Staying relevant in a shifting, highly competitive market is a major concern of incumbent banks worldwide. In the recent Innovation in Retail Banking 2024 study, presented jointly by Infosys Finacle and Qorus, 70 percent of the survey respondents said that other (non-bank) players would take more than 30 percent share in the consumer banking segment by 2030, when, in the view of 80 percent of respondents, more than 50 percent of banking transactions would be embedded in third-party channels.
As the texture of banking continues to change rapidly, right from how customers consume banking services, to how those services are created and delivered, it is driving home the need for a change in the banking business model. A recent Capco study1 found that nine in ten UAE respondents (89%) now have digital-first accounts, including both international and UAE-based firms. Three-quarters (76%) have an account with a UAE-based digital-first provider.
The good news is that incumbent banks are spoilt for choice; over the past several years, at least eight new banking business archetypes have emerged, opening up alternative ways for banks to create products, sell to customers and run their businesses profitably.
Of these, three models – digital-only offering, financial marketplace and digital financial advisory – will lead the race to adoption and scale by 2030, with three out of five respondents saying they were on their list of priorities.
Already, there are encouraging signs in the shape of early successes: Zand Bank, an AI powered digital first bank, is looking to revolutionise banking in UAE with innovation, AI and Blockchain technology and client-centric solutions that bridge TradFi and DeFi, empowering corporate, institutional and wealth clients to thrive the evolving digital economy. Other global examples include Nequi, Bancolombia’s digital-only bank that provides a wide range of services, including cards, payments for public services etc. and Plum, a U.K.-based fintech that, based on clients’ spending patterns, tells them how much to save or invest each month.
Apple and Goldman Sachs envisioned a revolutionary savings account offering a market-leading annual percentage yield (APY) of over 4 %, with no fees or minimum balance or deposit requirements. This account would automatically funnel cash rewards from the card or wallet into savings, while also allowing consumers to deposit funds from other linked accounts, all while earning an impressive return.
Scaling New Business Models: Challenges and Imperatives
But the reality is that building and scaling a new business model is an intensive and complex exercise, requiring planning, resources and years of effort to first undo deep-rooted legacy systems, processes and work culture before a bank can transition to new ways. There needs to be a holistic strategy aligning vision, technology and organisational agility; the ability to co-innovate solutions with partners; strategic partnerships with fintechs, e-commerce firms and non-financial players to take ecosystem-models such as banking as a service, marketplace and embedded finance forward; and governance by way of customer data management, risk management and regulatory compliance. Being highly-regulated entities, it is no surprise that banks report the greatest success in initiatives in the last three areas: 56.5 percent of respondents said they had deployed regulatory compliance initiatives that were delivering as expected, while 51.3 percent and 47 percent said the same about risk management and customer data management initiatives respectively.
Good governance and compliance provide a foundation of trust and stability, but business growth requires vision, agility, product innovation and co-creation, areas where banks are yet to see their investments yield meaningful results. In the Finacle-Qorus survey, these were areas where banks have deployed initiatives but are not yet meeting expectations – vision (over 63%), organisational process agility (over 63%), and product co-innovation and co-creation (nearly 60%). In 2025 and beyond, these are pivotal to driving future success, where banks must align their strategies and execution to secure a dominant role in the embedded banking landscape. These capabilities are hard-won, requiring transformation of vision, culture and legacy processes, areas that are typically highly resistant to change.
Need for Adopting Modern Architecture Principles
For banks and financial institutions to thrive in today’s evolving environment, they must adopt modern technology architecture principles that enable them to transform with speed, scale and resilience. In our survey, more than 50% of bankers believe they are on par with the industry but not better than others in the areas of security, scalability and resilience and recovery. In the areas of modularity, interoperability, cloud-native adoption, data management, analytics and AI, CI/CD and sustainability practices, confidence dips significantly. Between 35% to 45% of bankers believe they are only as good as others, while a similar percentage admit they are not as good as their peers. These should be priority focus areas for banking leaders in 2025 as they will lay the foundation for banks to scale new business models with agility. An example of a bank that has been successful here is Emirates NBD. The bank completed a massive digital transformation which has redefined its technology architecture, unifying various entities onto a single platform that enables their teams to quickly and efficiently roll out new products across countries and subsidiaries. The bank boasts of achieving the industry’s best in class cost-to-income ratio. 94% of the bank’s transactions now happen outside traditional branches, which really shows how well the bank has shifted to digital platforms.2
A Blueprint for Creating and Scaling Business Models
Achieving these transformations can be systematised with an agile iterative model, with market needs and opportunities at its core. One such model is a nine-step approach, a blueprint for banks to design, test, implement and scale new business models successfully.
- Map customer ecosystems
- Identify Value
- Build a viewpoint on the future
- List future business model options
- Determine a shortlist to experiment
- Undertake pilots
- Select suitable models
- Implement scaling strategies
- Monitor and adapt
Since new banking business models follow an “ecosystem-first” approach, the starting point is to identify third-party providers with best-in-class capabilities in products, services and experiences, and strike partnerships with them. Figuring out the most important jobs that customers want done helps to identify what they value the most, and spaces with the most potential; a bank can shortlist the opportunities to target based on the value to the most important customer segments, and factors such as technical and commercial feasibility, and own and partner capabilities. Next is to create a shortlist of business models and undertake pilots to find the most suitable among them.
A beta test of the new product, service or capability should be rolled out to customers, and their feedback used to improve and scale up in an iterative manner. Banks should focus on building microservices architecture and a rollout implementation roadmap, incorporating customer feedback, monitoring business model viability metrics, and updating the roadmap based on product performance post go-live. Finally, they should continue to iterate until they are satisfied that they have maximised outcomes for all stakeholders. Because ultimately, business model innovation is not a fixed goal, but a moving target achieved through constant pursuit.
