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Open finance and best-in class service provision

This blog is the third and final in the first series of leadership briefs ahead of the release of the book “Transforming Financial Institutions”. After introducing the analytical framework and how technology innovation drives the transformation agenda, the blog discusses an open platform model for financial institutions with regards to specialisation and integration of best-in class services.

Utility versus specialty finance

Since the establishment of the new commercial landscape after the Global Financial Crisis (GFC), the financial industry is in process of reshaping itself across an ongoing transformation cycle. The management of size and complexity with their diverse capability requirements has become a core value driver as well as target of the ongoing change agenda. Financial institutions need to become more agile and focused with emphasis on profitability and competitiveness. Client-centricity and market differentiation with a dedicated set of capabilities remain key to reach those objectives. New technology-enabled players have emerged that follow specialised commercial models. They focus on specific service provisions in a well defined commercial segment. These services are in contrast with the utility-like product and services that many financial services businesses exhibit today.

Specialty finance has become a widely used term. It has historically been defined as any financing activity that takes place outside the traditional financial system. Most specialty finance businesses have been established as alternative lending and investing platforms, targeting segments that find it difficult to obtain financing through traditional channels. The book uses the term broadly for specialised risk-transfer businesses that target consumer and commercial segments with dedicated and tailored propositions. Their approach is in particular focused on the performance of the underlying asset, and funding often provided through innovative facilities and structures. Specialty finance players focus on assessing risk in a more tailored and effective manner, looking at a broader range of available data as opposed to the more ratio-driven, formulaic approach that traditional financial institutions have been following. A thorough level of underwriting allows them to provide debt financing in special situations, often declined by traditional lenders, while obtaining a premium price to cover the work and risk. This dedicated approach applies in a similar fashion to equity investments where big data and machine-learning algorithms are used to screen and assess the investment universe. Technology and nimble operating models have an important role to play in the commercial approach of these players, which defines their cost structure and profitability.

Open platform and best-in class service provision

Digital business models with their technology-enabled services that apply the open design principles proposed by this book follow a model of collaboration and integration. An operating platform with an open-source architecture builds on a universal offering by integrating best-in class services. There is a role for specialised, i.e. the challengers but also for large-scale incumbent players, i.e. the established financial institutions. On the one hand, utility-like product and services can operationally only be delivered through scale and efficiency while making sure that the regulatory requirements are fulfilled. On the other hand, there is inherent value in specialised risk-transfer and distribution capabilities. The more decentralised the system under which these players operate, the less sensitive are its institutions towards price dislocations and financial stress. These are the attributes of open finance with its go-forward operating model that is based on specialisation but also cooperation.

The integration of technology innovation and specialised value propositions on large-scale operating platforms are the core driver of the industry’s reorganisation efforts. Efficient risk transfer with returns in excess of shareholders’ cost of capital that builds on an overall trust in the financial system remain at the centre of financial institutions’ commercial viability. The global financial industry, particularly in Europe, seems to have been in a continuous and almost perpetual state of crisis since the outbreak of the GFC in August 2007. It feels that the described attributes of value creation got lost in the sheer complexity of modern financial organisations. A more nimble and agile approach is required that brings the industry back to a profitable growth path. Technology innovation provides the tool kit to facilitate this transformation.

This books aims to contribute to ongoing discussion about the transformation agenda of the financial industry with a value creation and growth mindset. After its launch in early February 2022, a second series of blogs will provide a deep dive on operational efficiency, augmented decision making and digital financial innovation. These thought leadership briefs in combination with the book follow the objective to provide decision makers a comprehensive framework to drive their institutions’ transformation agenda. Further information to the book and thought leadership series can be found on


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