Last updated: Innovation in the banking industry: The power of convergence and partnerships

Innovation in the banking industry: The power of convergence and partnerships

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The banking industry is undergoing radical change as traditional institutions break out of familiar business models to stay ahead of new, nimble competitors. Success in today’s market requires that banks operate with creativity and efficiency.

This is where industry convergence plays a key role. Banks are partnering and collaborating with companies in other sectors to offer new services, improve customer experience, and open new avenues for growth.

“Deciding on a strategy for third-party distribution—which could be via partnerships to create embedded finance opportunities or platform-based models—can create opportunities to serve customer needs including with products outside the institution’s existing business models,” McKinsey & Company said in a global banking report.

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Examples of innovation in the banking industry: Driven by convergence

Convergence between banks and other industries is happening across many sectors:

  1. Some banks partner with real estate companies to offer mortgages on new home purchases.
  2. Collaboration between banking and healthcare organizations is bringing new financing options that help customers pay for medical expenses.
  3. A few financial institutions are beginning to offer life insurance and pension products.

But savvy banks aren’t waiting for customers to ask for what they need. They’re making changes and offering innovative new services through partnerships.

Leading institutions are proposing innovations to customers, such as segment-specific financial offerings. For example, some banks have created networks with agricultural companies, allowing farmers to take advantage of tailored financial services for equipment, seed, insurance, and more.

In the future, banks could partner with weather analytics companies and other agriculture-adjacent businesses to maximize food production and reduce farmers’ risk.

A foundation for innovation

Intelligent technology is a great enabler for these innovations. Banks need an open platform that can bring information together, process it using a powerful in-memory database, and analyze it in real time.

Using this foundation, they can integrate partner solutions and offer bundled services that help them take advantage of opportunities in multiple industries.

One South African organization uses digital technology to develop innovative services. The bank scores customers’ financial behaviors and rewards them for positive choices such as paying their bills on time or increasing savings. Rewards, which can range from better interest rates to lifestyle and travel benefits, help consumers become financially healthier while increasing customer satisfaction and loyalty to the bank.

With generative AI, banks can offer unique financial products and services tailored to their customers’ individual needs, increasing customer satisfaction and loyalty.

“Intelligent business is different. Banks need to be proactive, available at any time and on any channel. If they deliver anything less, they won’t capture customers’ business,” says Falk Rieker, Global VP and Industry Business Unit Head for Financial Services at SAP.

The future of banking is all about adapting

As the banking industry continues to transform and adapt to market changes, the need for innovation will only increase. By leveraging industry convergence, embracing advanced technologies, and tailoring solutions to customer needs, banks can position themselves for future growth.

The ability to adapt and thrive amid constant change will be crucial for traditional banking institutions looking to outmaneuver competitors and secure long-term success.

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