By 2005, two out of three US and European banks will sell products manufactured by competitors . Or say say consultants Celent Communications, in a study of what they have dubbed “open finance.”
In a new report, “Open Finance in the US and Europe: A Perfect Storm in Retail Banking”, Celent examines the long term trend – the disruption of traditional banks’ value chains – which is forcing a shift from a proprietary distribution model in retail banking towards the “open finance ” model. “With o pen f inance, banks are experiencing the same forces which reshaped consumer retailing in the 60s , ” explains Gwenn Bzard, the author of the report. “For decades, the banking industry has escaped the fate of the food, music, and consumer electronics industries, which are now dominated by global distributors. Because of the complexity of their products, low automation, and regulatory issues, banks have maintained a stronger integration of manufacturing and distribution. Over the past decade, however, multiple forces have encouraged banks to unbundle manufacturing and distribution, opening their delivery networks to non-proprietary products, as well as relying on third-party manufacturers for best-of-breed products. While banks are still keeping discount retailers at bay, they have begun to use their distribution networks to offer products from other financial institutions, thus creating Open Finance. Banks are being pulled into open finance faster than they may realize.”
The report predicts that open finance will take the retail banking industry by storm in the next 4-5 years. “Bankers hoping to see Open Finance vanish misjudge the drivers and the scope of the phenomenon, ” concludes Bzard. . Celent predicts that 60 per cent of top US and European banks will offer competitors’ products by 2006, up from 15 per cent in 2002; and 100 percent of them will offer compl e mentary products by then , up from 60 per cent in 2002.