9 minute read 19 Nov 2019

Why it’s time for banks to rethink their business models


Tapestry Networks

Professional services firm

Tapestry Networks creates an environment where leaders learn from one another, explore new ideas, and collaborate to solve problems.

9 minute read 19 Nov 2019

Questions about the scalability and sustainability of new banking models persist, but evolution from incumbent business models is imperative.

Digital transformation in banking is not just about how to do the same things faster and more efficiently, but also about rethinking long-standing approaches, and developing new business models to deliver existing and new financial services. Questions persist regarding the scalability and sustainability of some of these models. Yet, the innovations in product and service delivery occurring across the financial services ecosystem - and how those are changing customer expectations - are already influencing traditional bank models.

In a series of Bank Governance Leadership Network (BGLN) discussions, including two meetings held on June 13th in New York and September 25th in London, participants discussed two key themes:

  • Transformation efforts and new possibilities
  • Ongoing changes to the ecosystem

Transformation efforts and new possibilities

New entrants and technologies are creating novel and exciting possibilities in the banking industry. But participants in the BGLN agreed that incumbents are unlikely to fundamentally change their business models in the near term.

Experimenting with new models

The nature of the financial services industry means change often occurs at a slow pace, but that does not mean fundamental shifts will never arrive. Large banks are investing, with some annual technology budgets now in excess of US$10b.

One example is Goldman Sachs’s launch of Marcus, an online platform that represented an entry into the consumer lending market. In just over two years, Marcus generated US$46b in deposits for Goldman.1 A participant said, “I think Marcus was a wake-up call for the industry; it forced everyone to think about how to digitize offerings and expand products.”

Selling technology platforms

Some financial services firms have started to offer proprietary operating platforms to other financial institutions, and with great success. One example is BlackRock, which has generated significant revenue from selling its Aladdin platform, originally an internal tool designed to help oversee risk and make investment decisions.2 Some participants said this is an opportunity for banks, but others disagreed and said this would stray too far from a bank’s expertise. One executive explained, “In my experience, it’s a distraction. It’s very hard to package an internal product for external purposes. And then you need to service it. That requires a whole different structure.”

Preserving the customer relationship

Large incumbents have massive customer bases as well as advantages of scale. But banks struggle with aging legacy platforms, and they worry that large technology companies and FinTechs will introduce new more personalized solutions that could disintermediate them from their customer relationships.  The challenge of maintaining the customer relationship is sometimes linked to the “unbundling” of financial services. Customers are increasingly willing to access different products and services from a range of providers rather than from a few large firms. Firms are therefore identifying opportunities to be the aggregator of those products and provide more complete, customized services.

Changes to the ecosystem

Rather than trying to create standalone, vertically integrated universal banks, institutions are starting to work within a financial services ecosystem to provide a complete range of products and services.

Evolving relationships

Given the costs and time to develop new models and capabilities internally, many banks are increasingly open to partnerships with large financial institutions or with smaller FinTechs and other technology providers to provide their customers with enhanced digital offerings, explore new businesses, or reenter markets more efficiently. For many, outright acquisitions are less and less appealing: “Through partnerships, we can take advantage of their software or other capabilities. But you don’t need to buy it because everyone else is going to have that technology in six months anyway.” As these relationships evolve, participants noted, third-party risk management will be vital to maintain quality control.

This more open-minded approach may evolve if technology giants aggressively enter banking, which has been slower than some predicted to date. One participant suggested, “a fairly difficult regulatory environment and uncertainty about the direction the country will take in areas like open banking” could limit expansion into financial services in the US.

 Digitization beyond retail banking

Incumbent investment banks have not faced as many challengers as retail banking, but several participants said it’s critical to push forward with innovation. 

Meanwhile, large incumbents in corporate and commercial banking have long maintained an advantage given the high cost of operating, but they have also struggled with how to effectively serve the small and medium-sized enterprise (SME) market. That’s creating an opening for FinTechs and large technology companies to make inroads. An EY report stated that: "Technology and e-commerce firms are using data to reinvent SME lending and disrupt the traditional business banking world." 

Regulators are learning and adapting

New distribution models, the changing competitive environment, and developments in foreign markets test regulators’ ability to stay current and respond appropriately. One regulator said, “We’re learning like everyone else. The speed of everything has become so fast that we’re trying to understand things as they’re happening.”  A few participants noted that regulators are catching up and, despite the common perception, are not generally a barrier to adopting new technologies or business models.


Digital transformation presents both exciting possibilities and potential pitfalls. As banks experiment with new business models, they will need to creatively tap new markets without straying too far from their expertise. They will also need to work hard to keep their customer relationships intact and not lose them to nimbler FinTechs. Moreover, they will need to take a more nuanced view of FinTechs and work within the emerging ecosystem.

By striking the right FinTech partnerships, banks can improve consumer relationships, as well as corporate and SME offerings. As a director put it, “Big banks are slowly trying to move their spend away from running the bank to creating a new one. There is a general acknowledgement that they will be in dire competitive trouble if they do not make the investments.”

This article is based on the Viewpoints (pdf) from the Bank Governance Leadership Network (BGLN) meetings held on September 25th in London, and on June 13th in New York, and aims to capture the essence of these discussions and associated research.


The need to transform the bank through digitization, open up new markets and improve relationships with retail and corporate customers is critical to future competitiveness. In the process banks will need to experiment with new business models and navigate a quickly evolving ecosystem of partners, competitors and customers.  

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Tapestry Networks

Professional services firm

Tapestry Networks creates an environment where leaders learn from one another, explore new ideas, and collaborate to solve problems.