The rise of customer-oriented banking - electronic markets are paving the way for change in the financial industry

Abstract

The banking industry has been a pioneer in adopting electronic markets with exchanges, clearinghouses, and multilateral trading facilities having become the backbone of today’s globally integrated financial transactions. While most banks use the services of these electronic markets to handle interbank processes, they still strive for bilateral relations in the field of customer-facing processes. This position paper argues that the financial crises, the changing behavior of customers, upcoming innovations based on information technology (IT) and financial services offered by non-banks are strong drivers towards more customer-orientation in the financial industry. A large variety of banking IT innovations has emerged and illustrates that traditional banks are expected to have less power to impede competition at the customer interface and in consequence need to re-position themselves. Building on these developments on the one hand and existing electronic market infrastructures in the banking industry on the other, the concept of a customer-oriented financial market infrastructure is proposed as a possible future solution. The impact is illustrated using a competitive analysis of the banking industry and analogies to the media industry where new entrants from the computing industry have caused disruptive changes. Besides describing the threat to existing banks, the position paper also discusses the perspectives for banks.

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Notes

  1. 1.

    A business ecosystem can be defined as an “economic community supported by a foundation of interacting organizations and individuals - the organisms of the business world. The economic community produces goods and services of value to customers, who are themselves members of the ecosystem. The member organisms also include suppliers, lead producers, competitors, and other stakeholders. Over time, they co-evolve their capabilities and roles, and tend to align themselves with the directions set by one or more central companies. Those companies holding leadership roles may change over time, but the function of the ecosystem leader is valued by the community as it enables members to move toward shared visions of aligning their investments, and finding mutually supportive roles.” (Moore 1993).

  2. 2.

    These sources comprised ABI/INFORM, ACM Portal: Digital Library, EBCSO, Emerald, blogs (electrouncle.wordpress.com, der-bank-blog.de, blog.volksbank-buehl.de, thefinancialbrand.com, f-i-ts.de, lochmaier.wordpress.com, bankingreview.com.au, netbanker.com, Delicious/Banker2.0, timschaefermedia.com, ambajorat.wordpress.com, gft-blog.de), tweets (#HLeichsenring, #Yavalu, #LotharLochmaier, #FIDOR, #workforcetrends, #pascaldurrch), Google Alerts (Bank Innovation, bank*, neuheit*, finanz*, innovati*, financ*, innovat*), events (Finovate USA and Europe, TechCrunch USA) and various online searches.

  3. 3.

    This development is less prevalent if banks are shareholders of the FMI providers. For example, this applies to SIX in Switzerland.

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Correspondence to Rainer Alt.

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Alt, R., Puschmann, T. The rise of customer-oriented banking - electronic markets are paving the way for change in the financial industry. Electron Markets 22, 203–215 (2012). https://doi.org/10.1007/s12525-012-0106-2

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Keywords

  • Electronic markets
  • Banking IT innovations
  • Customer relationships
  • Banking
  • Social networks
  • Disintermediation
  • Financial market infrastructure

JEL classification

  • L22
  • L14
  • L16
  • O32
  • O33
  • M15
  • N20
  • M15