A guide to the modern financial services ecosystem

Is your bank paralysed by legacy systems? Are you struggling to keep the costs of ownership and maintenance under control? Does it take too long for your organisation to expand product offerings and compete with agile challenger banks?

You’re not alone in facing these challenges. Traditional banking systems have become the shackles that restrict innovation, hinder time to value, and strain customer relationships. But it doesn’t have to continue this way.

Digital transformation is no longer an option; it's your lifeline. It's time to make a shift to a modern, cloud-based banking platform and leverage a thriving ecosystem of specialist third parties. It’s the only way to speed up time to market, make data-driven decisions, and offer personalised customer experiences that boost engagement and loyalty.

The time to act is now. Are you prepared to not just survive, but thrive?

Setting the stage: key drivers of digital transformation in banking

In the rapidly evolving landscape of the commercial and retail banking industry, many institutions now find themselves at a pivotal juncture. For years, they have relied on internally developed systems, traditional infrastructure, and well-established processes and channels to attract and serve customers. But this approach has become a stifling anchor that can drag you into the abyss of stagnation. It hinders innovation and slows time to value for those keen on embracing open finance, composable banking, and other modern technologies.

Don’t think your institution can fall victim to these challenges?

Currently, there are six key factors exerting pressure on traditional banking businesses and driving the need for digital transformation. Does your bank struggle with any of them?

With so much internal and external pressure, digital transformation can no longer be postponed. It is time for forward-thinking banks to act and transition to a modern, cloud-based banking platform that merges internal capabilities with an ecosystem of specialist suppliers for areas like the general ledger, card processing, KYC, anti-money laundering, and more. This shift will not only streamline operations but also significantly reduce cost to serve, enabling the bank to introduce new, innovative products and services swiftly.

This whitepaper discusses the basics that banking business leaders need to understand about emerging financial services ecosystems and highlights what elements they will need to address to get their business ecosystem-ready.

Specifically, we'll discuss the following:

• Financial ecosystem definition and examples
• Benefits of leveraging the ecosystem approach
• Key considerations for transitioning to a finance ecosystem
• Role of an ecosystem integrator

What is a financial services ecosystem?

A financial services ecosystem is an evolving collaboration model among various financial institutions that helps leverage their complementary offerings. This multi-lateral, dynamic environment enables the delivery of a unified and seamless customer experience that is underpinned by mutuality and shared value across participants.

In the UK market, there are already several examples of companies engaging in the ecosystem approach and proving that its benefits extend beyond financial compensation:

• NatWest’s and Lloyds Bank’s digital ID apps: companies partnered with identity service providers to help customers securely verify their identities online while helping other businesses streamline their verification processes. Thus, improving the customer experience, reducing information sharing risks, and helping all organisations reduce costs through automation.
• Klarna’s BNPL integration: Klarna now integrates with payment flows of various UK banks, enabling customers to spread payments across longer time frames, improving sales for retailers, and increasing transaction volumes for banks.
• Apple’s UK open banking integration: the company recently soft launched a UK open banking integration for the iPhone wallet, enabling users to view their current account balance and transaction history directly from the app. This change improves the customer experience on the Apple platform and helps customers manage their finances while supporting brand presence of partner banks outside their own apps.

A well-functioning ecosystem requires a modern banking platform that is, ideally, composed of cloud-based services. That way, it can enable the intricate integration and orchestration of product offerings and customer experiences among participants to ensure security, integrity, and resilience.

The diagram below is an example of what a modern bank's platform architecture could look like when composed of cloud-based services orchestrated via APIs. This composition of ecosystem players providing critical capabilities is just the first step. Modern banks can also take advantage of expanding the ecosystem with other partners to extend their products, services, and brand reach beyond their own digital channels and into areas that may be ancillary to their core propositions (e.g., investments, loyalty schemes, insurance, small business loans, etc).

Why become part of a financial services ecosystem?

Traditional banks must evolve and adapt to remain competitive within a changing industry landscape as costs get higher, time to value grows, and customer relationships become ever more complex. By leveraging partnerships, new channels, and modern technology solutions, you can address these challenges and become more agile, evolving faster to meet the everchanging customer needs. The financial services ecosystem allows you to do so most effectively.

A great example of the benefits a financial ecosystem can deliver is our recent project with Asia’s innovative virtual bank. The bank was looking for assistance with building core banking systems from the ground up using various cloud-hosted third-party products, including the general ledger, customer identity, card issuance, payment systems, and anti-money laundering tools.

Our multidisciplinary engineering and DevOps expertise were instrumental in supporting the cloud-based bank throughout the entire development process, from license granting to market deployment which was achieved in an impressive 18-month timeframe. Zühlke’s experts were also in charge of maintaining relationships with partners and adapting processes to ensure smooth data flows between them. 

Now, the near real-time ledger, KYC, payment systems, and other services run on Thought Machine in AWS and provide the client with a core banking solution that performs seamlessly, improving the experience for customers and staff.
 

How to move from a banking system to a data-driven financial services ecosystem

So, what are some of the steps your bank has to take in order to be a part of an innovation ecosystem? At Zühlke, we’ve identified five crucial elements that banking leaders need to keep in mind. While some of them may seem obvious, it’s imperative to get the basics right. Without a solid technical foundation and strategy in place, you can only go so far in your digital transformation efforts.

1. Understand the problem and set the strategy

In the journey towards becoming ecosystem-ready and modernising your banking platform, the first and crucial step is to gain an understanding of the bigger problem you’re trying to solve. This will lay the foundation upon which your ecosystem strategy will develop.

You’ve got to define the key objectives you’re trying to achieve and think about how you’ll be able to reach them. These goals will influence every subsequent decision, from your desired role within the finance ecosystem to portfolio strategy, partner selection, and even risk and compliance management.

Here, it’s crucial to let service design and business architecture take the lead. That’s an optimal way to build services and products that address your customer needs and organisational challenges. For example, user research and testing was vital in one of our recent projects with three+one, a financial services company, as it allowed the team to replace pre-existing assumptions with concrete evidence and identify precisely what the end users needed.

Learn more about the value of user-centred design in setting the strategy

3. Focus on effective orchestration

Data is an asset which can unlock considerable value when used effectively, but if you lack the ability to integrate and orchestrate data, it is useless. Business processes create, consume, and transform data as it moves around your company, which is why it becomes worthless if it remains static – data must flow to generate value.

Ecosystem orchestration is the process of managing and coordinating the interactions and relationships among various parts of a data ecosystem. Connecting and automating workflows across different systems, applications, and data sources allows users to collaborate across multiple departments and a variety of systems, automating tasks such as data entry, data transfer and notifications. Effective integration is essential as it enables the acquisition of genuine, timely insights which can then be acted upon and used for predictive purposes.

With data being pulled from multiple sources by a wider set of possible consumers, access controls can be a headache and solving this pragmatically and safely is central to the success of an ecosystem.

Discover how we helped a financial services start-up integrate securely with multiple FX providers and crypto exchanges.

On the other hand, with the buying approach, you might be worried whether the chosen vendor will be around in the next 5-20 years and able to maintain the same level of service. However, you will have a faster return on investment, time to market, and a more resilient infrastructure as individual services can be replaced more seamlessly, should the need arise, than a large platform. Plus, you’ll enhance your brand differentiation efforts by making discerning choices about service providers and partners in your ecosystem.

The previously referred to Asia’s virtual bank spent significant time defining its partners and that’s precisely what allowed the company to differentiate itself and provide best in-class services for customers. So, when buying, make sure to consider the following:

• Vendor reputation and stability in the marketplace
• Availability of internal resources to manage the product or the implications of having an external partner operate it
• Maintenance cost implications for each third-party solution
• Optimal ways to get the API and orchestration right
• Safety measures to minimise security risks and ensure regulatory compliance
• Strategies for owning the customer experience to effectively differentiate while boosting retention and business growth
• Speed to market and the delivery approach of the partner
• Cultural and technology alignment
• Geographical coverage of the vendor in conjunction with where you expect to be operating in 3-5 years
• Commercial and contract flexibility

Ultimately though, what you choose to build vs. buy will depend on your unique business situation and is bound to change over time as new market factors, technologies, and regulations come into play.

Why partner with an experienced financial services ecosystem integrator

As you can see, there are many things to consider when it comes to transitioning to a financial services ecosystem model. Yet, what it all comes down to is how you can de-risk all these investments you might be making into the cloud, the implementation of third-party solutions, and the overall rethinking of your entire IT infrastructure. That’s precisely where an experienced ecosystem integrator like Zühlke comes in.

An ecosystem integrator can help:

Begin your bank's digital transformation journey

Rising costs, extensive time to value, complex customer relationships, increased competition, and other market factors are exerting immense pressures on banks today. That’s precisely why digital transformation can no longer be postponed. It’s time for banks to act decisively, modernise their banking platforms, and harness the opportunity offered by the ecosystem approach to secure their market position and ensure future growth.

If you’re interested in transitioning your bank to be a part of a thriving financial services ecosystem, don’t hesitate to reach out to our team. With years of practical experience in executing complex integration projects and supporting data orchestration initiatives globally, we can guide you through the entire cloud transformation, architecture design, data integration, and partner assessment journey. Thus, letting you focus on providing stellar banking services while our experts ensure everything works well behind the scenes.


The authors would like to thank the contributors for sharing their expertise for this article:

Mark Hipperson, Founder & Executive Chairman at Ziglu
Brendan Gilmore, Managing Director at BPG Strategy
Wolfgang Emmerich, CEO Zühlke UK & Chair of the Board of Directors
Mark Venn, Head of Cloud & DevOps Practice at Zühlke UK
Liz Wray, Principal Enterprise Architect at Zühlke UK
Chris Joyce, Principal Solution Architect at Zühlke UK

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