Successful interoperability: Maintaining a long-term view

This post is written by Ali Gross, SBI Senior Business Analyst.

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To encourage the development of more agent and branchless banking networks, donors and policymakers are emphasizing interoperability and institution-agnostic platforms, as opposed to a bank or MFI opting to roll out its own agent network.  They often stress the importance of avoiding duplication of efforts and of promoting interoperability as a way to increase efficiency and scale as well as customer access and convenience.

However, despite these efforts, financial institutions want to develop their own agent networks in their efforts to implement alternative delivery channels. The financial institution rationalizes that this will result in increased control over profit and agent quality and lower risk of losing existing customers to the competition.  Often, what financial institutions fail to account for is not only the amount of time, money and effort required to roll out an agent network, but also what is best for the customer.  For instance, in the U.S., most customers would prefer access to an interoperable switch that allows a Wells Fargo client, for example, to withdraw from a Bank of America ATM.  Would clients in emerging markets not prefer the ability to visit one agent that represents a variety of financial institutions resulting in greater flexibility and less confusion about which agents they can visit?  As increasing client choice and convenience of accessing financial services becomes increasingly important, the question becomes, how can financial institutions begin to look at interoperability in a way that is mutually beneficial, rather than solely competitive? 

Take for instance an established tier 2 microfinance institution that wants to utilize the existing agent network of a large commercial bank in order to avoid the pain of establishing its own agent network, but fears the commercial bank may find a way to move downstream and acquire the MFI’s customers.  There seems to be a misplaced fear in markets all over the world that the competition is going to steal away all of their customers.  I call the fear ‘misplaced’ because most of the financial institutions I’m referring to already have strong customer loyalty and unique value propositions.  These financial institutions have experienced the success they enjoy today specifically because of their ability to ensure customer loyalty and sell the customer a product they want.  When it comes to the competition, financial institutions need to take a step back and look at the bigger picture – not placing so much emphasis on the last mile (branchless and mobile banking), and focus on maintaining customer loyalty through innovative and demand-driven products, existing relationships with customers such as through loan officers, and strong branding and reputation, among others things.  Should a customer decide to switch to another financial institution, it is highly unlikely that the principal reason has anything to do with the competition moving downstream or getting closer to the customer through branchless banking.

While financial institutions should certainly be strategic when choosing branchless banking partners, rather than viewing interoperability as a potential way to lose existing clients to the competition, financial institutions should also focus on their core competencies and unique selling proposition to improve what they already do well, rather than worrying that the competition will come steal their clients through interoperable branchless banking platforms.


One thought on “Successful interoperability: Maintaining a long-term view

  1. Technical interoperability is a key issue genesis being lack of standards, low cost bidding and single entity being responsible for both BC and Technology while requiring very distinct skills. Resultant was closed technology solutions by Service Providers in a completely outsourced model, wherein a customer could not be serviced by another agent of the same bank! Over time banks have now become more savvy and moving to open standards, however the priority is to first enable an agent to service across banks which not only requires further technology investment but also pricing of interchange fees similar to ATM setup. Sales is more complex…and as you rightly said it requires a mindset change and at that stage FI will no longer be an obligation!

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