Banks should dare a new beginning on the green field

Greenfield approach to raising economic potential

alt="Dr. Hansjorg Leichsenring" width="35" height="31" />//> by Dr. Hansjorg Leichsenring 12. March 2019

A new start on a greenfield site should enable banks to leverage additional economic potential. A study shows the concrete steps necessary for such a radical new beginning.

Numerous trends and developments are of overriding strategic importance for banks and savings banks. In the Bank Blog you will find studies on the most important strategic trends and developments in financial services.

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A key feature of the financial industry is the custody and transfer of money. Inevitably, after – some 550 years of banking history, this can only be offered as an electronic service. Nevertheless, (too) many process steps in banks and savings banks are still carried out manually today.

Numerous analyses also show that many customers are currently dissatisfied with the service provided by financial service providers.

However, digitizing existing financial systems and minimizing manually burdensome processes could take many years to complete. At the same time, competition is intensifying as more and more companies enter the market with innovative digital products and services.

Digital competitors show innovations

Numerous new digital competitors are showing established financial institutions around the globe ways to offer new products and services:

  • South Korean online bank Kakao gain six million users in less than a year. , Revolut and others in the U.K. have grown their customer base from 0.6 million to 2.5 million in one year.
  • In the U.S., Chime has opened more than two million free checking accounts. In the foreign exchange market, XTX has captured a ten percent market share in just three years, making it the second largest market player in 2018.

While some of these companies may not be turning a profit right now, in the longer term, digital challengers will benefit from this momentum, according to the study authors. Above all, by collecting customer data and using this data to develop new offers and attract even more qualified employees to them.

Greenfield approach gives financial institutions a fresh start

Against this background, the management consultancy Oliver Wyman recommends a greenfield start for banks. With the greenfield approach, the business system should be developed from scratch, independently and without interface to the existing company. This would allow not only current trends and customer needs, but also technologies such as chatbots, artificial intelligence and Big Data, as well as new regulations, to be taken into account directly during development, without the barriers of outdated legacy systems blocking the way to an advanced future.

The greenfield strategy for financial institutions combines the advantages of established financial institutions and new innovative digital competitors.

The first results of this approach are already on the market, or in the planning stages, they say. In addition to RBS Group (Bo), National Australia Bank (QuickBiz) and German insurance company ERGO (Nexible) are working on new technologies. Goldman Sachs has successfully entered the retail banking market with the launch of its online bank Marcus in the U.S. and Europe.

Established banks must respond

To succeed in the future, incumbent banks will need to develop the same advantages as their digital challengers. For example, a Challenger Bank employee serves an average of more than 2.500 customers, while in a traditional institution it is 1.000. For digital challengers, the time to launch new products or services is two weeks, compared to three to six months for traditional banks.

The greenfield approach is an attempt to match or exceed new competitors in customer offerings, he said. With the help of modern technologies, an open platform structure and external service providers, it is possible to develop new banking and insurance platforms within one year for between 10 and 60 million euros.

Given the advantage that established institutions have enormous resources and a large customer base from the outset, there would be a good chance of outdoing FinTech competition with greenfield platforms.

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