Business Models

The Banking & Capital Markets industry is reimagining customer engagement through smart technology investments. But more profound changes, related to underlying business models, are on the horizon. While some changes represent threats, others create opportunities. To succeed, financial services organizations need to understand – and embrace -- the innovations disrupting business models.

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How you can use the RetailTech Model

The first stage is Research & Development, when an innovation is not fully-fledged and has not yet been adopted beyond prototypes, trials or POCs.

New technologies typically go through 5+ years of R&D, though the timeframe will vary substantially depending on the degree of innovation entailed.

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Model Stages

The Leading Edge stage indicates when an innovation has moved out of R&D and into operation. Approximately 5% of the market adopts the innovation at this stage, usually start-ups and a few industry players known for being forward-looking.

Sometimes, an innovation is picked up from another sector. As indicated in the timeline below, it typically takes 1 to 3 years to move from the Leading Edge to Early Adopters stage.

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Model Timeline

At this stage organisations are more risk averse than those at the Leading Edge, but are still keen to be in the industry’s upper quartile and adopt a new technology.

The broad timeline for technologies to remain at this stage is 2 to 5 years at which point they will have reached around 25% market adoption.

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Model Origins

By this point a technology or business innovation can be considered as Mainstream since it will have been implemented by around 50% of the market.

2-5 years is the typical timeframe for this stage.

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Model Lenses

Technologies in the Late Adopters stage have been widely adopted across the industry with 80% - 100% of the market using them after a further 5+ years.

Not all technologies end up being adopted by everyone, with some 20% of technologies never reaching full adoption.

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R&D

The first stage is Research & Development, when an innovation is not fully-fledged and has not yet been adopted beyond prototypes, trials or POCs.

New technologies typically go through 5+ years of R&D, though the timeframe will vary substantially depending on the degree of innovation entailed.

. .
5+
Leading Edge

The Leading Edge stage indicates when an innovation has moved out of R&D and into operation. Approximately 5% of the market adopts the innovation at this stage, usually start-ups and a few industry players known for being forward-looking.

Sometimes, an innovation is picked up from another sector. As indicated in the timeline below, it typically takes 1 to 3 years to move from the Leading Edge to Early Adopters stage.

. .
5%
1-3
Early Adopters

At this stage organisations are more risk averse than those at the Leading Edge, but are still keen to be in the industry’s upper quartile and adopt a new technology.

The broad timeline for technologies to remain at this stage is 2 to 5 years at which point they will have reached around 25% market adoption.

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25%
2-5
Mainstream

By this point a technology or business innovation can be considered as Mainstream since it will have been implemented by around 50% of the market.

2-5 years is the typical timeframe for this stage.

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50%
2-5
Late Adopters

Technologies in the Late Adopters stage have been widely adopted across the industry with 80% - 100% of the market using them after a further 5+ years.

Not all technologies end up being adopted by everyone, with some 20% of technologies never reaching full adoption.

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80%-100%
5+

The first stage is Research & Development, when an innovation is not fully-fledged and has not yet been adopted beyond prototypes, trials or POCs.

New technologies typically go through 5+ years of R&D, though the timeframe will vary substantially depending on the degree of innovation entailed.

The Leading Edge stage indicates when an innovation has moved out of R&D and into operation. Approximately 5% of the market adopts the innovation at this stage, usually start-ups and a few industry players known for being forward-looking.

Sometimes, an innovation is picked up from another sector. As indicated in the timeline below, it typically takes 1 to 3 years to move from the Leading Edge to Early Adopters stage.

At this stage organisations are more risk averse than those at the Leading Edge, but are still keen to be in the industry’s upper quartile and adopt a new technology.

The broad timeline for technologies to remain at this stage is 2 to 5 years at which point they will have reached around 25% market adoption.

By this point a technology or business innovation can be considered as Mainstream since it will have been implemented by around 50% of the market.

2-5 years is the typical timeframe for this stage.

Technologies in the Late Adopters stage have been widely adopted across the industry with 80% - 100% of the market using them after a further 5+ years.

Not all technologies end up being adopted by everyone, with some 20% of technologies never reaching full adoption.

Innovation through imagination

A plethora of new business models, enabled by new technologies, is emerging in financial services. These trends pose a fundamental threat to existing players but also offer opportunities. To avoid being left behind, organizations must understand and react to these trends.

The innovation with the most far-reaching consequences is blockchain -- or distributed ledger technology. This technology turns on its head traditional models of operational systems, processes and data exchange. With blockchain, common capabilities for identity, contracts, transactions and payments are built collaboratively, and data becomes accessible to all participants.

Today, banks of all sizes are running blockchain pilots or POCs. But because blockchain is so different, its full impact will take years to be felt. In fact, research shows it takes an average of 23 years for a new technology to be fully commercialized from when it’s first patented. Blockchain is already being used for payments and money transfers, but countless practical issues (standards, computing power, market and member rules, liability and security) must be resolved before distributed ledger technology can fully take effect.

A trend that will hit the industry sooner is the API economy. In the EU and UK, the Payment Services Directive and Open Banking legislation are propelling organizations to expose open APIs by early 2018, and other business drivers are making APIs central to any financial services institution’s change strategy.

Open APIs represent a new channel, just as digital banking did 15 years ago. Banks can use APIs to distribute products and services through partners such as retailers and travel companies. Moreover, banks can combine internal and external APIs to create new products and services. In addition, APIs allow FSIs to respond rapidly to changes in demand. Instead of the traditional engineering mindset of building to optimize functionality, this process embraces building to optimize replaceability. It also provides the only means to overhaul existing processes and systems at scale.

APIs will spur another area of innovation: the componentization of banking services. This stands to replace the traditional, vertically integrated model wherein a bank performs most functions in house. By using APIs, banks will be able to plug and play components from third parties and act as a service provider to new entrants and other banks.

The question as to whether open APIs are an opportunity or a threat can be answered by how fast you move. If you have only gone as far as opening up APIs to meet PSD2 and Open Banking, then your competitors will have access to your customers’ data, which represents a real threat. If you have exposed additional APIs, provided a rich developer experience and designed services that exploit competitor APIs, then you’re exploiting the opportunities of API. The pace is being set by leading players such as BBVA, Credit Agricole and Citibank, who have already launched API marketplaces.

Sitting behind all of these innovations are platforms based on open standards for information exchange and interoperability. Platforms such as Amazon, Apple and Alibaba have already come to play a leading role in payments. Some would say they look set to become the largest distribution channel when it comes to other financial products and services. Are these businesses tomorrow’s high streets. And if so, how will your bank stand out?

Explore these and other trends in the Business Model lens of our Innovation Model.

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Business Models Expert

David Rimmer
Business Innovation Lead

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