digital technologies and partnerships. Embracing these innovative business models is crucial for banks to not only survive but thrive amidst rapid change and uncertainty in the digital era.

Eight new digital business model archetypes for a post-Covid banking future (2024)


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