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2-Digital economy and the disruption of business models :The case of the Banking industry evolution


Digitalization is having today a transformative and disruptive impact on existing businesses, business models and industries. The five forces of disruption to give rise to the digital economy are:


Forces of disruption

  1. 5G and the IoT, which enable the development of smart and connected homes and workspaces

  2. Blockchain, which enables decentralized transactions

  3. AI, including machine learning, deep learning, and virtual assistants, which enables the processing of large volumes of data

  4. Autonomy (the physical manifestation of AI), including autonomous robots and vehicles

  5. Augmented reality, as well as digital twin technologies


5G and IOT are probably the most important technological developments in the digital era, as they underpin many of the technologies that drive digitalization and enable hyper-connectivity between humans and devices.



Value layers

The way consumers interact with business and how businesses can create and deliver value to their customers is changing. In a digital economy Value is proposed, captured, and delivered at different layers


-The first layer, Service (where value proposition occurs), is the most vulnerable to disruption.

In the service layer, value is created or proposed by meeting a customer’s want or need. Digitization has made the relationship between businesses and customers more interactive. The development of a new business model requires an active engagement from consumers, and often rely on complex social interactions.


-The second layer, Platform (where value capture occurs), is less susceptible to disruption than the first layer. The platform layer is where matchmaking occurs between different groups of platform users.We can have 2 types of Platforms: Single-sided platform and Multisided platform. The difference is that the second enables direct interactions between two or more customer or participant groups (Facebook ,Abnb ect )


-The third layer, Infrastructure (where value delivery occurs), which is the least vulnerable. Here the focus is on the physical and digital requirements for delivering services.


New Business models

The adoption of disruptive technologies and the change in how businesses interact with the value layers gives rise to 2 types of new business models:


1 Decentralized models: these are enabled by the IoT and blockchain and will challenge the dominance of large digital companies by creating transactions that exist without a central intermediary.

2 Mass platformisation models :these support the emergence of specialized IoT ecosystems Platforms create value through network effects. These network effects, namely “the incremental benefit gained by an existing user for each new user that joins the network” occur when a good or service becomes more valuable as more people use it.



In a disruptive and transformative environment with entirely new business models how can established business survive and possibly thrive? They need to put in place strategic responses to disruption as:


BEAT competition :the objective is to mobilize resources, even to the point of making significant short-term financial losses, to beat their competition;

JOIN competition : the objective is to acquire their competition in order to enter areas of future growth or consolidate the industry;

OUTLAST Competition: these strategies are implemented to buy time to move towards a sustainable value model and outlast competitors.



The Banking industry evolution


The Banking industry is being challenged by Fintechs companies and by open banking. The industry will have profound transformation in the years to come. What will their business model look like ? How can Banks organize themselves and adapt to and enable innovation?


The trend toward digitization of products and services combined with the emergence of tech-millennials is changing the banking industry because of a new type of competitors: FinTech (financial technology service providers).They are attacking every product category in banking, from payments, wealth management, lending etc. These companies are eating the retail banking’s market share because they are more innovative and more responsive to the needs of banking customers that are demanding a superior experience.


One of the threats is coming from an increased and more sophisticated level of automation that in its extreme form is machine-led (combination of automation and AI to make machines self-sufficient in the decision process) against the historical, people-led, banking approach.

Another threat is represented by the new digital platforms ecosystem that will force change on the banking value proposition and business model. A type of threat that in time, could become the biggest revenue stream.



Reactive responses ( management-based or “wait-and-see” responses)


Beat competition: Bank can responds to disruption by “industrializing” the business. They make their platform scalable, machine driven investing heavily in advanced automation (AI, RPA, advanced analytics, cloud services, IOT and blockchain) to better compete with Fintechs. People are there to support the technology which they leverage to create value quickly but must standardize their Service offering(Cost-efficiency). Introduce Chatbot to engage with customers for rapid and real-time transactions and resolutions.


Outlast competition: Bank can decide to reduce its product offering and to put a premium on their Services and customers developing a balanced approach between transformation and optimization. Their closed digital platform orchestrates resources to serve current value proposition, goal and culture. The technology will serve people. Their primary focus is on near term ROI, customers personalization, real-time interactions, great customer service, outstanding customer support. Introduce Personal financial planning tools, consolidate banking into a single end-to-end user experience integrate various fintech solutions to automate, optimize, and digitize processes.


Strategic Proactive responses


Proactive approaches present a disruption dilemma, where businesses cannot pursue both independence and integration in their response to disruptive innovation.


Beat competition: Bank decides to become a virtual aggregator of Services instead of a producer creating an open platform with an ecosystem of partners. The bank basically becomes a customers’ advisor helping them to make better informed decision and clients will have access to many more services. Bank will gain from customer engagement with clients creating network effects that will lead to economies of scale(fees)


Outlast Competition: Bank embraces a digital-first approach creating a collaborative, decentralized, open business model digital platforms-driven to deliver value(microservices) except for few core and strategic profitable products where it still has a competitive advantage .Innovation and product design will happen outside the bank, driven by fintechs






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