Rise of Marketplace Banking – Is Anyone Winning?
The cycle of innovation in the financial services is always in motion and marketplace banking are fast becoming an invaluable business model. Incumbent banks, challenger banks and account aggregator products are all eyeing the transition to marketplace banking, which is driven by customers, market and competition.
In times where customers are moving away from banks to non-bank entities for their financial service needs, customers’ trust in banks has been diminishing, particularly in their ability to provide unbiased and high-quality advice. Banks are pressured to find alternative means to reestablish customer trust and relationships.
“40% of customers expressed decreased dependence on their bank as their primary financial services provider and have rather used non-bank providers for financial services in the last 12 months – Ernst & Young’s 2016 Global Consumer Banking Survey”
Big tech firms, such as Google, Apple, Facebook, Amazon, and Alibaba, are making increasingly bold forays into the financial sector. These non-bank players (such as Wechat, Alipay and ApplePay) and neo-banks (such as Chime, Digit and Aspiration in the United States) are altering the banking customers’ expectations and behaviour. We see Google offers payments via Google Pay, while Amazon and Shopify are offering short-term cash advances or loans to their sellers. Furthermore, their online sites or user interfaces have conditioned consumers and customers to an intuitive eCommerce or marketplace-like user experience.
With these factors in play, traditional banks are rethinking their roles and relevance to their customers, as well as reviewing their business and delivery models. Some have responded with marketplace banking.
What is Marketplace Banking? How does work?
The marketplace banking model is an ecosystem of aggregated products and services sharing similar characteristics presented to a customer as a set of offers with addressing specific customer needs in mind. These products and services could come from different ecosystem partners such as retail or healthcare player, in addition to those offered by the banks themselves. This approach offers transparency, choices, better pricing and better matching of banking customers’ needs – the key benefits of any successful marketplace.
We have seen a couple of variations in the marketplace banking operating models. First, there are those that aggregate to provide a wide menu of choices for the products and services on their marketplace platforms, such as Go-Bear, PolicyAdvisor.com, and Starling’s Marketplace. Another model stems from the bank offering one-stop-shop platform enabling deep integrations with select third-party ecosystem partners to address very specific customer needs, such as the most recently launched online car marketplace by VTB Bank, Russia’s second-largest bank.
What is a better model? Personally, I believe the best banking marketplace model where it best addresses the needs of the customers at the right time, at the right place and one which aligns with the maturity of the market it serves.
For instance, higher frequency purchases or lower pricing banking or insurance products may work better in a financial services aggregation platform where choices, reviews and recommendations are what matter most to a customer.
However, for low frequency, big-ticket items or life significant events like buying a car, buying a house, or having the first child, the customers are generally overwhelmed by a flux of confusion and decisions with multiple information points to understand their options and arrive at the decisions they are most comfortable with. In such situations, having a trusted marketplace which offers guidance and advisory with a one-stop-shop proposition to help navigate the tedious and complicated process is more than welcome. Banks occupy a position of authority for their customers and could help narrow down their choices for their customers.
So, it all boils down to the customers and how as a bank, you could deliver greater value to your customers. The traditional operating model of banks making money by charging fees for products and services with a product-focus approach is fast becoming obsolete. Banks need to create customer value by, for example helping them to save money on foreign exchange fees, switching over to a lower cost energy provider, offer pre-approved mortgage loans quickly, or streamline supplier financing. In some of these value creation processes, the bank could take a referral fee from the beneficiary provider (for example, energy provider or property listing platforms).
Who have deployed Banking Marketplaces and successfully?
Many bank marketplaces seem to be launched in the last five years with varying degree of success and progress.
GoBear was launched in 2015 to operate an online financial products marketplace that offers over 1,800 consumer financial products such as travel, health and car insurance, credit cards, and personal loans. It offers a smart targeting system that matches users’ profiles to the financial products they wanted. Globally, GoBear has reached 40 million people, and is active in Asian markets, including Singapore, Hong Kong, Malaysia, the Philippines, Thailand, and Vietnam.
In Canada, there is a similar marketplace to GoBear called PolicyAdvisor.com which is launched by a Toronto-based Insurtech start-up in 2017. PolicyAdvisor.com is an online marketplace that aims to “take away the pain” of searching for life insurance, critical illness insurance and mortgage protection products for the Canadians. It plays as a matchmaker, connecting Canadians to insurance products that suit their needs, such as financial security, debt reduction, family planning and protection or future retirement. It is a mobile-first platform that offers “real-world advice” from experienced licensed brokers and advisors whom clients can speak to online, on the phone, or through video.
In the United Kingdom, Starling Marketplace, owned by the London-based Starling Bank, puts products from other partnering fintech providers, lifestyle product and services providers onto its in-app marketplace. It competes head-to-head with Revolut, which offers insurance and wealth management services to its customers in-app, as well as access to consumer loans via a partnership with peer-to-peer lender Lending Works.
Coming back to Asia, there have been a few interesting banking marketplaces which leverage ecosystem partnerships with non-financial services providers to address specific customer needs in their purchasing journey and decisions. This was in response to the new Monetary Authority of Singapore (MAS) rules in 2017 which allow banks to operate and invests in digital platforms that match buyers and sellers of consumer goods and services. These banking marketplaces are owned and operated by two leading financial services group in Southeast Asia – OCBC Bank and DBS Bank.
OCBC Bank launched the OCBC OneAdvisor Home in January 2018 as a one-stop advisory service portal for property purchases to enable buyers to do a home search based on affordability criteria. It provides information such as property listings, rules and regulations, comprehensive affordability advice to help residential purchasers, and policy details, and even offer customers the option to speak to mortgage specialists for consultation or loan applications. All property listings came from OCBC Bank’s ecosystem partners, EdgeProp, 99.co and Soreal.
OCBC Bank has also launched an eCommerce platform called mumstruly.com targeting mothers and mothers-to-be but was shut down late 2019 due to change in strategic directives. That was OCBC’s first foray into eCommerce, offering a range of goods and services, from health services to baby and motherhood products as well as wealth and insurance products. The bank partnered up with Asia-based healthcare, retail and service providers to offer a one-stop-shop service.
DBS Bank, on the other hand, has launched four consumer needs-driven banking marketplaces since 2017 – DBS Car Marketplace, DBS Electricity Marketplace, DBS Property Marketplace and DBS Travel Marketplace. It was named both the World’s Best Digital Bank and the Best Bank in the World in 2018.
DBS Car Marketplace was the first marketplace launched in July 2017 to offer a one-stop solution for car buyers and sellers, providing all the relevant services and information the customers may require in their car purchases or sales journey. It partners sgCarMart and Carro to establish Singapore’s largest direct seller-to-buyer car marketplace for car listings, while the bank offers car insurance and car loans. In its first year of operation, the marketplace attracted more than 550,000 unique visits, 40 million views and 2.6 million visitors a month.
Almost eight months later, DBS launches DBS Electricity Marketplace to allow consumers to compare various pricing plans, hunt for deals and make a seamless switch of electricity retailers. Four months after, DBS Property Marketplace was launched with a similar proposition as OCBC OneAdvisor Home. DBS’s property listing partners are EdgeProp and Averspace. It was reported that the DBS Property Marketplace has generated more than SGD 300 million in home loan requests within the first 12 months.
The last eCommerce platform launched by DBS in July 2019 is the DBS Travel Marketplace. DBS has partnered with Singapore Airlines, Expedia Partner Solutions and Chubb Insurance Singapore to create a one-stop platform where travellers can book flights, hotels and complimentary travel insurance in one place. The bank wants to generate customer value by helping travellers reduce the time and effort they need to spend on multiple channels for their pre-vacation planning. In addition, the bank’s customers get free travel insurance and can use their DBS or POSB Daily$ rewards points to offset travel costs.
Singapore banks are not the only contenders in Asia. In India, Bank of Baroda, India’s third-largest bank, announced its plans to launch an online marketplace to offer banking services and farm-related products last year in July. The state-owned lender is keen to enhance its online digital capabilities and is seeking a partner to supply 'digital commerce platform' to provide assistance to merchants on catalog management, purchase management fulfilment, pricing, promotion and other similar services.
These Asia-based banking marketplaces are showcasing how banks could create meaningful ecosystem partnerships by collaborating and innovating together with partners through a marketplace platform. In this way, customers will benefit from a seamless, fuss-free experience that brings together the best of banking solutions and relevant products and services needed by customers to address specific consumer needs.
Are you ready to brave the new world of Banking Marketplaces?
Marketplaces are gradually becoming a more attractive banking business and operating model that increases customer convenience and efficiency by providing targeted solutions to match their needs, while allowing banks to leverage their massive business and enterprise customer networks and partner with the right marketplace ecosystem providers.
This also enables banks to strengthen their position in an environment where customers’ trust in banks was diminishing. Banking marketplaces could be an effective strategy where it offers tremendous convenience as a one-stop shop with a comprehensive range of curated products and services to address specific customer needs. Customers also enjoy greater peace of mind knowing that the platform and products are trustworthy and backed by their bank.
In a report by McKinsey & Company, it was described that self-service and greater transparency give customers more autonomy, automatically translating into higher customer satisfaction. This could strengthen customer engagement, causing new customer acquisition and lead generation. The convenience, security and satisfaction all create a more meaningful customer experience, thus reducing customer loss and churn.
However, the journey to becoming a successful banking marketplace is paved with difficulties and possibly, failures, as seen from the many failed online marketplaces in the retail and other non-banking industry sectors. The success stories to-date suggest a successful banking marketplace involves engaging and integrating with the right ecosystem partners to deliver a robust marketplace ecosystem. It needs to overcome stagnation and complacency and goes beyond technology, products, data and processes to disrupt how traditional banks have always operated and created a new value chain delivery system. It is definitely more challenging to execute.
Nonetheless, it is mission-critical to start strategising on how to embark on this journey as the customers are changing fast while neo-banks and challenger banks are responding to the change and well accepted by the banking customers in this digital era. Braving a new frontier and heading towards a new business model is daunting but essential for future survival.