1. Business model innovation
Banks need to rethink their lending strategies to counter the effects of slow economic growth, rising inflation and climbing credit losses and develop business models that enable them to offer more flexible loans and risk-based pricing. They should also ensure that their business models are sufficiently resilient to withstand further global financial shocks. Effective liquidity management is critical, says Devanarayanan.
Among the innovative business models banks are beginning to implement are dedicated digital-only banks, banking-as-a-service (BaaS), and co-lending partnerships. These new business models are enabling banks to bolster their stability and protect profitability by diversifying revenue streams and spreading risk exposure.
Traditional banks looking to enter co-lending partnerships have the advantage of established reputations, considerable experience in lending and often access to both retail and corporate clients, says José Maria Pereira Nunes, digital transformation director and head of digital consumer lending, at Millennium bcp. Potential fintech partners, by contrast, possess greater agility and less bureaucracy.
“There are already examples of banks investing in fintechs to create co-lending solutions and they could bring the best of both worlds together.”
Nunes warns, however, that potential competition from big technology service providers could threaten banks’ co-lending ambitions.
“Big Tech have a deep understanding of customer behavior, a giant pool of clients already engaged, and a ridiculous amount of brand loyalty.”
Devanarayanan points to three business models that banks will increasingly employ to deliver new lending offerings:
• Embedded lending: By integrating lending into digital ecosystems, banks will reach new customers, boost revenues, and enhance distribution efficiency.
• Finance and non-finance marketplaces: Greater collaboration with partners will enable banks to extend lending into new markets.
• Superapps: Multi-function mobile apps will enable banks to enhance customer experience, increase client retention and drive-up revenue through cross-selling and upselling.
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