A business model for a Bank that specializes in the Internet channel.

Comments on the model are much appreciated! It's a work-in-progress :-)

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Hi Izam,

Thanks for sharing and the BMC looks insteresting but I'm not quite clear clear on who the targeted CS are? Is it in developed countries or developing countries, because IMO their needs and emphasizes will be different. Or is it Southeast Asia in general or any specific country?


I did not have a target geography in mind because I crafted this model to sharply focus on a transactional bank that generates cost savings through being an internet-only bank. Coupled with access to "Big Data", I think that this cost leadership can be the engine to generate increasing returns because my train of thought was:

Internet only bank --> Cost leadership --> Big customer base --> Large transaction data set --> Terabytes of data to mine and discover useful relationships.

I think you are right that emphasis will be different depending on the market. But this train of thought above will be largely the same no matter if it is developed country or developing country.

I think one of the differences will be the market opportunity in "unbanked" customers. There will be more "unbanked" customers in developing countries. 

Well, in this day and age, the growth area is going to be in the developing countries anyway as the developed countries are struggling with debt burdens and the euro crisis. 

My conclusion is that this model will be particularly powerful in developing countries, as developing countries rapidly go through economic growth and consumers become more sophisticated and have increased purchasing power. What do you think?


Several points:

1. Agree, there is a potential for datamining from the enormous amount of transactional data but isn't there financial regulations that limits what kind of analysis you can do with this type of data? 

2. I also agree the train of thought will apply to both developed and developing countries but I think the emphasizes on cost leadership is only a good short term strategy and will not be sustainable for the long-run. Once big players see the value in it they will start entering this area there will definitely be a price war. A better approach, IMO, is to emphasize on what value can the business give to customers, what problem will it try to solve for the customer, or in the current buzzword "What's the pain" the business is trying to solve, which is market specific.

3. Yes the growth area now is developing countries especially the unbankable (IMO more specifically microsavings not microfinance services). But for SMEs especially microentrepreneurs in developing countries (my research area) the main issue is the inability to do micro-transactions moreover do micro-transactions across different financial institutions. And your point on peer-to-peer payment IMO is right on the mark as well as with e-commerce (note not Internet commerce) but I'm still sceptical about the B2B exchange because based on my research there are not that big or the network is not that sophisticated enough requiring an electronic-based intermediaries as well as trust is a big factor in transactions for this group of businesses.


Thanks for your inputs!

1. Yes in most countries there is a "Data protection act". But if you have customer opt-in for the analysis, what is the legal risk here? Do you think there is a regulation that stops Google from analyzing your GMail inbox and delivering targeted ads to your GMail?

2. The pain for consumers is low-cost transaction banking. In SG and BN most checking accounts have an annual fee. The pain for SMEs is how to acquire and to reach relevant consumers and partners at an efficient/effective ROI.

Price war? The existing "big players" with existing infrastructure have all those existing fixed costs and overheads with branch networks. I think this model suits new entrants in a market that is currently dominated by retail banks reaching out through the branch network channel.

3. This is a good insight in to B2B. One use case that I had in mind was e.g. an SME that is supplying services to an MNC business. Instead of sending manual invoices that need to be matched off to delivery orders and monthly statements that need to be matched off to invoices, the B2B exchange could be used to provide XBRL/XML data that can be consumed and auto-reconciled at the customer's systems. Payment of the invoices can be mediated through the exchange. This can help increase efficiency at the customer side, improve cash flows to the vendor and focus around the real business problem which is in solving problems that come out of "not ordinary" transactions, when the "ordinary" transactions can be bulk approved.

In this case - there is no trust issue. Because the data being shared is already being shared in current processes, but in manual paper-based documents, not XBRL/XML internet documents.

Terima kasih Rahmad! Your inputs are appreciated.

Actually the point that existing banks can get in to this model is a very valid point. 

One of my key take aways from the book was the idea of unbundling business models.

An Internet-only bank is a special case of a transaction bank.

So the implication of this BMC is that there may be value in taking an existing universal bank that is vertically integrated and spinning out the transaction bank. 

In the same model that MVNO (mobile virtual network operators) piggy back on existing operators' infrastructure. 

This might need re-thinking! 

1. I don't know much about financial regulations but I think its more strict for financial data and my statement is more from observation of my own experience where I've been a user of paypal since they started in the late 90s and have not been targeted of any special tailored offerings by them but more by ebay based on my buying history. 

2. SG=Singopre right? Wha'ts BN?

3. Interesting use case but how big is the market and for quick adoption I think you would need buy-in from the MNC, which I think will be pretty hard.

4. For current retails banks to take advantage or go after the unbankable I do believe they need to unbundle their services; there current offering don't really fits the microentrepreneurs pain. Two main aspects, IMO, are a new approach to savings (i.r. microsavings) and an expanded view of transactions (i.e. microtransactions). I think this is what Grameen did as well as what M-Pesa is doing and I believe that's why they are successful.

Side note: please do not take my comments as criticizing the idea but more as questions to clarify your initial ideas and to develop. Based on my experience, especially in Indonesia, questioning something tend to be equated with not agreeing.


Pak Rahmad,

No apologies necessary, I am here on the Hub to learn from other people's experiences and this is the kind of discussion that I think I can learn from :-) No offence taken no problem.

1. Exactly, so eBay uses your own transaction history to make recommendations to you regarding other potential transactions. This is precisely the kind of recommendation engine that is permitted by data protection law. The illegal type of data sharing is where the entire database of customer transactions is made available to outside parties. Now that is not permitted.

2. BN = Brunei.

3. I think one way to achieve increased buy-in would be for the Bank to JV/partner with MNC service providers - the makers of ERP systems: Sage, SAP, Oracle, etc. I think with the right interfaces into MNC's ERP systems, this would reduce the barriers to entry.

4. Unbundling is an interesting topic! To take the concept further, a transaction bank can also create a platform for peer to peer lending (one customer to one customer lending), community loan syndication (many customer to one customer lending), crowdfunding (equity investment from many customers to one business). Hrm! A new aspect to include in the business model.

Terima kasih Pak Rahmad!

1. Ebay is mining its own data and not from Paypal's data, even though Paypal is their subsidiary. I think what is illegal is something like Visa mining its transaction data and selling your purchase preferences to say Carrefour. I don't know much about financial regulations so I might be wrong.

3. IMO, too many moving parts will be very hard to coordinate: Banks+ERP+MNC.

4. That is exactly what Kiva, kickstarter, and the likes are trying to do: crowdsource funding.



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