Leveraging Digital Disruption In The Retail Banking Industry

Ansgar Erlenkoetter

Digitalization is driving a historical disruption of traditional retail banking business models. Propelled by changing consumer expectations and the rise of direct peer-to-peer transactions eliminating the role of the intermediary, banks must reexamine business models to thrive.

At the same time, these disruptive forces open up extraordinary opportunities for banks and other financial service providers. By taking a fresh look at business models and processes, leading companies are already discovering that embracing digital change can create new revenue streams and grant access to additional customer segments.

Let’s take a closer look at how three companies are using digital disruption to their advantage.

Lending Club

The Lending Club built its successful financial model by offering personal and business loans online and providing full transparency on loan requests to potential investors. Investors can open an account in minutes and see thousands of pre-rated loan applications. The Lending Club’s sophisticated algorithms allow filtering and matching to appropriate borrowers.

By operating as an online peer-to-peer credit marketplace, the Lending Club not only has lower costs than brick-and-mortar banks, it also enables investors to create their individual risk portfolios based on complete transparency.

The Lending Club business model doesn’t see banks just as competitors but as partners fueling future growth. The company is looking to cooperate with banks and other financial institutions to provide new financing options. For example, the partnership with Citigroup provides $150 million in loans to historically underserved populations.

Similarly, the Lending Club is playing big into small business loans for small companies and startups, which have been barely served by traditional institutions, in particular since the recession. Instead of months of delays and frequent rejections dealing with traditional banks, borrowers see the company as an effective and fast option.

“We’re a threat to the model, but we are not necessarily a threat to the bank,” chief executive officer Renaud Laplanch told Bloomberg in 2015.


PayPal has reinvented the way people are paid and can transfer money by creating a single, uniform peer-to-peer online payment system across borders and currencies. The company sees itself at the forefront of digital payments, and with good reason: with an ecosystem of 179 million active customer accounts as of December 2015, PayPal processed 4.9 billion payments just in 2015, and 28% were done on a mobile device.

Individuals and businesses use PayPal to complete a range of transactions, from sending freelancers payments over the Web to purchasing goods online and in stores. PayPal users can be paid in 100 different currencies and withdraw funds from PayPal accounts into bank accounts in 57 currencies. Funds in PayPal accounts can be held there in 26 currencies. Not surprisingly, PayPal became a strong competitor to all international money transfer and remittance providers. In 2015 alone, the company added 17 million new accounts.


As the U.K.’s largest price comparison site, MoneySuperMarket works with more than 790 providers to assist 3 million consumers with saving money. All the services to consumers are provided online for free.

Operating as a portal for comparing offers of different providers, consumers are forwarded to the provider’s website to purchase items at discounted rates. The providers pay MoneySuperMarket a fee for each successful transaction initiated via the portal.

The company’s scope is extensive and continuously extended. Consumers can explore products and services in a range of industries including insurance, financing, travel, energy, mobile phones, retail, and broadband.

MoneySuperMarket has been growing steadily. In 2015, it averaged 23.6 million unique monthly visitors and claimed it saved consumers 1.6 billion GBP.

How to change

For banks eager to replicate the success of these examples and others, the role of banking needs to be rethought. New models are needed that take several new foundations of digital business into account.

For one, there is the option for banks to go beyond banking, focusing on the overall customer target and not just the financial aspect of the transaction. This way a bank can become an integral part of its customers’ lives. A bank further could leverage its customer base and evolve into an open marketplace where a wide range of potentially competing products, largely provided by partners, is sold for a fee (e.g. MoneySuperMarket). This is a very different partnership compared to traditional ones with selected suppliers and service providers.

Banking as a service (in particular with specialization) can be another prosperous business model for banks that excel in specific services (e.g. PayPal for P2P payments). Creating new partnerships with digital communities, manufacturers, and retailers that all consume these services enables the bank to leverage economies of scale and regain some revenue that’s been lost to other players.

Finally, inclusive banking offers retail banks the chance to reach customers that can’t be viably reached with traditional models. Even quite a number of fully developed economies find parts of the population underbanked or even unbanked (e.g. immigrant workers, less educated people, etc). Using digital/mobile technology and independent agent networks enables banks to reach new customer segments and enables people who were previously unbanked to directly access financial services and, by this closer participation in the economy, become more prosperous.

Key to all these models is that banks need to understand customers better and faster in three ways:

  1. Consider what customers really expect within their current context – be it factors like location, time, or device.
  1. Anticipate what customers want and need, and deliver a highly personalized customer experience over all available channels.
  1. Aspire to operate at market speed to enable the bank to identify, create, and offer new services and products in a matter of days, not months or years.

Each of the three companies named above is disrupting its sector by remaining laser-focused on digitalization and customer-centricity. For most retail banks, the time has come to seriously consider future markets and segments. A fully digitalized business will be at the top of the list for quite a number of them.

The right technology can help banks not just meet customer needs, but also anticipate them — with personalized, real-time services across digital and in-person touch points. For more resources on this topic, check out SAP Digital Banking.

Ansgar Erlenkoetter

About Ansgar Erlenkoetter

Ansgar Erlenkoetter is a solution architect for banking solutions at SAP.