Giorgio Bou-Daher

Banking in the Age of the Platform Economy

The Moorad Choudhry Global
Banking Series

Series Editor
Moorad Choudhry
Giorgio Bou-Daher

Banking in the
Age of the
Platform Economy
Digital Acceleration Through Strategies
of Interdependence
The views, thoughts and opinions expressed in this book represent those of the author in his individual
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as director, representative, officer, or employee of any affiliated institution. While every attempt is made
to ensure accuracy, the author or the publisher will not accept any liability for any errors or omissions
herein. This book does not constitute investment advice and its contents should not be construed as such.
Any opinion expressed does not constitute a recommendation for action to any reader. The contents
should not be considered as a recommendation to deal in any financial market or instrument and the
author, the publisher, the editor, any named entity, affiliated body or academic institution will not accept
liability for the impact of any actions arising from a reading of any material in this book.

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Advance Praise for Banking in the Age of the Platform
Economy
I recommend that every practitioner reads this book. It helps banking leaders to navi-
gate the new strategic realities of the platform economy age, including new regula-
tory, competitive, and technological challenges. A critical strategic ramification for
banks is that, increasingly, they need to co-create value with external stakeholders
through new business models whereby this value co-creation is ongoing, and drives
sustained competitive advantage. Value co-creation with external stakeholders in-
volves risks and opportunities; the book goes into the mechanics of value co-creation
in the platform economy age, including the technological, economic, structural, align-
ment, and managerial considerations that banking leaders need to bear in mind as
they configure their strategies. For fintech and bigtechs, the book cuts through much
of the hubris that has accompanied the fintech revolution, making clear distinctions
between fintechs and banks, and demonstrating how the relationship between banks,
bigtechs, and fintechs is a lot more nuanced and often involves complementarities.
Dr Marko Sjoblom, Founder of Fiinu Plc (BANK.LN), a public fintech group,
including Fiinu Bank

Giorgio Bou-Daher’s Banking in the Age of the Platform Economy is an exceptional

book that studies how banks responded to the main forces of interdependence in a
highly regulated banking sector and how they managed to reposition emerging com-
petition by fintech and bigtech into new alliances through value cocreation. Securing
exchange of data requires a robust compliance approach with relevant regulations so
as to avoid irreversible reputational damages. Among other things, this book defines
how the regulators had to promote competition and innovation in the banking sector
while simultaneously issuing unprecedented and vigorous regulatory requirements
that pushed banks to spend substantial time and cost to ensure sound banking opera-
tions in a complex legal environment. Giorgio Bou-Daher’s book demonstrates how
the forces of interdependence and technological and regulatory changes have pushed
Tier 1 banks in the European market to rethink their strategies while presenting the
opportunities and risks of value cocreation with external stakeholders. This book de-
livers a holistic landscape of the paths followed by banks when a reinvention of the
system was required to compete with new entrants in the market and to accompany
the transition from a traditional banking system to the era of the platform economy.
Dr Nisrine El Mir, Director of Legal Europe at SITA, Lawyer specialised in the IT
industry

Rooted in deep empirical study and a good knowledge of the academic literature,
Giorgio Bou-Daher provides a useful guide to understand the recent (r)evolutions in
the banking sector. By linking a reflection on regulation, new technologies and the

https://doi.org/10.1515/9783110792454-202
VI Advance Praise for Banking in the Age of the Platform Economy

strategic choices of the companies, the reader will understand the complex relation-
ships and interdependence between incumbents, fintechs and deeptechs, as well as
the new business models that have emerged recently. Banks will no longer create
value as in the past but will strategize their environment towards more cooperation
and co-creation of value. This book proves the value of rigorous academic thinking
with a deep understanding of real-life situations. A must-read book for those inter-
ested in business model innovation and the banking sector.
Prof Benoît Demil, Professor of Strategy and Management at University of Lille

Banking in the Age of the Platform Economy is an essential read for anyone looking to stay
ahead of the curve in a rapidly evolving financial landscape. Written by Giorgio Bou-Daher,
an industry expert, this book offers a comprehensive overview of the banking sector's trans-
formation and the implications for the future of the industry. From the development of
new technologies to the opportunities and challenges posed by the rise of the platform econ-
omy, Banking in the Age of the Platform Economy is an invaluable source of insight and
analysis for anyone interested in understanding the impact of this ground-breaking trend,
and especially our Master Program Banking & Fintech students. Highly recommended!
Dr Elian Pilvin, Dean and Director General of EM Normandie Business School

In this volume, Dr. Bou-Daher offers a comprehensive analysis and valuable insights
on the current state of banking and the various forces shaping the industry, particularly
in the context of networks in the platform economy age. The author provides a nuanced
perspective on the impact of regulatory, structural, and technological changes on the
traditional banking sector, carefully considering both the challenges and opportunities
these forces present. The in-depth examination of the banking industry's strategic con-
siderations in the platform economy age is valuable for anyone seeking to understand
the role these technologies will play in the future of banking. Overall, this book is a
valuable resource for anyone looking to gain a deeper understanding of the current
state of the banking industry and the factors shaping its future development.
Dr Hala A. Guta, Associate Professor of Mass Communication, Qatar University

This is an essential textbook for practitioners and students alike, examining how top
banks have navigated profound disruption since the Global Financial Crisis and the
rise of the platform economy. Drawing on his rigorous empirical research, Giorgio
Bou-Daher elegantly explores the extent to which European banks have responded to
new competitive forces by mobilising their resources and capabilities to deploy digital
acceleration strategies. This book’s insights have crucial implications for banks and
their stakeholders as the platform economy grows.
Tony McVeigh BA (Hons), PG Dip (Oxon), MA, ACSI, Banker & Senior Director,
City of London
 Advance Praise for Banking in the Age of the Platform Economy VII

Banking in the Age of the Platform Economy is a reference book on the evolution of
the banking sector post-2008 Global Financial Crisis, and its strategies of digital accel-
eration. It provides a deep dive into the adaptations of the top 20 European banks to
regulatory changes and the rise of the platform economy. Giorgio Bou-Daher has de-
veloped a taxonomy showing their different strategies and approaches regarding
value cocreation with external parties such as fintechs and bigtechs. This book also
relies on a deep and comprehensive set of empirical data. It should be read by all
banking and fintech leaders.
Hervé Rubiella, Founding Partner at Fx Care, former Global Head of Financial
Institutions and Public Sector Coverage at Natixis

Banking in the Age of the Platform Economy . . . is indeed a breath-taking journey into
the moving world of the banking industry. Giorgio Bou-Daher is offering his readers a
very balanced and deeply documented view of the challenges at stake. Are we attend-
ing a Darwinian war between “traditional banks” and new players such as fintechs,
where, through competition, some will die and some others will dominate? . . . He is
opening many doors to plausible futures, with the wisdom of a writer who is both
reading tomorrow as different from yesterday and as a continuum from a long past.
Guillaume Lefebvre, Executive for the Crédit Agricole Group, CEO of IFCAM, the
Group’s Corporate University

In the wake of the Global Financial Crisis (2008), banking and financial services have
witnessed the passing of new monetary policies like quantitative easing and regulatory
reforms like Basel III and the Dodd-Frank Wall Street Reform and Consumer Protection
Act. Concomitantly, in the Second Machine Age, the emergence of new entrants such as
fintechs and bigtechs and disruptive technology such as cloud computing and block-
chain, have combined to challenge traditional banking services.
Scrutinising this complex and dynamic landscape, Bou-Daher shows that tradi-
tional banking services have not withdrawn from, but rather proactively engaged in
the new “platform economy”. Through his expansive empirical analysis spanning
over a twelve-year period, Bou-Daher shows how a cross-section of 20 banks have en-
gaged in various forms of interdependence and value co-creation activities (transfor-
mational, open and central, selective and generative interdependence), as part of
their digital acceleration strategies.
Bou-Daher’s analysis is captivating, and his perspective marks a welcoming con-
tribution that challenges mainstream perspectives of unscrupulous banking firms op-
erating with dated technologies. Bou-Daher writes from the vantage point of both a
practitioner – having worked for nearly two decades at the intersection of technology
VIII Advance Praise for Banking in the Age of the Platform Economy

and banking – and now, in parallel, as a scholar. This is an erudite and expansive
contribution which will be of value to students and academics, as well as financial
services and banking practitioners alike.
Dr Mathew Todres, Lecturer in Management, Faculty of Business and Law,
University of Wollongong, Australia

Many thought fintechs could destabilize banks. That was not the case. To under-
stand why this did not happen, this book will provide you with an analytical frame-
work and a longitudinal study of the strategic responses of the largest twenty
European banks over the period 2008–2019. It demonstrates how banks built rele-
vant strategies to cope with the forces of disruption. It is therefore a book that will
interest the many leaders facing the digital transformation of their industry, far be-
yond only the banking industry.
Dr Henri Isaac, Associate Professor at Paris Dauphine University, PSL and
former President of Renaissance Numérique (2016–2021)

A useful book to comprehend and master some of the new challenges and opportuni-
ties of Open Banking and digitalisation of financial services.
Dr Daniele D'Alvia, Lecturer in Banking and Finance Law at CCLS Queen Mary
University of London

Giorgio provides incredible vision into the past, present and future of banking. His
analysis and foresight is articulated beautifully, providing an invaluable resource for
those reviewing or redefining their strategy.
Adrian Hall, Research Board Program Director at Gartner, former Head of
Strategy in Global Technology Infrastructure and Services at Barclays

In his book, Banking in the Age of the Platform Economy, Bou-Daher uses rigorous re-
search and his industry experience to dispel concerns about the banking industry’s poten-
tially “troubled” future. These perceived risks come mainly from two related sources;
first, the entry of tech companies, such as fintechs and bigtechs into activities historically
dominated by banks, and secondly by innovations in the platform-economy, such as:
cloud computing, robotic automation, AI and distributed ledger technology.
Bou-Daher puts forward a well-reasoned and compelling case on how banks have
unique strengths that are basically impossible for any tech company, no matter how
innovative or large, to replicate; a fact that puts banks a) in a much less vulnerable
position than previously thought, and b) opens the door to a future – not of defensive
retrenchment against tech companies – but of cooperation and joint innovation with
these new market entrants.
Salvador Viramontes, Founder of VoxPopulum, former Head of International
Brands and Board Member at Sky International A.G.
 Advance Praise for Banking in the Age of the Platform Economy IX

Giorgio Bou-Daher’s Banking in the Age of the Platform Economy is a very practical
book that perfectly merges theory, practice, implementation, and strategy. While it
starts with a historical overview (e.g., the great recession) it drives you smoothly to-
wards today’s key themes including important technological pillars like artificial intelli-
gence, blockchain and cloud computing. One of its major differentiations is the way the
author demonstrates objectively and factually the crucial issue of how banks create
money. Finally, it efficiently and productively proposes strategies of interdependence
and value cocreation that firms can adopt to navigate the platform economy age.
Dr. Fouad Zmokhol – Dean of the Faculty of Business and Management at Saint
Joseph University (USJ), President of the International Confederation of
Lebanese Businesspeople (MIDEL), President of the Social and Economic
Council at the Agence Universitaire de la Francophonie (AUF)
For Vera, Antoine, and Michael
Acknowledgements
I am profoundly grateful for the guidance of Henri Isaac, Lionel Garreau, and Isa-
belle Bouty over the last four years, without whose support this book would not have
been possible.
I would like to thank Benoît Demil, Frederic Le Roy, and Yves Tyrode for their
invaluable insights which have helped me refine my understanding of several themes
that are contained in this book.
I am thankful to the many banking and financial services clients I have worked with
over the years and to my colleagues at Gartner, IBM, Thomson Reuters, and Bloomberg.
The initiatives we collaborated on and the discussions we had have undoubtedly in-
formed my thinking about banking in the age of the platform economy.
I am equally thankful for the astute feedback I received from many academics I
engaged with at the European Academy of Management (EURAM) 2021 conference,
the XXXIst conference of the Association Internationale de Management Stratégique
(AIMS 2022), and the British Academy of Management conference in 2022; this feed-
back was important in helping me to hone the empirical study on which this book is
based.
I am grateful to the De Gruyter team for their professionalism and meticulousness,
particularly Stefan Giesen and Jaya Dalal for their fantastic support. My gratitude to
the series editor Moorad Choudhry whose body of academic work has contributed so
much to the banking and financial services profession.
To my wife Vera and to my children Antoine and Michael, thank you for your
love and patience.
Any fragments of wisdom this book may contain should be attributable to the
source of all wisdom (Prov. 2:6); however, any mistakes in this book are solely my
own.

https://doi.org/10.1515/9783110792454-203
Foreword
by Series Editor
These are interesting times for banks worldwide. All banks, from those that can trace
their lineage back to the 18th or 19th century to those that were awarded their bank-
ing license last year, face challenges on such a wide range of fronts that no one com-
mittee or forum, let alone one individual, can possibly be on top of all of them. The
traditional banking model of physical branches and face to face interaction (and yes,
chequebooks – I confess I still write cheques) is having to adjust to a new market of
neo banks, digital banks, fintech and such like. Old fashioned challenges such as com-
petition and a volatile interest rate environment remain, prescriptive regulation re-
mains, but new challenges appear all the time.
What indeed is a bank? In some countries a bank’s mobile app allows customers
to transact, via partner firms, in products that are not financial services products. The
range of services some banks offer is expanding beyond the traditional ones of loans
and deposits, and this is before we see what impact the much vaunted “blockchain”
and “central bank digital currencies” have on the banking business model.
To run through this book chapter by chapter is to see what issues are here today
and need addressing and what is on the horizon. But as the book shows, the best-run
banks have always been adaptable to changing environments and maintaining rele-
vance. For instance, Chapter 2 discusses what the author calls the “Second Machine
Age”, and the “platform economy”. This refers to technologies such as artificial intelli-
gence, cloud computing, and blockchain and their impact on banking and financial
services. Such technological changes have caused some commentators to suggest that
banks as traditionally defined have no future. However Chapter 2 notes that banks
have always shown themselves to be adaptable by responding to new technologies in
value-added ways – the author cites SWIFT, ATMs, mobile banking and online banking
by way of example.
In other words, we should view all recent developments, both within and without
the banking industry, as opportunities not threats. A nimble approach and ability to
respond swiftly to events is called for to address today’s challenges, and this should
not be beyond the wit and ability of any bank’s Board of Directors.
Of course, whilst an adventurous and creative approach to strategy setting are
necessary attributes for any bank wishing to stay relevant and viable, they are not
sufficient. The collapse of Silicon Valley Bank (SVB) in March 2023 showed that the
banker’s art must always remain rooted within traditional principles of balance sheet
management.
Silicon Valley Bank reflected the new environment. Its customers, overwhelm-
ingly fintech firms in the crypto and venture capital space, considered it to be “one of
them”, and the culture of the bank was described by some business media as reflect-
ing the “move fast and break things” ethos of Silicon Valley.

https://doi.org/10.1515/9783110792454-204
XVI Foreword

But the causes of SVB failure turned out to be depressingly familiar, unconnected
with anything to do with the new environment and analogous to the impact on the US
Savings & Loan industry in the early 1980s. That happened following the imposition
of rate rises by the US Federal Reserve as well. SVB’s collapse, and the subsequent fall
of Signature Bank, were not due to a systemic crisis like the one that triggered the
2008 bank crash, rather a combination of liquidity and interest rate mismanagement
largely specific to those banks. Both banks’ asset-liability committees (ALCO) forgot
the simple basics of bank asset-liability management (ALM), a time-honoured art. Or
perhaps in one or both cases the ALCO was well aware of the balance sheet risks the
bank was exposed to, but lacked the requisite executive authority to make its voice
heard?
In today’s environment, there are many issues for banks, old and new alike, to
contend with. We live in the social media age, where even fake news has the potential
to precipitate an instant bank run. We are in the midst of a transition to new ways of
doing business, whilst the old ways remain in place for substantial minorities of the
populace, in every country. Regulation will always struggle to keep up with the latest
risk types. It remains the responsibility of every bank’s own executive, and its respon-
sibility alone, to ensure that the balance sheet they have been entrusted to manage
remains robust and viable.
This is why Giorgio Bou-Daher’s book is a worthy and welcome addition to the
financial markets literature. It brings together all the key issues that banks must ad-
dress if they are to become long-term viable, (and which are notable for their diver-
sity), and puts them directly in front of bankers. It deserves a wide readership,
particularly at the Board and Executive Committee level.
Professor Moorad Choudhry
Surrey, England
March 2023
Foreword
by Henri Isaac
For many years, it seemed that the digital transformation that was taking place in
many industries (commerce, software, real estate, travel, etc.) would spare banks. The
last decade has demonstrated the opposite. Rarely have banks had to face such a
wave of innovative players, all of whom sought to take customers, market shares, and
revenues.
Fintechs have thus come to challenge the well-established players in the financial
world – the banks. In a regulatory environment that has strengthened considerably
since the 2008 financial crisis, and with activities strongly affected by monetary poli-
cies that have reduced their earning opportunities, banks have also had to face stiff
competition from these new players from the digital world.
Many predicted their disappearance in the face of such technological and com-
mercial breakthroughs. However, it is clear that banks are still present and that they
have been able to cope, so far, with this unprecedented wave of innovation. How did
they succeed?
The book you hold in your hands provides concrete answers to this question.
The result of a unique empirical work on the strategies of the top twenty Euro-
pean banks over the period 2008–2019, this book will provide you with a detailed
analysis of the strategic responses built by banks to face the rise of digital platforms.
In a connected world, in which digital platforms have been able to create high
value-added services through the exploitation of digital technologies, and the exploita-
tion of powerful network effects, banks have been able to deal with these players and
manage the growing interdependence to access resources, technologies and services
that they did not always master. The analysis developed in the book highlights the
different acquisition, alliance, cooperation, partnership strategies – capitalistic or not –
that banks have deployed.
Moreover, thanks to a rigorous analytical framework, the book will allow you to
understand the different modalities of these strategies that banks have been able to
build to face the various disruptions they faced. From this point of view, this book pro-
vides analyses that go beyond the strict landscape of the banking world and should be
of interest to leaders in other sectors subject to the forces of digital disruption.
The results of this research prove that incumbents in an industry can resist the
new competition that they face from new entrants in their market. The particular
case of banking could be limited, as these new digital players also have to deal with
banks for legal and institutional reasons. One of the most interesting features of the
book is that it marshals analyses that seem to me to go beyond the banking industry.
It highlights strategies that can be applied in different contexts to inspire leaders in
other sectors.
I am therefore particularly pleased that this work, which I had the chance to su-
pervise as part of the Executive PhD program at Paris Dauphine University, is now

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XVIII Foreword

accessible to as many people as possible. Such well-researched studies on the digital

transformation of an industry that spans such a long period of time are very rare. A
particular strength of this book is the time and effort that has been devoted to the
systematic study of banks' policy responses over the past decade. Therefore, I highly
recommend this as a must-read to anyone interested in understanding the strategic
consequences of digital transformation for companies.
I am truly convinced that this book contains analytical frameworks and conclu-
sions that will be of interest to leaders in the European banking world as well as outside
of Europe, but also in other industries facing the challenges of digital transformation.

Henri Isaac
Associate Professor at Paris Dauphine University, PSL;
former President of Renaissance Numérique (2016–2021)
Foreword
by Guillaume Lefebvre
At first sight, Banking in the Age of the Platform Economy might sound like a pretty
“arid” book. It is actually a breathtaking journey in the moving world of the banking
industry. How should banks be looking at the digital revolution they have been facing
over the past decade and will surely encounter over the coming ones? To quote a fa-
mous metaphor from Kennedy: “With fear asking why or hope asking why not?”
Giorgio Bou-Daher is offering his readers a very balanced and deeply documented
view of the challenges at stake. Are we attending a Darwinian war between “traditional
banks” and new players such as fintechs, where through competition, some will die,
and some others will dominate? Or is this technological shift affecting the banking in-
dustry, the emergence of new “hybrid” models through cooperation and/or coopetition?
He is opening many doors to plausible futures, with the wisdom of a writer who
is both reading tomorrow as different from yesterday and as a continuum from a
long past. After all, the banking industry dates back to the Sumerians, 5000 years ago.
Amongst the lessons the readers will learn is the fact that technology is primarily a
means to optimize the cost of intermediation and therefore can equally lead to a disin-
termediation process. But in the end, the root cause for intermediation is trust, awarded
to banks by their primary stakeholders (depositors, markets, shareholders, etc.).
In these times, the ones who will survive and prevail are the ones that will dem-
onstrate this twofold capacity:
– On the one hand, adopting new technologies to keep on improving their cost of
intermediation and hence partially share these benefits with their stakeholders.
– On the other hand, and even more fundamentally, demonstrating their legitimacy
as trustworthy and safe relational and financial intermediaries for depositors
and creditors at large to secure their funds and for borrowers to finance their
projects.

In short, and to use a final quote, demonstrating a spotless capacity to stakeholders

“to share values in order to create value” (G. Delatour).
I strongly recommend Giorgio Bou-Daher’s book to a large audience, including
students preparing a career in banking, but also all bankers and players at large who
are interested in the dynamics at stake in the banking industry.

Guillaume Lefebvre
Executive for the Crédit Agricole Group;
CEO of IFCAM, the Group’s Corporate University

https://doi.org/10.1515/9783110792454-206
Preface
Banking has been in a state of flux since the shock of the 2008 Global Financial Crisis
(GFC) and the concurrent rise of the platform economy age. Over the past decade and
a half, banking leaders have had to contend with rapidly evolving regulatory, techno-
logical, and competitive forces. These forces have brought to the forefront new mana-
gerial imperatives that banking leaders have to make sense of as they strategise in
light of these unfolding new realities.
The GFC led to the proliferation of new monetary policy measures like quantitative
easing and the sustaining of interest rates at close to zero for over a decade that eroded
banks’ profitability. In the aftermath of the GFC, regulators enacted more stringent reg-
ulatory reforms like Basel III, the Dodd-Frank Wall Street Reform and Consumer Pro-
tection Act, and the second Markets in Financial Instruments Directive (MiFID II),
which increased the net regulatory burden on banks. At the same time regulators and
governmental bodies – especially in Europe – enacted regulations and public policy
that facilitated the activities of new entrants in financial services like financial technol-
ogy start-ups (fintechs) and big technology firms (bigtechs). These regulatory and pub-
lic policy enablers include the European Commission’s Payment Services Directive 2
(PSD2), the UK Competition and Market Authority’s Open Banking Standard, and the
General Data Protection Regulation (GDPR) that all came into effect in 2018.
Meanwhile, the pace of technological change has been formidable with advances
in artificial intelligence, cloud computing, and blockchain technology. The Second Ma-
chine Age – where technologies evolve at exponential rates, where more of everyday
life is becoming digitised, and where novel innovative value propositions continue to
flourish through the combinatorial capacity of new technologies – has engendered
the emergence of new business models. In this hypercompetitive environment, a
tech-savvy, digitally native generation appeared that embraced the sharing economy,
where the focus was on access to resources and services rather than on ownership.
Firms across industries responded to these demand-side changes in consumer behav-
iour and the possibilities presented by new technologies on the supply-side to platfor-
mise, giving rise to the age of the platform economy. In this environment, new
competitors materialised to challenge banks. This includes fintechs who benefited
from enormous venture capital investment and support from innovation partners
like innovation labs, incubators, and accelerators. This also includes bigtechs who
drew on their vast customer bases, technology expertise, and institutional legitimacy
to add financial services to existing offerings (e.g., Apple Pay, Alipay). Moreover, both
new entrants capitalised on the digitally native generation’s reduced trust in banks
after the GFC.
These forces have been well covered by the financial press, consultant reports, in-
dustry reviews, and in academia. These sources often overstate or mischaracterise the
potential disruptions these forces will cause for banks. They also often overlook several

https://doi.org/10.1515/9783110792454-207
XXII Preface

important and unique characteristics of banks. Thus, Part 1 of this book begins by tack-
ling these forces, seeking to present a more measured, sober treatment of their impact.
Chapter 1 looks at the regulatory environment. While the dynamic has shifted
after the GFC towards a higher net regulatory burden for banks and a lower one for
fintechs and other new entrants, the reality is that banks are no strangers to navi-
gating evolving regulatory landscapes. By studying this over the span of a century
or so, Chapter 1 surfaces two approaches that banks adopt in response to tighter reg-
ulations: lobbying for favourable regulatory changes in the long term and regula-
tory arbitrage in the short term – with fintechs presenting a compelling source of
regulatory arbitrage.
Chapter 2 considers the impact of the Second Machine Age, new consumer behav-
iours, and the rise of the platform economy, including a deeper examination of key
technologies such as artificial intelligence, cloud computing, and blockchain and their
impact on banking and financial services. These seismic technological changes have
vast ramifications for banks. However, as Chapter 2 also discusses, banks have proven
adept in the past at reacting to and exploiting new technologies in innovative ways
(e.g., SWIFT, ATMs, mobile banking, online banking).
Chapter 3 examines the new competitors and their enablers. The fintech revolu-
tion has undoubtedly injected much needed innovation in banking and financial serv-
ices. However, the reality is that the relationship between banks, fintechs, and bigtechs
is likely to be more collaborative or cooperative.
Underpinning much of the mischaracterisation of these forces is a failure to un-
derstand the unique strengths and peculiarities of banks that makes disintermediat-
ing them difficult. This includes banks’ financial services expertise, the regulated
nature of their activities, their institutional legitimacy, and the long-lasting relation-
ships they have developed with their customers. But above all, it includes the unique
ability of banks to originate new money through their lending activities, money that
they can subsequently intermediate; nonbank financial services firms like fintechs
cannot originate new money, they can only intermediate existing money. Chapter 4
explores this in more depth.
The insights from Chapters 1 to 4 do not invalidate the challenges that banks face
in the platform economy age. They simply provide an even-handed treatment of these
forces that allows banking leaders to tackle them with increased strategic clarity. Un-
less banks respond to these forces by adapting their strategies, they risk becoming dis-
intermediated (e.g., merely assuring regulatory compliance, executing transactions)
from some of the value systems they once dominated. On the other hand, by acknowl-
edging their uniqueness and by better understanding the nuances of the different
forces at play, banks can instead take a proactive approach to exploit the possibilities
presented by the new technologies, regulations, competitors, and consumer behav-
iours of the platform economy age.
Most banks have long ago recognised that digitalisation is part of their future and
have adapted through digital transformation strategies to digitalise their channels
 Preface XXIII

and optimise their existing business models. The platform economy age and the forces
discussed in Chapters 1 to 3 have widened the scope of the digital disruption faced by
banks, creating an environment where new value propositions are often created
through hybrid architectures of internal and external resources and capabilities. In
this environment, it is not sufficient for banks to digitally transform, they need to digi-
tally accelerate, where digital is at the heart of how banks do business.
In formulating their digital acceleration strategies, banking leaders will need to
recognise the important new reality that in the platform economy age, an increasing
number of strategic resources and capabilities reside outside their ownership and
control. This means that banks will need to strategise on how they interact with these
external strategic resources and capabilities, and whether and to what extent they
seek to replicate or respond to them through developing or acquiring their own inter-
nal resources and capabilities. This has two important managerial and strategic impli-
cations for banks: interdependence and value cocreation. Interdependence because
banks need to interact with these externally owned or controlled strategic resources
and capabilities. Value cocreation because banks need to comingle their internal re-
sources and capabilities with those of others to generate value (relational rents).
Interdependence and value cocreation are not novel concepts; however, what is
new is the networked context in which these concepts manifest themselves in the
platform economy age. This includes the economic benefits of networked value coc-
reation, the structural and behavioural characteristics of networks that drive the eco-
nomic benefits, the alignment mechanisms needed to bring together an ecosystem of
stakeholders to form a network, and the technological considerations related to the
platforms that mediate interactions between network participants. Chapter 5 – which
concludes Part 1 of this book – deals with these phenomena. Chapter 5 also presents
several modalities of banks’ strategies of interdependence and value cocreation, in-
cluding acquisitions and internal investments, partnerships, open innovation initia-
tives, and open IT interfaces.
Part 2 of this book attempts to address the themes discussed in Part 1 empirically,
by examining the strategies of interdependence and value cocreation that the top
twenty banks in Europe adopted between 2008 and 2019. Chapter 6 presents the re-
search design of the three and a half year-long empirical study, including details
about the methodological choices made. Chapter 6 also details the separate supple-
mentary study that looked at these banks’ performances and revenue segmentations
over the twelve-year period considered to give greater contextual richness. Chapter 6
then presents the findings that include the new strategic considerations for banks in
the platform economy age based on a study of the modalities of their strategies of in-
terdependence and value cocreation and an examination of the temporal aspect of
these modalities that reveals a three-phased exploration-experimentation-exploitation
approach. Chapter 7 presents the taxonomy of banks’ strategies of interdependence
XXIV Preface

and value cocreation, which shows that banks took four different approaches to inter-
dependence and value cocreation: Transformational Interdependence, Open and Cen-
tral Interdependence, Selective Interdependence, and Generative Interdependence.
Chapter 8 concludes this book by discussing the implications of the findings pre-
sented in Chapters 6 and 7. Chapter 8 elaborates on the new strategic considerations and
the new strategic resources and capabilities in the platform economy age. These include
the importance of network effects as contributors to relational rents in networked value
cocreation and the important managerial capability of knowing how to manipulate
structural aspects of networks such as multisidedness to drive network externalities.
Ecosystem thinking also emerges as a strategically important managerial capability as
does ecosystem leadership and de novo ecosystem origination. Other managerial capabil-
ities relating to alignment such as coopetition are also key. Additionally, understanding
the risks associated with interdependence including the ability to assess the risks and
rewards of platformisation are also new strategically important managerial capabilities.
From a technological perspective, modularity, standards, and protocols are strategically
important resources and their management a strategically important capability. Beyond
expanding on the significance of these new strategic considerations and these new stra-
tegic resources and capabilities, Chapter 8 also examines how banks can mobilise them
through different modalities to take different overarching approaches to interdepen-
dence and value cocreation. Furthermore, Chapter 8 delves into the strategic repercus-
sions for different stakeholders, including those directly addressed by the empirical
study – leaders and middle managers at large European banks – but also other impor-
tant stakeholders such as leaders of small and mid-sized banks, leaders of non-European
banks, fintech and bigtech leaders, and regulators.
I have enjoyed writing this book and conducting the empirical research that
underpins it over the last four and a half years. I hope that you enjoy reading it, that
you find it useful, and that it helps to stimulate further research and discussion about
banking in the age of the platform economy.
Contents
Acknowledgements XIII

Foreword
by Series Editor XV

Foreword
by Henri Isaac XVII

Foreword
by Guillaume Lefebvre XIX

Preface XXI

Part 1

Chapter 1
Regulation and Public Policy: Burdening Banks, Enabling New
Competitors 3
1.1 Great Depression to Great Recession: From Glass-Steagall to the Big
Bank to Dodd-Frank 3
1.1.1 The Push for Deregulation and Financial Liberalisation 4
1.1.2 Gramm–Leach–Bliley and Peak Deregulation 5
1.2 Great Recession and Regulatory Backlash 6
1.2.1 Stricter Regulatory Environment in the Aftermath of the Great
Recession: Dodd-Frank, Basel III, and the European Banking
Union 7
1.3 Impact of Stricter Regulatory Environment on Banks After the Great
Recession 9
1.4 The Advent of Open Banking and Regulatory and Public Policy
Enablers of Financial Technology Innovation 10
1.4.1 Other Regulatory Enablers of Financial Technology Innovation 11
1.4.2 Public Policy Enablers of Financial Technology Innovation 13
1.5 Implications of the Post-Great Recession Regulatory Landscape 14

Chapter 2
Second Machine Age and the Platform Economy 17
2.1 The Second Machine Age 17
2.2 The Rise of the Platform Economy 20
2.3 Disruptive Technologies for Banks in the Platform Economy Age 21
XXVI Contents

2.3.1 Blockchain 23
2.3.2 Artificial Intelligence 25
2.3.3 Cloud Computing 30
2.4 Ramifications for Banks: The Need for Digital Acceleration 35

Chapter 3
Financial Services Newcomers: Fintechs and Bigtechs 37
3.1 The Rise of Fintech 37
3.1.1 The Role of Investors and Innovation Partners 39
3.2 The Penetration of Bigtechs in Banking 40
3.3 Banks, Fintechs, and Bigtechs: The Need for a More Nuanced
Understanding of their Relationship 41
3.3.1 Tempering the Hubris 42

Chapter 4
The Uniqueness of Banks 45
4.1 Three Theories of Banking 46
4.1.1 Credit Creation Theory of Banking 46
4.1.2 Fractional Reserve Theory of Banking 48
4.1.3 Financial Intermediation Theory of Banking 48
4.1.4 The Need for a Credit Creation Revival 50
4.2 How Banks Create Money 52
4.3 The Importance of Accounting for Banks’ Unique Ability to Create
Money When Considering Strategies 55

Chapter 5
Implications for Bank Strategies: Interdependence, and Value Cocreation 58
5.1 Defining Strategy 58
5.2 Strategic Implications: Interdependence, Value Cocreation 61
5.3 The Different Facets of Interdependence and Value Cocreation 64
5.3.1 Economic Aspects of Interdependence and Value Cocreation 64
5.3.2 Structural and Behavioural Aspects of Interdependence and Value
Cocreation 68
5.3.3 Alignment Aspects of Interdependence and Value Cocreation 72
5.3.4 Technological Aspects of Interdependence and Value Cocreation 78
5.4 Setting the Scene for the Empirical Study and the Modalities of
Strategies of Interdependence and Value Cocreation 82
5.4.1 Acquisitions and Investments Modality 83
5.4.2 Partnerships Modality 85
5.4.3 Open Innovation Ecosystems Modality and Open IT Infrastructure
Modality 86
5.4.4 A Fifth Status Quo Modality? 88
 Contents XXVII

Part 2

Chapter 6
New Strategic Considerations in the Platform Economy Age 91
6.1 Research Design of the Empirical Study 92
6.1.1 Strategy of Inquiry 92
6.1.2 Data Collection 93
6.1.3 Data Analysis 94
6.1.4 Supplemental Contextual Study 95
6.2 Modalities of Strategies of Interdependence and Value Cocreation
in the Platform Economy Age 97
6.2.1 Acquisition to Reinforce Value Cocreation Capabilities 97
6.2.2 Establishing Fintech Subsidiaries, Initiatives, and Spin-Offs 99
6.2.3 Establishing Corporate Venture Capital Arms, Fintech Funds, and
Making Lead Investments in Fintechs 100
6.2.4 Establishing Internal and External Open Innovation Initiatives 101
6.2.5 Value Cocreation Initiatives through Partnerships 103
6.2.6 Value Cocreation through Multisided Blockchain Platforms 106
6.2.7 Open IT Infrastructures to Facilitate Value Cocreation 108
6.2.8 Intermodality Links 109
6.2.9 Temporal Dimension of Strategies of Interdependence and Value
Cocreation 109

Chapter 7
Taxonomy of Banks’ Strategies of Interdependence and Value Cocreation 112
7.1 Transformational Approach to Interdependence 113
7.2 Open and Central Approach to Interdependence 115
7.3 Selective Interdependence 122
7.4 Generative Interdependence 127
7.5 Observations on Institutional Context 132

Chapter 8
Discussing Strategic Implications, Future Considerations, and Final
Reflections 135
8.1 Overcoming the Hype and Hubris 136
8.2 New Strategic Considerations in the Platform Economy Age 138
8.2.1 Ecosystemic Value Cocreation and Understanding How Network
Effects Drive Relational Rents as a Strategic Capability 138
8.2.2 Network Structure, Network Conduct, and Multisidedness as Strategic
Resources and their Management as a Strategic Capability 141
XXVIII Contents

8.2.3 Ecosystem Leadership and Ecosystem Origination as a Strategic

Capability 142
8.2.4 Coopetition as a Strategic Capability 143
8.2.5 The Strategic Capabilities of Knowing When to Platformise and
Understanding the Risks Associated with Interdependence 144
8.2.6 Technological Modularity, Standards, and Protocols as Strategic
Resources, and their Management as a Strategic Capability 146
8.2.7 Temporary Competitive Advantage as a Component of Overall
Strategies of Sustained Competitive Advantage 147
8.3 Configuring Different Approaches to Interdependence and Value
Cocreation 149
8.4 Implications for Different Stakeholders 153
8.4.1 Implications for Leaders at Large European Banks 153
8.4.2 Implications for Middle Management at Large European Banks 155
8.4.3 Implications for Small and Mid-Sized Banks 156
8.4.4 Implications for Non-European Banks 157
8.4.5 Implications for Fintechs, their Venture Capital Backers, and
Innovation Partners 158
8.4.6 Implications for Bigtechs 159
8.4.7 Implications for Regulators 160
8.5 Avenues for Future Research 161

Appendix 1 Combined Summary of Content Analytic Meta-matrices 165

Appendix 2 Detailed Taxonomy of Banks’ Strategies of Interdependence

and Value Cocreation 191

Appendix 3 Supplemental Contextual Study – Summary of Results 193

References 207

List of Figures 223

List of Tables 225

About the Author 227

About the Series Editor 229

Index 231
Part 1
Chapter 1
Regulation and Public Policy: Burdening Banks,
Enabling New Competitors

Banking is a highly regulated industry, which means that the strategies that banks set
and the activities they undertake are highly influenced by the prevailing regulatory
environment. However, regulators do not enact regulations in a vacuum; these are
often driven by banks’ activities. This leads to a circular, cause-and-effect relationship
between banking regulators and the banks they regulate. In the aftermath of the 2008
Global Financial Crisis (GFC), regulators and policy makers enacted regulatory re-
forms like Dodd-Frank and Basel III that increased the net regulatory burden on
banks. They also enacted other reforms such as the Revised Directive on Payment
Services (PSD2) and the Open Banking Standard that reinforced the activities of new
entrants in banking and financial services like fintechs and bigtechs. Thus, while
banks were burdened with regulations that restricted their activities and imposed on
them greater risk and compliance costs, financial technology innovation was being
increasingly driven by fintechs and bigtechs who mobilised new technologies to rede-
fine many banking and financial services business models. While this new regulatory
reality presents diverse challenges, banks are no strangers to adapting to, and thriv-
ing in evolving regulatory landscapes.
This chapter provides a short account of how banks have navigated periods of
more restrictive regulations and periods of looser regulations over the last century.
From Glass-Steagall in the 1930s, which sought to reign in the excesses that lead to the
Great Depression, to the push for deregulation and financial markets liberalisation
during the 1970s, 1980s, and 1990s, epitomised by key events such as London’s Big
Bang in 1986 and the passing of the Gramm–Leach–Bliley Act in 1999, which repealed
most of Glass-Steagall, to renewed excessive risk taking culminating in the GFC and
the subsequent regulatory and public policy backlashes. An important observation is
that during periods of tighter regulations, banking leaders consistently lobbied for de-
regulation as part of a long-term strategy while engaging in regulatory arbitrage in
the short-to-medium term. Thus, while fintechs and bigtechs pose a real challenge to
certain aspects of banks’ business, they also represent opportunities for banks to en-
gage in regulatory arbitrate by working with these new entrants.

1.1 Great Depression to Great Recession: From Glass-Steagall

to the Big Bank to Dodd-Frank
The banking excesses that culminated in the Great Crash of 1929 and precipitated the
Great Depression, led to the passing of the Banking Act of 1933 (the Glass-Steagall Act).

https://doi.org/10.1515/9783110792454-001
4 Chapter 1 Regulation and Public Policy

Among other things, Glass-Steagall forced banks to separate commercial banking activi-
ties from their investment banking activities, limited the interest that banks could pay
on deposits (through the Regulation Q component), and led to the creation of the Fed-
eral Deposit Insurance Corporation to insure bank deposits in case of bank failures.
Banking regulation continued to restrict the activities of US banks in the post-World
War II years. The enactment of the Bank Holding Company Act of 1956 prevented bank
holding companies from holding nonbanking investments and prohibited them from
acquiring banks across state lines. Thus, following the Great Depression, US regulators
imposed on banks a higher net regulatory burden. The net regulatory burden is the gross
burden regulations place on the profits of a regulated entity minus the benefits that en-
tity derives from these regulations in terms of improved customer service, customer con-
fidence, and market power (Kane, 1999).
A higher net regulatory burden on banks results in the penetration of their market
by “more lightly regulated domestic and foreign competitors” (Kane, 1999, p. 189), as
well as driving innovation in banking towards less regulated entities. Indeed, in the
1950s, the Eurodollar – US dollars outside of the US and not subject to US regulations –
began its ascent as the dominant currency for global trade and lending. This allowed
the City of London, which quickly became the trading epicentre of Eurodollar loans, to
regain its prominence as a global financial and banking centre. As interest rates rose
above the ceiling imposed by Regulation Q, deposits flooded into the Eurodollar market
in Europe and especially in the Square Mile, where uncapped interest rates could follow
market forces (Prins, 2014).

1.1.1 The Push for Deregulation and Financial Liberalisation

US banks continuously pushed for deregulation post-Glass-Steagall, arguing that overly

restrictive regulation in the US was limiting their innovative capabilities while putting
them on the competitive back foot compared to European banks and to less heavily reg-
ulated domestic savings and loans associations as well as nonbanking financial services
firms like Merrill Lynch and Sears. The push for deregulation accelerated during the
1980s and 1990s, with the passing of the Depository Institutions Deregulation and Mone-
tary Control Act of 1980, which among other things removed many of the Regulation Q
interest rate caps, the passing of the Riegle-Neal Interstate Banking and Branching Effi-
ciency Act of 1994 that reduced restrictions on interstate banking, and with increasingly
looser interpretations of Glass-Steagall.
In Europe, most countries adopted a universal banking model that combined com-
mercial and investment banking along with other financial services like insurance. Ger-
many, for example, had long had a stable universal banking system supported by the
1962 Banking Act (Kreditwesengesetz, KWG) which regulated the activities of universal
banks (Deutsche Bundesbank, 1962). During the 1980s, financial markets deregulation
was also à la mode in Europe. In the UK, the City of London cemented its position as the
 1.1 Great Depression to Great Recession 5

global financial capital in the 1980s, especially after the Big Bang that was triggered by
the Financial Services Bill in 1986, which allowed universal banks to integrate their se-
curities underwriting, position-taking, and distribution activities (Baltensperger, Der-
mine, Goodhart, & Kay, 1987). The Big Bang resulted in a significant increase in market
participants and internationalisation. This was also facilitated by rapid adoption of
technological innovation such as electronic trading, automated settlement, and screen
trading. This allowed the City of London to attract and handle greater trading flows,
absorb larger trades, and provide greater price efficiency and execution efficiency
(Clemons & Weber, 1990).
France also underwent financial liberalisation, especially with the passing of the
Loi Bancaire de 1984, which removed old divisions between investment and commer-
cial banks and brought all financial institutions under a uniform set of regulations
(Melitz, 1990). The decade also saw the establishment of derivatives exchanges in Eu-
rope such as the London International Financial Futures and Options Exchange
(LIFFE) launched in London in 1982 and the Marché à Terme International de France
(MATIF) launched in Paris in 1986, which by 1996 were the largest and second largest
futures exchanges in Europe, respectively, and which attracted US and Japanese
banks to European markets. In 1989, the Commission of the European Communities
(European Commission) adopted the Second Banking Directive, which came into effect
on 1 January 1993. The Second Banking Directive harmonised banking regulation
across the countries of the European Economic Community (renamed in 1993 as the
European Community). This allowed universal banks that are authorised in a member
state to obtain a European Passport allowing them to operate in other member states
(Smits, 1997).

1.1.2 Gramm–Leach–Bliley and Peak Deregulation

European deregulation and financial services liberalisation led to the rapid expansion
and internationalisation of European banks (e.g., Germany’s Deutsche Bank, the UK’s
Barclays, France’s BNP Paribas, and Switzerland’s UBS), which increasingly challenged
US banks. Banking deregulation was not, however, limited to the European context. For
instance, in Canada, the 1987 amendment to the Bank Act eliminated the regulatory sep-
aration between commercial and investment banking leading to a mini–Canadian Big
Bang (Freedman, 1998). The overall push for banking deregulation culminated in the
passing of the Gramm–Leach–Bliley Act in 1999, which repealed much of Glass-Steagall
and lead to US banks once again being able to combine and integrate commercial bank-
ing, investment banking, and other financial services activities.
During this period of deregulation and financial services liberalisation, many reg-
ulators, including those in the US and in Western Europe, adopted an increasingly de-
mand-driven, noninterventionist view of financial innovation that was “predicated on
the perceived efficiency of markets and the effectiveness of private risk management”
6 Chapter 1 Regulation and Public Policy

(Awrey, 2013, p. 416) rather than balancing this stance with a supply-side view that
questions the economic rationale behind financial innovation as well as their potential
to increase systemic risk (Awrey, 2013). This was exemplified in regulators’ laissez-faire
approach towards the over-the-counter (OTC) derivatives market that was burgeoning
both in size and complexity and that was a key enabler of structured finance vehicles
like credit default swaps (CDS), mortgage-backed securities (MBS), and collateralised
debt obligations (CDO) that facilitated the securitisation of US subprime mortgages and
their spread across the global financial system (Gorton, 2010). Banks’ excessive risk tak-
ing in a permissive regulatory environment, predatory lending, the proliferation of
complex derivatives and other financial instruments, and the moral hazard and risk of
contagion in global financial markets posed by securitisation and the originate-to-
distribute lending model combined to precipitate the 2007 subprime mortgage crisis,
the 2008 Global Financial Crisis (Longstaff, 2010) and the 2010–2012 European sovereign
debt crisis – a period that later became known as the Great Recession.

1.2 Great Recession and Regulatory Backlash

Aside from the momentous social, economic, and political ramifications that these crises
brought about, they also triggered the collapse of many banks and financial services insti-
tutions around the world. In 2008, the fifth largest US investment bank – eighty-five-year-
old Bear Stearns – collapsed; it was bailed out by the Federal Reserve Bank of New York,
which provided 29 billion USD in financing to facilitate its fire sale to JP Morgan Chase. A
few months later, the government-sponsored enterprises Fannie Mae (Federal National
Mortgage Association) and Freddie Mac (Federal Home Loan Mortgage Corporation), had
to be bailed out through a federal takeover to the tune of 191 billion USD. In Septem-
ber 2008, unable to be acquired or bailed out and with over 630 billion USD of assets
financed with only 30 billion USD in equity, the fourth largest US investment bank – 158-
year-old Lehman Brothers – filed the largest Chapter 11 bankruptcy in US history. A cou-
ple of weeks later, Washington Mutual – the largest savings and loan bank in the US with
over 320 billion USD in assets – took second place and went into receivership with the
Federal Deposit Insurance Corporation. Merrill Lynch avoided a similar fate after posting
a 19 billion USD loss between 2007 and 2008 by agreeing to being taken over by Bank of
America in a 50 billion USD acquisition that was partly financed by the US government’s
bank bailout funds. American International Group (AIG), one of world’s largest insurance
firms, received a 182 billion USD government bailout; in 2019 it announced a 61.7 billion
USD loss for Q4 2008, the largest quarterly loss in corporate history.
In Europe, the UK’s Northern Rock experienced the first run on a British bank in
150 years with an estimated 1 billion GBP in retail banking deposits withdrawn by cus-
tomers in one day in September 2007; the bank was nationalised in February 2008. In
2008, the Royal Bank of Scotland (RBS) posted an annual loss of 24.1 billion GBP, the
largest annual loss in British corporate history. The UK government bailed out RBS,
 1.2 Great Recession and Regulatory Backlash 7

injecting over 45 billion GBP into it; by 2009 the UK government owned 84.4% of the
bank. As part of the bailout package RBS signed the State Aid agreement with the Euro-
pean Commission, which stipulated that the bank had to divest from many of its busi-
ness including its insurance arm Direct Line Group, the payments processing firm
Worldpay Group, and its commodities trading arm Sempra Commodities. In 2008, the
UK government intervened to facilitate Lloyds TSB’s acquisition of the troubled lender
HBOS; the UK government would subsequently own 43.4% of Lloyds. In the Benelux,
the Belgian bank Fortis, which in 2007 was the twentieth largest listed company in the
world by revenue, was part-nationalised in 2008 and had its operations broken up and
sold, retaining only its insurance business. In 2011, the Franco-Belgian bank Dexia re-
ceived 150 billion EUR in state funding guarantees for ten years from France, Belgium,
and Luxembourg who subsequently broke up and nationalised the bank. Swiss banking
giant UBS incurred a 50 billion CHF write-off of its toxic subprime mortgage securities
between 2007–2009; after announcing a 20.9 billion CHF loss in 2008 – the largest in
Swiss corporate history – the bank narrowly avoided collapse and was able to turn
around its fortunes from 2010 onward. In 2009, the Irish government nationalised
Anglo Irish Bank winding it down two years later. In 2012, the Spanish government
part-nationalised the troubled lender Bankia, which at the time was the fourth largest
Spanish bank.
In the three decades preceding the 2008 Global Financial Crisis, deregulation and
liberalisation meant that the net regulatory burden on banks decreased. The GFC
marked the end of this. In the aftermath of the 2007 subprime mortgage crisis, the
2008 Global Financial Crisis, and the 2010–2012 European sovereign debt crisis, regula-
tors around the world enacted more stringent regulatory reforms, once again raising
the net regulatory burden on banks.

1.2.1 Stricter Regulatory Environment in the Aftermath of the Great Recession:

Dodd-Frank, Basel III, and the European Banking Union

In the most sweeping change in banking regulation since Glass-Steagall, the Dodd–Frank
Wall Street Reform and Consumer Protection Act was passed in July 2010. The stated ob-
jective of the act was to “promote the financial stability of the United States by improv-
ing accountability and transparency in the financial system, to end “too big to fail”, to
protect the American taxpayer by ending bailouts, to protect consumers from abusive
financial services practices, and for other purposes” (United States Government Publish-
ing Office, 2010, Sec. 1). Dodd-Frank overhauled the US regulatory landscape by remov-
ing the Office of Thrift Supervision and introducing new agencies like the Consumer
Financial Protection Bureau and the Office of Financial Research. Among the many regu-
latory changes that Dodd-Frank ushered in were more stringent rules for mortgage lend-
ing, stricter rules relating to over-the-counter (OTC) derivatives, and a formal process for
liquidating large, failing financial services institutions. Specifically, Section 619 of Dodd-
8 Chapter 1 Regulation and Public Policy

Frank (the Volcker Rule), which amended the Bank Holding Company Act of 1956, pro-
hibited banks that either have recourse to the Federal Reserve’s discount window or to
Federal Deposit Insurance Corporation protection, from engaging in proprietary trading
or owning or investing in hedge funds and private equity funds (Bao, O’Hara, & Zhou,
2018). Dodd-Frank also requires large, complex banks to maintain a living will, which
are resolution plans that they need to submit on a regular basis to the Federal Reserve
and to the Federal Deposit Insurance Corporation detailing their strategy for rapid, or-
derly resolution in case of financial distress or failure (the largest, most complex banks
must submit their living wills annually, while smaller banks are required to submit
theirs less frequently). Furthermore, the act also includes the Dodd-Frank Act Stress Test
(DFAST) that the Federal Reserve conducts annually for the largest banks to assess
whether they are sufficiently capitalised, in addition to the Federal Reserve’s annual
Comprehensive Capital Analysis and Review (CCAR) of banks with assets in excess of
10 billion USD.
In 2012, in response to the European sovereign debt crisis, the European Commis-
sion announced a European Banking Union. The Union consists of two pillars, the Sin-
gle Supervisory Mechanism (SSM) that allows the European Central Bank (ECB) – as
of November 2014 – to be the central prudential supervisor of the largest banks in
the euro area and in non-Euro EU countries that choose to join the SSM, and the Single
Resolution Mechanism (SRM), which allows banks covered by the SSM to undergo or-
derly resolution in the event of failure and which became fully operational in January
2016 (European Commission, 2022 (2)). The European Commission also proposed a third
pillar, the European Deposit Insurance Scheme (EDIS), though this has not at the time of
writing progressed to policy. An important part of the SSM is the Single Rulebook that
aims at providing a unified, harmonised regulatory framework for the banks under the
SSM. The Single Rulebook includes the Capital Requirements Regulation (CRR), the Capi-
tal Requirements Directive (CRD) (CRR and CRD are often collectively referred to as the
CRD IV package and are the mechanism through which Basel III requirements have been
addressed in the EU), the Bank Recovery and Resolution Directive (BRRD), Payment Serv-
ices Directive 2 (PSD2) and a series of Binding Technical Standards (BTS) developed by
the European Banking Authority (EBA) and adopted by the European Commission (Euro-
pean Banking Authority, 2022; Wissink, 2017). Moreover, under the CRD, the European
Central Bank has to conduct annual stress tests on the banks it supervises, much in the
same way that the Federal Reserve undertakes its annual Dodd-Frank Act Stress Tests.
In 2010, the Basel Committee on Banking Supervision, which comprises forty-five
regulators and central banks from twenty-eight jurisdictions including the US, the Euro-
pean Union, the UK, China, Russia, and Japan, introduced the Basel III reforms intended
to ameliorate the regulation, supervision, and risk management of banks in the after-
math of the GFC (Bank for International Settlements, 2022). Basel III, which needs to be
implemented by 1 January 2023, sets out – among other things – minimum capital re-
quirements, leverage ratios, and liquidity and solvency requirements. In 2008 and 2009,
the International Accounting Standards Board (IASB) announced International Financial
 1.3 Impact of Stricter Regulatory Environment on Banks After the Great Recession 9

Reporting Standard 9 (IFRS 9), a more stringent standard for accounting for financial in-
struments. IFRS 9 came into effect on 1 January 2018 replacing IAS 39 and aligned with
new rules that were being introduced under Basel III. IFRS 9 is aimed at improving the
way that firms account for financial instruments, including the classification and mea-
surement of financial assets, the classification and measurement of financial liabilities,
and hedge accounting (International Financial Reporting Standards Foundation, 2022).
Basel III also has stricter requirements for large, complex banks that it designates as
global systemically important banks (G-SIBs), including higher capital buffer require-
ments and a higher capacity to absorb potential losses.
On 3 January 2018, the second Markets in Financial Instruments Directive (MiFID
II) was passed in the European Union. Among other things, MiFID II forces banks to
unbundle their sell-side research from trading commissions (Guo & Mota, 2021) and sets
out stricter rules for OTC trading, the utilisation of dark pools, and high-frequency trad-
ing. MiFID II covers all financial instruments and affects all financial services firms in
the European Union.

1.3 Impact of Stricter Regulatory Environment on Banks After

the Great Recession
The stricter regulations imposed on banks globally in the aftermath of the Great Re-
cession significantly increased banks’ net regulatory burdens. They also restricted the
activities that banks can undertake, thus negatively impacting banks’ revenues. This
loss of revenue streams from restricted activities was compounded by the erosion of
banks’ net interest incomes and profitability as a result of the sustained and pro-
longed period of near-zero interest rates following the adoption by many central
banks of unconventional monetary policy interventions such as quantitative easing
and credit easing to try to stimulate economic recovery (Borio, Gambacorta, & Hof-
mann, 2017).
Banks incurred greater costs in bolstering their risk and compliance functions to
ensure that they stay abreast of individual regulatory changes, which – according to a
Boston Consulting Group study – more than tripled between 2011 and 2017 to around
200 revisions per day (Boston Consulting Group, 2017). According to a study conducted
by the Baker Institute for Public Policy in 2019, US banks have incurred an additional
50 billion USD per year on average in noninterest expenses since Dodd-Frank came into
force (Hogan, 2019). Between 2010 and 2016, Dodd-Frank imposed on banks 73 million
hours of paperwork and 36 billion USD in additional costs (Dolar & Dale, 2020). Dodd-
Frank, specifically, has increased the net regulatory burden on banks to the point
where in 2012 the House Financial Services Committee published an online Dodd-Frank
Burden Tracker, which revealed that Dodd-Frank will necessitate regulators to write
400 rules and requirements in total, that 224 of the rules and requirements have been
passed (at the time of writing), and that these 224 rules and requirements will require
10 Chapter 1 Regulation and Public Policy

that the regulated entities spend over 24 million hours every year to comply with Dodd-
Frank (House Financial Services Committee, 2012).
In 2019, a European Commission report found that in 2017, across all financial
services sectors, cost of compliance with EU financial legislation represented on aver-
age 30% of one-off costs and 27% of ongoing costs. The report also found that, com-
pared to a 2009 compliance cost study:
on average and in absolute terms, investment banks saw their one-off costs increase from just
under 21 million EUR to 151 million EUR, an increase of 620%, while their ongoing costs increased
from 2.8 million EUR to 128 million EUR, a value 46 times higher. Banks and financial conglomer-
ates, as well as asset managers also experienced a considerable increase not only in their one-off
costs, but also and most particularly in their ongoing costs (from 5 million EUR to 43 million EUR
for banks and financial conglomerates, and from 1.6 million EUR to 32 million EUR for asset man-
agers). (European Commission, 2020 (2), p. 9)

Other than the cost of compliance, regulations like Dodd-Frank, Basel III, and MiFID II
restrict banks’ activities and by extension their revenue streams and profitability. For
instance, IHS Markit and Expand (a Boston Consulting Group subsidiary) estimated the
cost of MiFID II implementation in 2017 alone (a year before MiFID II came into force)
at 1 billion USD for the largest forty global investment banks (IHS Markit & Expand,
2017). A study conducted by Substantive Research found that in the three years after
MiFID II came into force, US and European banks and brokers lost a combined 7,500
years of research analyst experience (Substantive Research, 2021). Moreover, banks also
face the cost and reputational damage of penalties for noncompliance. Between 2009
and 2016, banks paid 372 billion USD worth of penalties for risk and compliance
breaches (204 billion USD by USD banks, 145 billion USD by European banks) (Boston
Consulting Group, 2017).

1.4 The Advent of Open Banking and Regulatory and Public

Policy Enablers of Financial Technology Innovation

While financial regulators imposed more stringent regulations on banks, they also
enacted regulations that stimulated and empowered new entrants from outside the fi-
nancial services industry such as financial technology start-ups (fintechs) and large
technology firms (bigtech). This was especially manifested by new regulations that pro-
moted open banking. European regulators took the lead in open banking through the
European Commission’s revised Payment Services Directive 2 (PSD2), which came into
force in January 2018 and the United Kingdom Competition and Market Authority‘s
(CMA) Open Banking Standard that is mandatory for the largest UK banks, and which
also came into force in January 2018 (Open Banking Implementation Entity, 2018).
Both regulations were aimed at increasing competition in the payments industry
by requiring that banks give third-party providers including fintechs and bigtechs ac-
cess to their customer data (providing that customers consent). Moreover, PSD2 and
 1.4 The Advent of Open Banking 11

the Open Banking Standard created two new types of payment system providers: Ac-
count Information Service Providers (AISPs) and Payment Initiation Service Providers
(PISPs) facilitating the emergence of new business concepts that further stimulate fi-
nancial technology innovation (Copeland, 2018). For instance, AISPs can provide bank
customers the possibility to consolidate account information from different banks
into a single application, on top of which value added services can be built, such as
savings advice and personal finance solutions. PISPs can be used by customers to initi-
ate payments from different bank accounts. Importantly, PISPs never hold money
that is being transferred, which precludes them from capital adequacy and liquidity
rules that otherwise apply to banks, and by consequence makes it an attractive seg-
ment for start-ups. These new payment system providers are able to access banks’
customer data through the open Application Programming Interfaces (Open-APIs)
that banks are mandated to provide as a result of PSD2 and the Open Banking Stan-
dard (Copeland, 2018). The European Commission later supplemented PSD2 with addi-
tional Regulatory Technical Standards (RTS) on Strong Customer Authentication (SCA)
and Common Secure Communications (CSC) that banks need to comply with (Euro-
pean Commission, 2018).
While EU and UK regulators took the lead in open banking regulations, other regula-
tory jurisdictions soon embarked upon their own open banking journeys. In March 2020
Banco de México published The Law to Regulate Financial Technology Institutions (Ley
para Regular Instituciones de Tecnolgía Finaciera) (Secretaría de Gobernación, 2021) re-
quiring banks to open up their customer data to third parties in a similar way to PSD2
and the Open Banking Standard. In May 2018, the Australian government agreed to im-
plement the Consumer Data Right (CDR), which enabled a three-phased implementation
of open banking that commenced in 2019 (Australian Banking Association, 2022). The
Hong Kong Monetary Authority launched its Open-API Framework on 18 July 2018 for
banks in Hong Kong (HKMA, 2022). While these regulators took a regulatory driven ap-
proach to open banking, several others (e.g., Japanese and Singaporean regulators) took
market driven approaches to promote open banking without making it compulsory. For
example, in Singapore the Monetary Authority of Singapore and the Association of
Banks published the Finance-as-a-Service API (Application Programming Interface) Play-
book in 2013 (Association of Banks in Singapore & Monetary Authority of Singapore,
2013) and in November 2018, the Monetary Authority of Singapore in partnership with
the ASEAN Bankers Association and the International Finance Corporation launched the
API Exchange (APIX) to promote collaboration between banks and fintech firms to code-
velop and codesign services through APIs (Monetary Authority of Singapore, 2018).

1.4.1 Other Regulatory Enablers of Financial Technology Innovation

Beyond open banking, regulators embarked on other initiatives to promote more

competition and innovation in banking and financial services. While imposing a
12 Chapter 1 Regulation and Public Policy

greater net regulatory burden on banks, MiFID II benefits fintechs and bigtech. For
example, MiFID II encourages more securities trading to be conducted over electronic
platforms rather than over the phone, which is advantageous for more tech-savvy fin-
techs and bigtechs. MiFID II also call for the unbundling of research fees from trading
fees that banks hitherto bundled under one service, which they provided to buy side
clients; unbundling encourages buy side clients to seek alternative ways to execute
trades or to access market research, such as via fintechs. The UK’s Prudential Regula-
tion Authority (PRA) and Financial Conduct Authority (FCA) established the New Bank
Start-up Unit (NBSU) in 2016, to support new banking start-ups in the UK (Bank of Eng-
land, 2022). Several European regulators enacted laws that facilitated the advance-
ment of cryptocurrency (or cryptoasset) related activity. In France, the Autorité
des Marchés Financiers (AMF) regulates Digital Asset Services Providers (DASPs) in-
cluding the use of Initial Coin Offerings (ICOs) through the Action Plan for Business
Growth and Transformation (Plan d’Action pour la Croissance et la Transformation
des Entreprises or PACTE) law (Gouvernement, 2017) and Decree No. 2019–1213 (Ré-
publique Française, 2019), which both came into effect in 2019; these new laws seek to
promote, among other things, fintech activity in the French cryptocurrency and
crowdfunding spaces. The Swiss Financial Market Supervisory Authority (FINMA)
published a guideline for ICOs in 2018 (FINMA, 2018) and one for Stablecoins in 2019
(FINMA, 2019).
Several regulators also established regulatory sandboxes to reduce the time and
cost required to bring innovative financial services to consumers, while analysing the
risks of underlying business models and technologies in order to regulate appropri-
ately (Ehrentraud, Garcia Ocampo, Garzoni, & Piccolo, 2020). In 2021, around 60 juris-
dictions had launched regulatory sandboxes for fintechs (Cornelli, Doerr, Franco, &
Frost, 2021). The UK’s Financial Conduct Authority (FCA) launched its Project Innovate
sandbox that onboarded its first twenty-four companies in late 2016 (Financial Con-
duct Authority, 2022); the Netherlands’ De Nederlandsche Bank (DNB) and Authority
for the Financial Markets (AFM) also launched their regulatory sandbox and fintech
innovation hub in 2016 (De Nederlandsche Bank, 2020). The UK’s FCA also spear-
headed an initiative in 2018 to create a global fintech sandbox that would facilitate
cross-border fintech innovation, this initiative called the Global Financial Innovation
Network (GFIN) has grown to a collaboration of sixty regulators (with an additional
eight observers) as of April 2022 (GFIN, 2021). Some US regulators at a state level cre-
ated regulatory sandboxes such as those in Arizona, Utah, and Wyoming (Nonaka, De-
Cresce, Hooper, & Scott Konko, 2019).
US regulators were not as advanced as their European counterparts in enacting
regulations to promote open banking and innovation in financial technology. Never-
theless, several measures were undertaken by US regulators such as the Jumpstart
Our Business Startups (JOBS) Act in 2012 to promote start-up activity in the US and
which includes measures to reduce regulatory requirements for crowdfunding firms
(Nonaka, DeCresce, Hooper, & Scott Konko, 2019). Another measure was taken by the
 1.4 The Advent of Open Banking 13

Office of the Comptroller of the Currency (OCC) who proposed the Special Purpose Na-
tional Bank Charters for Fintech Companies in a 2016 white paper, and which began
accepting proposals from fintechs to charter Special Purpose National Banks (SPNBs)
in 2018 (Office of the Comptroller of the Currency, 2018).

1.4.2 Public Policy Enablers of Financial Technology Innovation

As well as changes in banking regulations, public policy enablers that promote a more
digital economy are critical enablers of the activities of new entrants in banking like fin-
techs and bigtechs. They also force banks that are lumbered with legacy technologies,
business models, and ways of working to play technological catch-up vis-à-vis new en-
trants. For instance, digital identity systems supported at various levels (e.g., national gov-
ernment, private sector, nonprofit) allow governments and businesses to deliver digital
services like secure remote identity identification and authentication using innovative,
emerging technologies, which consequently catalyses financial technology innovation.
Robust data protection and cybersecurity frameworks also encourage customers to adopt
financial technology innovations more rapidly.
European policy makers have also taken the lead on this front. In 2016, the European
Parliament and the Council of the European Union passed the General Data Protection
Regulation (GDPR), which came into effect in May 2018. GDPR provides comprehensive
data protection laws across the countries of the European Economic Area (EEA). In 2015,
the European Union launched the Capital Markets Union (CMU), which includes a Euro-
pean Digital Single Market Strategy (European Commission, 2021) to promote emerging
technologies and digitalisation in Europe by making EU rules more aligned with rapid
technological advancements. Part of this digital strategy includes a FinTech Action Plan,
which among other things involves the establishment of an EU FinTech Laboratory, the
launching of the EU Blockchain Observatory and Forum, and proposed regulation relat-
ing to crowdfunding (European Commission, 2018 (2)). The FinTech Action Plan was up-
dated in a follow-up in September 2020 to encompass a digital finance strategy that
included legislative proposals on cryptoassets (the proposed Regulation on Markets in
Crypto Assets (MiCA)) (European Commission, 2020). The EU’s FinTech Action Plan also
aligns with other related EU fintech initiatives such as the EU’s Consumer Financial Serv-
ices Action Plan in 2017 which seeks to strengthen the EU’s retail financial services by
exploiting technological advances and fintech (European Commission, 2017) and the
eIDAS (electronic Identification, Authentication and Trust Services) regulation that came
into force in September 2014 and which, among other things, assists fintech activity by
facilitating better electronic identification and trust services for electronic transactions in
the EU (European Commission, 2022). Furthermore, the European Union passed the Elec-
tronic (e-money) Money Directive (EMD), which came into effect in 2011 to facilitate the
emergence of, innovation in, and proliferation of secure e-money services in Europe (Eu-
ropean Union, 2015).
14 Chapter 1 Regulation and Public Policy

Outside the European Union, public policy makers also adopted various measures
to promote greater digitalisation and innovation in financial technology. Inspired by
GDPR, several other countries have established or are working on establishing more
robust data privacy laws with extraterritorial applicability including: Canada, which
proposed in November 2020 the Canadian Consumer Privacy Protection Act (CPPA) that
would be implemented through the Digital Charter Implementation Act; China, where
the Personal Information Protection Law (PIPL) came into effect in November 2021;
South Africa, where the Protection of Personal Information Act (POPIA) came into effect
in July 2020; Switzerland, where the revised Federal Act on Data Protection (FADP) will
come into force in September 2023; and, California, where the California Consumer Pri-
vacy Act (CCPA) came into law in June 2018. Several countries launched digital identity
initiatives. Singapore launched SingPass (Singapore Personal Access) in 2003, which be-
came Singapore’s National Digital Identity (NDI) platform and allows more than 4 million
users to access over 1,400 digital services (e.g., remote transaction authorisation, digital
signatures) from 340 government agencies and private sector organisations. In 2021, the
European Commission announced plans to launch a similar European Digital Identity
Wallet for citizens and businesses in member states and plans to publish the technical
toolbox by October 2022. Strong cybersecurity frameworks have also been established
such as the 2016 G7 Fundamental Elements of Cybersecurity for the Financial Sector
(G7FE), the 2017 G7 Fundamental Elements for Effective Assessment of Cybersecurity in
the Financial Sector (G7FEA), and the Guidance on Cyber Resilience for Financial Markets
Infrastructure that was issued in 2016 by the Committee on Payments and Market Infra-
structures (CPMI) and the Board of the International Organization of Securities Commis-
sions (IOSCO).

1.5 Implications of the Post-Great Recession Regulatory

Landscape
More stringent regulatory reforms in the aftermath of the Great Recession have
greatly increased the net regulatory burden on banks. Reforms such as Dodd-Frank,
Basel III, and MiFID II have a) restricted the activities that banks can participate in
and derive profits from, b) forced banks to significantly bolster their risk and compli-
ance resources and capabilities to comply with mushrooming regulations, and c) ex-
posed banks to fines and reputational damage in the case of breaches. At the same
time, other regulatory and public policy changes like PSD2, the Open Banking Stan-
dard, and GDPR have simultaneously reduced the net regulatory burden for a set of
new entrants in banking and financial services while increasing it for banks who are
forced to invest in new technological capabilities to meet these new regulatory re-
quirements. These regulatory and public policy enablers have emboldened new en-
trants including fintech start-ups and bigtech to deepen their incursion into banking
and financial services, while forcing banks to rethink elements of their business
 1.5 Implications of the Post-Great Recession Regulatory Landscape 15

models and play technological catch-up with nimbler, tech-savvy contenders. Conse-
quently, over the last ten to fifteen years, innovation in financial technology has flour-
ished outside of traditional banks, with fintechs and bigtechs increasingly taking the
lead in driving new technologies and business models in banking and financial
services.
Many observers of the regulatory changes enacted after the fallout of the Great Re-
cession anticipated seismic consequences for banks. For instance, many expected that
open banking regulations would lead to the decoupling of banks’ products from distri-
bution channels, creating a marketplace model that lowers barriers to entry for fintechs
and bigtech (Zachariadis & Ozcan, 2017; McKinsey & Company, 2019). However, looking
at the post-Great Recession regulatory landscape in isolation risks overstating the mag-
nitude of banks’ increased net regulatory burden. As this chapter has briefly summar-
ised, banks are experienced at navigating cycles of tightening and loosening banking
regulations. In the span of a century, US banks went from exuberant risk taking and
light-touch regulation in the pre-Great Depression era to tighter regulations with Glass-
Steagall and the Bank Holding Company Act of 1956, followed by calls for deregulation
and the continuous chipping away at Glass-Steagall during the 1970s–1990s, culminating
in full-blown deregulation with the passing of the Gramm–Leach–Bliley in 1999, which
led to renewed reckless risk taking, the GFC in 2008, and the commencement of a new
cycle of significantly tighter regulations with Dodd-Frank, Basel III and other reforms.
For European banks, the post-World War II era involved comparative financial liberali-
sation and banking deregulation as exemplified by the growth of the Eurodollar mar-
ket, further deregulation that was epitomised by the Big Bank in London during the
1980s, the GFC in 2008 which was quickly followed by the European sovereign debt cri-
sis, and consequently tighter regulations thereafter.
During the tighter regulation phase of these cycles, banks – broadly speaking –
adopted a two-pronged approach: a) lobbying for deregulation in the long term, and
b) regulatory arbitrage in the short to medium term. Just as tighter regulations were
typically in response to banks’ actions – usually excessive risk taking – deregulation
was also not undertaken in a vacuum. The lobbying efforts of bank executives has
always been an important contributor to the push for banking deregulation. Taking
Citigroup as just one example, Walter Wriston, CEO of First National City Corporation
(later known as Citicorp and now known as Citigroup) lobbied US regulators and pol-
icy makers for deregulation during the 1970s arguing that deregulation was important
for facilitating technological advances that would underpin future growth in the US
banking sector. Wriston’s successor, John Reed, continued the fight for deregulation
during the 1980s and 1990s, arguing that this was needed to make US banks more com-
petitive vis-à-vis their rapidly growing European counterparts. In a flagrant blow to
Glass-Steagall, Reed, and Travelers Group CEO Sandy Weill agreed to a 70 billion USD
merger of Citicorp and Travelers Group to form Citigroup in 1998. Although the Glass-
Steagall and the Bank Holding Company Act of 1956 forbade such a combination of
banking and insurance businesses, Weill and Reed bet that enough support for banking
16 Chapter 1 Regulation and Public Policy

deregulation had accumulated that regulators and policy makers would not stand in
the way of the merger. Weill and Reed had obtained a temporary waiver from the Fed-
eral Reserve in 1998, which was enough time for the Gramm–Leach–Bliley Act to pass
in 1999 thus overturning Glass-Steagall and cementing the Citicorp-Travelers merger.
While banking leaders lobby for deregulation in the long term, they often engage
in regulatory arbitrage in the short to medium term. Regulatory arbitrage involves
banks structuring their activities in such a way that reduces their net regulatory bur-
den. This can take the form of cross-jurisdiction arbitrage (European Central Bank,
2017) where banks drive activities that are highly regulated in one regulatory jurisdic-
tion towards another regulatory jurisdiction that imposes less onerous restrictions on
the same activities. An example of this is the entry of US banks such First National
City Bank of New York (now Citigroup) and Chase National Bank (now JP Morgan)
into London’s Eurodollar market during the 1950s and 1960s to conduct activities that
were prohibited domestically under Glass-Steagall. Regulatory arbitrage can also take
the form of cross-framework arbitrage (European Central Bank, 2017), where banks
structure their activities in a way that shifts exposure to less regulated sectors. An
example of this is how many banks drove their business with corporates through opa-
que special purpose vehicles (SPVs) during the 1990s that would have otherwise un-
dergone greater scrutiny had they been conducted directly with the corporate, which
resulted in many high-profile frauds such as the Enron scandal.
The regulatory dynamic in the post-Great Recession world means that increasingly,
innovation in banking and financial services is occurring outside of the incumbent
banks who are busy contending with their much-increased net regulatory burden. This
increases interdependence in the banking industry with banks having to devise strate-
gies to address how they deal with the proliferation of strategic resources and capabili-
ties residing outside their control and ownership. Nevertheless, it is important not to
catastrophise, especially given banks’ vast and prolonged experience in navigating
evolving regulatory landscapes. Thus, while the proliferation of financial technology in-
novation outside of incumbent banks, poses an important challenge to banks, it also
presents an opportunity. Rather than viewing fintechs, bigtechs, and other external
sources of financial technology innovation as possible usurpers, banks can view them
as potential sources of regulatory arbitrage with whom they can collaborate.
Regulatory changes are not the only forces that are driving banks to adapt their
strategies. Nor are they the only forces spurring financial technology innovation by
supporting the activities of fintechs and bigtechs. New technologies like cloud comput-
ing, blockchain, and artificial intelligence, as well as the exponential pace of techno-
logical innovation, have led to the second machine age, the rise of the platform
economy, and the emergence of new business models. Chapter 2 explores these phe-
nomena in more depth and discusses the implications for banks.
Chapter 2
Second Machine Age and the Platform Economy

Banks have often embraced new technological innovations to improve the way they op-
erate and the way they serve their customers. One need only look at internet banking,
mobile banking, and automated teller machines (ATMs) to see examples of this. Today,
however, as banks find themselves well and truly in the second machine age (Brynjolfs-
son & McAfee, 2014) the role of technology has come to play a more fundamental role
in their operations. In the second machine age, which is elaborated on in Section 2.1,
technological innovation develops at an exponential rate, more and more aspects of ev-
eryday life are being digitised, and the combinatorial capacity of technology facilitates
the emergence of new products, services, and infrastructures. This has led to the rise of
the platform economy and to new consumer behaviours especially among the digitally
native generation; these phenomena are addressed in Section 2.2. While, the hypercom-
petitive pace of technological innovation continues to accelerate, several technologies
have emerged that present significant, disruptive innovations; Section 2.3 details three –
blockchain, artificial intelligence, and cloud computing – which are particularly relevant
for banks. Given the nature of this technological upheaval, banks need to take a different
approach to technology in the second machine age. Rather than considering how to digi-
talise their existing businesses through digital transformation, banks will need to digi-
tally accelerate by considering the new business models that are possible in the platform
economy age. Section 2.4 looks at the implications for banks of the second machine age
and the rise of the platform economy.

2.1 The Second Machine Age

Innovation has long been recognised as a fundamental driver for economic growth and
productivity gains. According to Brynjolfsson & McAfee (2014) we now live in the second
machine age. The first machine age commenced with the Industrial Revolution which
had seismic economic and social ramifications. James Watt’s development of the steam
engine in the 1770s was a pivotal point; it built upon, combined with, and was the foun-
dation of other important innovations in chemistry, manufacturing, agriculture, and
transportation to generate mechanical power far in excess of human or animal physical
power. This led to a period of rapid industrialisation, immense productivity gains, and
significant economic growth through fundamental changes like mass production, mecha-
nisation, and rail transport. The computer and digital advances that began in the second
half of the 20th century and that accelerated – and continue to accelerate – exponentially
until the present day have usherd in what Brynjolfsson & McAfee (2014) describe as
the second machine age. These advances are doing to human cognitive power what the
industrial revolution did to human physical power.

https://doi.org/10.1515/9783110792454-002
18 Chapter 2 Second Machine Age and the Platform Economy

The second machine age is characterised by an exponential rate in technological

advancement, vast and broad digitisation, and combinatorial capacity. In the context
of information and communication technology, the pace of change has accelerated ex-
ponentially in the last seventy or so years. This was observed by Gordon Moore, the
cofounder of Intel, in an article he wrote in 1965 for Electronics magazine. Moore pre-
dicted that the computing power per dollar of integrated circuits would double
every year for at least a decade. This prediction, which became known as Moore’s
Law, held for at least forty years and was applicable more broadly across the informa-
tion and communication technology space. Today, this doubling of computing power,
while not as rapid as the annual rate initially predicted by Moore, is still nevertheless
occuring every eighteen months. Brynjolfsson & McAfee (2014) give the example of the
US government’s Accelerated Strategic Computing Initiative (ASCI Red), which when it
was launched in 1996 was the world’s fastest supercomputer, costing 55 million USD,
occupying 1,600 square feet of floor space, and consuming 800 kWh of energy to run; in
2006 Sony released its PlayStation 3 video game console, which had the same speed as
ASCI Red, at a cost of approximately 500 USD, a cross-sectional area of around one
square foot, and consumed around 0.2 kWh of energy. The exponential rate at which
technology has developed is especially salient in the current age where technologies
that have become ubiquitous and commoditised are often only a decade and half old,
and where technologies that were in the realm of science fiction at the end of the 20th
century are becoming realities at the start of the 21st. Apple’s iPhone for example was
only introduced in 2007. Isaac Asimov depicted self-driving cars in his 1953 science fic-
tion short-story Sally; in 2020 Waymo (a subsidiary of Alphabet Inc., Google’s parent
company) became the first company to be allowed to operate self-driving taxis and
launched this service to the public in parts of Phoenix, Arizona.
This unrelenting, exponential rate of technological progress has numerous impor-
tant implications for firms. Such an environment becomes, as Richard D’Aveni (1998)
described it, hypercompetitive. Hypercompetitive environments involve fast-paced
competitive actions and counter actions between competitors, and frequent endoge-
nous and exogenous disruptions that destroy or obsolesce competencies that were
hitherto sources of competitive advantage (D’Aveni, Dagnino, & Smith, 2010). In this
environment, firms are forced to compete on the edge of chaos, which requires strate-
gic agility, managing temporary and unpredicable situations, and proactive experi-
mentation and innovation to disrupt oneself before others do (Eisenhardt & Brown,
1998; Weber & Tarba, 2014). This means that firms have to loosen their adherence to
less dynamic, more defensive strategies like errecting entry barriers, which as D’Aveni
(1998, p. 194) puts it, are “vestiges of a more stable, gentler past”.
The second characteristic of the second machine age is the rampant digitisation of
so many aspects of everyday life. Documents, images, sounds, and all sorts of other
sources of information have been converted into digital formats that can be processed
by computers. This means that more and more information can be exposed to informa-
tion and communication technologies and thus to the first characteristic of the second
 2.1 The Second Machine Age 19

machine age. This second characterstic has two further important implications. Firstly,
as Shapiro and Varian (1998) observe, while initially producing information may be
costly, information and communication technology renders the marginal cost of its re-
production to almost zero. Secondly, digitised information is often nonrivalrous. Resour-
ces and capabilities are rivalrous when they can only be deployed once or a limited
number of times, such as in the case of natural resources like oil and gas. However, non-
rivalrous resources and capabilities can be deployed and redeployed broadly without
losing value. For firms, rampant digitisation has given rise to new business models pred-
icated on value cocreation among networks of stakeholders where the wide deployment
of nonrivalrous, cheap to produce digitised information produces economic benefits in
the form of network effects (also referred to as network externalities). For instance, the
more viewers consume digtised films through Netflix, the greater the economic benefits
generated for Netflix, film production companies, and other stakeholders involved in the
production and distribution of films.
The third characteristic of the second machine age is the combinatorial capacity
of information and communication technology. The information and communication
technologies that define the second machine age are considered General Purpose
Technologies (GTPs). GTPs, according to Bresnahan and Trajtenberg (1995) are

characterized by the potential for pervasive use in a wide range of sectors and by their techno-
logical dynamism. As a GPT evolves and advances it spreads throughout the economy, bringing
about and fostering generalized productivity gains. Most GPT’s play the role of ‘enabling technol-
ogies’, opening up new opportunities rather than offering complete, final solutions”. Moreover,
GTPs are rare occurences (e.g., the steam engine, electricity, semiconductors) and trigger momen-
tous social and economic changes. (Bresnahan & Trajtenberg, 1995, p. 84)

Given that they are enabling technologies, GTPs provide the building blocks for further
innovation. In the case of information and communication technologies, these building
blocks can be broken down into to technological components, products and services,
and infrastucture. The forces of innovation can be applied both on individual building
blocks to develop them or in combining them in novel ways. For instance, more power-
ful technological components (e.g., circuit boards, cameras) can be combined in novel
ways to produce new products and services (e.g., mobile phones, software applications)
or to create new infrastructures (e.g., cloud, 5G network infrastructure) to ameliorate
the diffusion of products and services. The sustained and disruptive technological inno-
vations (Christensen, 1997; Chesbrough, 2003) that have proliferated across all indus-
tries over the last two decades have often been the result of innovators combining
existing technologies in new ways. For instance, in supply chain and logistics, real-time
vehicle routing and scheduling and last-mile technologies have become integral to the
way transport and logistics firms manage their fleets, costs, and services especially
given the significant growth in demand associated with booming e-commerce channels.
However, the innovative solutions in this space provided by the likes of FourKites,
20 Chapter 2 Second Machine Age and the Platform Economy

Project44, and Bringg are in fact mostly novel combinations of existing technologies
such as GPS navigation, artificial intelligence and machine learning, 5G, and APIs.
The combinatorial capacity of information and communication technology in
the second machine age facilitates Schumpeterian creative destruction. The eminent
economist – and authroity on the role of technological innovation in stimulating eco-
nomic growth – Joseph Schumpeter observed “What we, unscientifically, call economic
progress means essentially putting productive resources to uses hitherto untried in
practice, and withdrawing them from the uses they have served so far. That is what we
call ‘innovation’” (Schumpeter, 1928). The equally eminent economist – and godmother
of the Resource Based View (RBV) of strategy – Edith Penrose observed that while the
market may give resources a certain price, the value that a firm generates and internal-
ises from those resources is not fully determined by that price, but rather by the subjec-
tive, entrepreneurial capabilities of a firm’s management to deploy them in innovative
ways to create valuable products and services (Penrose, 1959; Grant, 1996; Kraaijen-
brink, Spender, & Groen, 2010). It is the entrepreneurial activity of individuals and
firms who combine existing technological components, products, services, and/or infra-
structures into valuable new products, services, and/or infrastructures – including, at
times, the origination of new business models – that drives economic growth, improved
productivity, and social benefits.

2.2 The Rise of the Platform Economy

The second machine age has already had a profound impact on many facets of
every day life. Specifically it has transformed the way that individuals behave when
consuming prodcuts and services. It has also transformed how firms conduct their
business activities to produce those products and services.
From the demand perspective, the rapid, exponential developmet of new technolo-
gies, the digitisation of everything, and the combination of existing technologies to create
new, innovative produts and services has led to the proliferation and democratisation of
information flows, increased customer informedness, increased between-customer in-
formedness, more disintermediated customer-to-customer interactions and transactions,
and more rapid cycles of new technologies being introduced and legacy ones obsolesced
(Clemons, Dewan, Kauffman, & Weber, 2017). As the political scientist and Nobel laureate
Herbert Simon notes, in such an information rich context “a wealth of information cre-
ates a poverty of attention and a need to allocate that attention efficiently among the
over-abundance of information sources that might consume it” (Simon, 1971). This has
led to the emergence of the digitally native generation with markedly different con-
sumer behaviours. Digitally native consumers tend to be tech-savvy, prefer digital inter-
actions, and are adept at navigating between digital channles; however, they are also
easily dissilusioned, vocal on social media, used to instant gratification, and are more
likely to switch between brands and service providers (Jain, Sheth, & Schultz, 2019;
 2.3 Disruptive Technologies for Banks in the Platform Economy Age 21

Twenge, Campbell, Hoffman, & Lance, 2010). This digitally native generation has also em-
braced the idea of accessing goods and servies through sharing markets.
The sharing economy emerged in the 2010s. In the sharing economy, consumers
adjust consumption to actual needs, increase the economic utility of their assets, and,
rather than owning assets outright, access them in the sharing markets from peers or
intermediaries that aggregate the supply and demand of unused assets (Clemons,
Dewan, Kauffman, & Weber, 2017). The emergence of the sharing economy was trig-
gered in part by the rapid pace of change that is making access an often more attractive
option for consumers than ownership. Its emergence has also been facilitated by new
technologies and rampant digitisation that enabled new platform-based business mod-
els. The sharing economy is thus enabled by, and an element of the platform economy.
The platform economy describes the totality of economic and social activities that
are mediated by technological platforms. The platform economy enables the emergence
of new business models like the sharing economy and facilitates faster, more connected,
and digitalised economic activity in response to the new consumer beahviours and
technological innovations of the second machine age (Kenney & Zysman, 2016). Anyone
attending corporate presentations or academic or professional conferences over the
last decade and a half would have undoubtedly heard accounts of the rise of Google,
Apple, Amazon, Airbnb, Uber, and other poster children of the platform economy to the
point that these case studies have become trite clichés. However, the reality is that the
power wielded by the firms that came to epitomise the platform economy rivals that of
big oil a century ago – Amazon is the Standard Oil of the modern age.

2.3 Disruptive Technologies for Banks in the Platform

Economy Age

From a supply side perspective, the pace of technological change has been hypercom-
petitive. Bigtechs like Apple, Amazon, and Alibaba and innovative firms like Airbnb
and Netflix have marshaled new technologies to create new business models. In doing
so they contributed to the reshaping of many industries, as well as both moulding and
reacting to new consumer behaviours. Firms need to remain abreast of the rapidly
evolving technological landscape as each development presents both opportunities and
the threat of creative destruction. Firms can benefit from cloud computing and con-
tainer and container orchestration technologies to reduce costs. They can use robotic
process automation to automate repetitive, paper intensive, and low value processes.
Artificial intelligence technologies can be used to derive insights from immense quanti-
ties of data that can be used by firms to better serve their customers, rapidly arrive at a
next best action, and augment the capabiltities of their workforce. Distributed ledger
technologies such as blockchain can help foster trust and transparency between differ-
ent stakeholders. The Internet of Things (IoT) and 5G technologies have enabled the
emergence of cyberphysical systems (the combination of information technology and
22 Chapter 2 Second Machine Age and the Platform Economy

other real-world technologies), that have in turn lead to mass customisation, intelli-
gent manufacturing, real-time tracking, and the emergence of interconnected smart-
manufacturing, smart-buildings, smart-grids, and smart-cities (Clemons, Dewan,
Kauffman, & Weber, 2017). Application programming interfaces (APIs) have facili-
tated technological integration among diverse stakeholders (Evans & Basole, 2016).
Research and development in quantum computing is accelerating, China, for exam-
ple, has announced 15 billion USD in public funding for quantum computing; quan-
tum computing is expected to solve problems that the most powerful conventional
computers cannot do in a practical amount of time (McKinsey & Company, 2021 (2)).
This section does not attempt to detail all of the important technological develop-
ments that firms in general, and banks in particular, need to be aware of. To do so
would require an entire book, and the contents would be outdated by the time it was
published. Rather, this section attempts to elaborate on several technologies that have
been and are likely to continue being disruptive innovations for banks (and indeed for
firms across industries). In describing disruptive technologies, I am avoiding the over-
used definition of disruptive that has become pervasive in corporate-speak where al-
most anything is described as disruptive. Instead, I draw on the definition given by
Henry Chesbrough (2003) in his book Open Innovation and by Pisano (2015). Chesbrough
proposed a 2x2 innovation matrix that looks at innovations where the combination of
problem definition and domain definition are either well or not well defined. Innova-
tions that address well defined problems and well defined domains are sustaining inno-
vations, those that explore domains and problems that are both not well defined
constituted basic research, while breakthrough innovations are those that have well de-
fined problems but where the domain is not well defined. Disruptive innovation is
when the domain is well defined but the problem is not. Pisano (2015) assessed innova-
tion in a 2x2 matrix that considered whether new business models are required or not
and whether new technical competencies are required or not. Pisano (2015) defined dis-
ruptive innovations as those which require new business models that leverage existing
technical competencies, radical innovations as those that require new technical compe-
tencies in existing business models, architectural innovations as those that require both
new business models and new technical competencies, and finally routine innovation
that require neither new business models or new technical competencies.
The remainder of Section 2.3 elaborates on three important, disruptive technology
innovations from the point of view of banks: blockchain, artificial intelligence, and
cloud computing. There are likely to be different perspectives on whether these technol-
ogies are considered as disruptive, breakthrough, radical, or even architectural innova-
tions. Nevertheless, these technologies are already having a transformational impact on
banks, and this is just the tip of the iceberg. Banks, and indeed firms in other industries,
will need to grapple with the new business model options that blockchain, artificial in-
telligence, and cloud present, the new technical capabilities required to exploit them
effectively, and the emerging business use-cases for these technologies.
 2.3 Disruptive Technologies for Banks in the Platform Economy Age 23

2.3.1 Blockchain

A blockchain is one manifestation of distributed ledger technology. A blockchain in-

volves immutable, cryptographically signed, time stamped blocks of records shared by
all participants in a peer-to-peer network. New blocks are added when network partici-
pants reach consensus on the validity of the block. Blockchain networks can be decen-
tralised but in enterprise contexts they are more often permissioned networks. The
blockchain records valuable data in a way that is immutable, permanent, traceable, se-
cure, and tamper-proof. The data is replicated across all members of the blockchain net-
work (nodes). A malicious actor would need to achieve the highly unlikely feat of
compromising all nodes in a network simultaneously. Thus, the blockchain network re-
sults in a sole source of truth, and consequently trust among disparate stakeholders. The
data recorded on a blockchain network is not limited to financial transactions, it can
also involve, for example, metadata for important medical and legal records, smart con-
tracts, and the tokenisation of digital assets.
The first major application of blockchain technology was bitcoin, which polarised
opinions between camps of zealous proponents and ardent detractors. This led many to
incorrectly equate bitcoin to the underlying blockchain technology. With the subse-
quent proliferation of nonbitcoin, enterprise level blockchain use-cases, this misconcep-
tion has been redressed to an extent. Over the last ten years, a multitude of enterprise
applications of blockchain have emerged across industries including evidencing the
provenance of diamonds and precious metals, personal identity services, and streamlin-
ing supply chain operations. For instance, in 2018, IBM announced a collaboration with
several global diamond and jewellery companies to launch the TrustChain blockchain
platform that tracks and authenticates the provenance of diamonds, precious metals,
and other jewellery across the different stages of the supply chain between mine and
retailer. Everledger, launched in 2015 also uses blockchain technology to track the prov-
enance and history of assets and covers a wider scope that includes art, wine and spi-
rits, fashion items, and batteries (including a collaboration with the US Department of
Energy to track the lifecycle of lithium-ion batteries). In 2016, Estonia became the first
country in the world to launch a blockchain based initiative via the Estonian E-Health
Foundation, to secure the electronic health records of its 1.3 million citizens. In 2018, the
members of the EU along with Norway and Lichtenstein collaborated with the EU Com-
mission to create the European Blockchain Partnership (EBP), through which they cre-
ated the European Blockchain Services Infrastructure (EBSI). In 2020 EBSI deployed a
blockchain network across participating countries to facilitate various cross-country
public sector services for citizens such as Self-Sovereign Identity (SSI) through the Euro-
pean Self-Sovereign Identity Framework (ESSIF), verification of the authenticity of edu-
cation credentials, and cross-border verification of social security coverage. In 2018, IBM
and Maersk launched the blockchain based supply chain platform TradeLens to facilitate
more efficient information sharing and collaboration across supply chains. TradeLens
brings together an ecosystem of stakeholders including intermodal providers (e.g., BNSF
24 Chapter 2 Second Machine Age and the Platform Economy

Railway, Canadian Pacific Rail), ports and terminals (e.g., Singapore, Hong Kong, Rotter-
dam), ocean carriers (e.g., CMA CGM, MSC, Maersk) and customs agencies and other gov-
ernment authorities (e.g., USA, UK, Netherlands, Japan) to digitalise and automate supply
chain processes such as import and export clearance, bills of lading, customs documen-
tation, and cargo tracking.
Blockchain adoption in banking and financial services has risen significantly across
several use-cases including trade finance, risk and compliance, and payments. In 2019,
IBM and twelve European banks including HSBC, Deutsche Bank, and UBS commer-
cially launched the we.trade joint venture, a trade finance platform that uses block-
chain technology to simplify traditionally lengthy, onerous, and paper-based trade
finance processes. Moreover, by facilitating trust and digitalising processes through the
underlying blockchain architecture, the platform enables small and medium enter-
prises, who are the primary target audience for we.trade, to access financing that they
would not have otherwise had recourse to, such as invoice financing, while extending
banks’ reach to new segments. Several other prominent blockchain based trade finance
platforms have also recently emerged. Contour was commercially launched in 2020 by
a consortium of banks that includes ING, Citi, and BNP Paribas. Marco Polo went live in
2022 and is backed by several banks like Sumitomo Mitsui Banking Corporation, Com-
merzbank, and Standard Chartered. Komgo, which is focused on commodities trade fi-
nance, was launched in 2019 and is backed by various banks like ING, Société Générale,
and Credit Suisse and commodities firms like Shell, Total (now known as TotalEnergies),
and Mercuria. eTradeConnect was launched in 2018 by a consortium of banks including
Bank of China, DBS, and ANZ.
In risk and compliance, the concept of a Shared-Know Your Customer (Shared-KYC)
utility built on blockchain technology has been a popular use-case to digitalise and re-
duce the costs associated with banks’ KYC processes especially for anti-money launder-
ing (AML) and combating the financing of terrorism (CFT) purposes. For instance, the
Monetary Authority of Singapore’s started testing an e-KYC platform in 2017, which
later evolved and integrated into the SingPass digital identity platform, while many
global banks have participated in several rounds of trials on CordaKYC since 2018,
which is built on the enterprise blockchain firm R3’s Corda blockchain platform.
Within the payments space, several banks launched blockchain based payments net-
works. In 2017, JP Morgan launched the Interbank Information Network (later renamed
as Liink) to facilitate cross-border payments and which by 2022 had over twenty-five
banks on the platform with over 400 other institutions that signed letters of intent to
join. In 2015, UBS began experimenting on a blockchain based Utility Settlement Coin, an
asset-backed digital cash instrument to facilitate international cross-border payments;
the initiative was progressed as Fnality International which is co-owned by a group of
banks and financial services firms including UBS, Bank of New York Mellon, Barclays,
Santander, Mizuho Bank, Nasdaq, and State Street.
These applications of blockchain technology in banking and financial services
have already made a significant impact. These use-cases drive new revenue streams
 2.3 Disruptive Technologies for Banks in the Platform Economy Age 25

(e.g., trade finance instruments for small and medium enterprises through we.trade),
streamline and digitalise inefficient and paper-based processes (e.g., the different
trade finance blockchain platforms), and reduce costs (e.g., shared-KYC). These use-
cases also demonstrate how blockchain technology can stimulate a shift in banks’
business models since the technology is predicated on value cocreation. In such appli-
cations of blockchain technology, banks need to collaborate with competitors and
other stakeholders to cocreate value that all collaborating parties can benefit from
and which none could have created in isolation.
However, blockchain technology presents a potentially more fundamental and
transformational disruption to banks. Starting from the mid-2010s a few central banks
began exploring central bank-issued digital money (central bank digital currency or
CBDC) through blockchain platforms. This included the Monetary Authority of Singa-
pore through Project Ubin and the Bank of Canada through Project Jasper both of
which were launched in 2016. Soon after, the majority of central banks around the
world embarked on their own CBDC initiatives to the point where by 2021, 90% of
eighty-one central banks surveyed by the Bank for International Settlements were
working on CBDC with a handful that had either gone live with their CBDCs (e.g., Cen-
tral Bank of the Bahamas, Central Bank of Nigeria) or had released pilot versions (e.g.,
Eastern Caribbean Central Bank, People’s Bank of China) (Kosse & Mattei, 2022). CBDCs
can either have wholesale or retail applications. Wholesale CBDC allows commercial
banks to settle large interbank payments, which effectively presents a potentially more
efficient and resilient version of real-time gross settlement (RTGS) technology. Retail
CBDC on the other hand is far more radical as it would represent a direct claim by indi-
viduals on central bank liabilities. In other words, a digital, blockchain based money
denominated in a national currency issued by a central bank directly to the general
public. This would mark a momentous shift as until present only commercial banks
hold accounts with central banks, while with retail CBDC individuals would be able to
hold central bank money through central bank accounts. Blockchain technology also
underpins the recent emergence of decentralised finance (DeFi), which uses the Ether-
eum public blockchain to support the execution of financial services operations such as
lending and payments between anonymous parties without the need for an intermedi-
ary such as a commercial bank. For commercial banks, retail CBDC and DeFi both pose
an important risk of disintermediation.

2.3.2 Artificial Intelligence

Artificial Intelligence is a field that emerged after World War II which is focused on
building intelligent technological entities. In 1950, the eminent computer scientist and
logician Alan Turing devised the Turing Test to test whether machines can exhibit be-
haviours that are indistinguishable from human intelligence. For a machine to pass
the Turing Test, it must possess the following attributes:
26 Chapter 2 Second Machine Age and the Platform Economy

1) Probabilistic reasoning, such as machine learning or predictive modelling, to uncover new

knowledge through extrapolation and correlation in large amounts of data.
2) Computational logic to capture new knowledge in a structured way.
3) Automated reasoning to use knowledge captured to draw conclusions or make decisions,
including optimisation techniques to obtain best outcomes in situations that are con-
strained. An extension of this are agent-based programs, such as chatbots, that can auto-
mate tasks including in some situations, autonomously.
4) Natural language processing to enable intuitive communication between humans and ma-
chines including the ability of machines to recognise, interpret, translate, summarise, and
generate natural language. (Russell & Norvig, 2010; Brethenoux, 2022; Turing, 1950)

The Turing Test excluded physical interactions which were deemed unnecessary for
demonstrating intelligence. Subsequently, the total Turing Test was devised to capture
physical interactions. To pass this test, a machine would need to possess two addi-
tional attributes:

1) The ability to perceive objects, including ambient intelligence, via different data sources
such as visual, audio, haptic, geospatial, and chemical sources.
2) The ability to manipulate objects and move (Russell & Norvig, 2010; Brethenoux, 2022).

The six key attributes of machines exhibiting human intelligence uncovered by the
Turing Test laid the foundation of what subsequently developed into six important
subfields of artificial intelligence research. However, the condition for artificial intel-
ligence to demonstrate human intelligence was disputed by several important experts
including Russel & Norvig (2010) and artificial intelligence pioneer John McCarthy,
who argued that rather than seeking to mimic human intelligence, it was sufficient
for artificial intelligence agents to demonstrate rational behaviour in response to per-
cepts received from their environment (including taking optimal actions in situations
of limited rationality).
During the three decades that followed World War II, most developments in artifi-
cial intelligence were made at university research labs, where researchers built on Tu-
ring’s earlier work to achieve further advances, such as Marvin Minsky and Dean
Edmonds who built the first neural network computer – the SNARC – at Harvard in
1950. John McCarthy organised an important two-month workshop on artificial intelli-
gence at Dartmouth College in 1956 that brought together some of the most important
and influencial researchers in the field such as Herbert Simon and Allen Newell from
Carnegie Mellon Univeristy, Ray Solomonoff and Claude Shannon from MIT, Marvin
Minsky from Harvard, and Nathaniel Rochester and Arthur Samuel from IBM. The work-
shop – which was the first official use of the term artificial intelligence – was a pivotal
event in the short history of the field; the attendees, their future students, and their in-
stitutions would go on to lead advances in artificial intelligence in the decades that fol-
lowed. Simon and Newell developed several artificial intelligence programmes such as
the Logic Theorist (LT) and the General Problem Solver (GPS). Nathanial Rochester,
 2.3 Disruptive Technologies for Banks in the Platform Economy Age 27

Arthur Samuel, and their teams at IBM also built several artificial intelligence computer
programmes including one that excelled at draughts (checkers).
While early artificial intelligence research and development tended to focus on
creating all-purpose agents, in the 1960s, Minsky and his students began developing
programmes targeted at narrower problems (also known as weak AI). Funding for ar-
tificial intelligence was reduced during the 1970s resulting in what was later called
the First AI Winter between 1974–1980. During the 1970s, most research and develop-
ment shifted towards focusing on narrowers contexts that required domain-specific
knowledge. These narrower applications of artificial intelligence gave rise to expert
systems that speciaised in specific domains. Several expert systems were developed at
Stanford like DENDRAL for chemical analysis and MYCIN for blood infection diagno-
sis. This shift towards narrower use-cases and expert systems powered by artificial
intelligence facilitated the transformation of artificial intelligence into an industry
during the 1980s and created a new Artificial Intelligence Spring. Digital Equipment
Corporation (DEC) launched the first expert sytem – R1 (initially called Xcon) – in 1980
to configure orders for new computer systems; by 1986 it was saving DEC around
40 million USD a year. By the end of 1980s, artificial intelligence had become a billion
dollar industry (from a few million in 1980), the majority of major US companies were
either using or exploring expert systems, and both Japan and the United Kingdom
began investing heavily in the field (Russell & Norvig, 2010). The late 1980s saw a slow-
down in the deployment of expert systems as firms struggled with different technical
difficulties and balooning maintenance costs; this heralded the Second AI Winter
from 1987–1993.
Despite some calls for artificial intelligence research and development to return to
a generalist approach (e.g., human-level artificial intelligence, artificial general intelli-
gence), the majority of developments in the field and commercial applications during
the 1990s and 2000s came from the efforts of computer scientists to create increasingly
rational computer agents that specialised in specific tasks and/or to improve the techno-
logical building blocks necessary to construct or improve them. Ever since Arthur Sam-
uel played checkers against the IBM 701 on national television, games have been an
important way of both demonstrating the advances in artificial intelligence and in
bringing the field more into the public consciousness. In 1997, IBM’s Deep Blue expert
system defeated chess grandmaster Gary Kasparov. In 2010, IBM’s Watson won the
game show Jeopardy! In 2015 Google’s AlphaGo became the first computer to defeat a
professional human player in the popular Chinese board game Go.
As the second machine age came into full swing during the 2010s, the digitisation of
everything has created a wealth of data for artificial intelligence agents to ingest, the
exponential rate of change has created faster computers that can run more powerful
artificial intelligence programmes, and the proliferation of other enabling technologies
such as cloud computing have facilitated broader innovation in artificial intelligence.
This lead to a second spring and the rapid growth of artificial intelligence applications in
various use-cases across most indsutries. The IT advisory and consutling firm Gartner
28 Chapter 2 Second Machine Age and the Platform Economy

forecasts that by 2025 the global artificial intelligence software market will grow to
over 130 billion USD from around 40 billion USD in 2020 (Woodward, et al., 2021)
while IT market intelligence firm International Data Corporation (IDC) forecasts
that the overall artificial intelligence market (software, hardware, and services) will
break the 500 billion USD mark in 2023 (IDC, 2022).
Artificial intelligence technology is being used across diverse contexts. In the au-
tomotive industry, Stanford University and Volkswagen created Stanley, an autono-
mous Volkswagen Touareg, which won the 2005 DARPA Grand Challenge race. In
2020, Google’s Waymo launched a fully autonomous ride-hailing service in Phoenix,
Arizona. In the retail industry, ecommerce giants like Alibaba and Amazon use predic-
tive analytics to analyse their customers’ buying habits to optimise what items they
recommend to them. Mobile phone based intelligent virtual assistants, like Apple’s
Siri launched in 2011 and Amazon’s Alexa launched in 2014, use natural langugage
processing and machine learning to perform tasks based on users’ verbal commands.
In healthcare, IBM’s Watson and Google’s Deep Mind systems are working with healt-
care providers to investigate use-cases in diabtetes management, oncology, prediction
of patient deterioration, mobile medical assistants, and drug discovery. In law, legal
information database providers, such as LexisNexis’ Lex Machina, have applied artifi-
cial intelligence technology to sift through millions of legal cases, court documents,
and other relevant data to help lawyers devise the best case strategies. In oil and gas,
artificial intelligence is used for predictive maintenance, allowing oil and gas compa-
nies to identify and remedy equipment degradation and failiures before they occur;
the oil major Shell, for instance uses predictive maintenance to monitor and maintain
over 10,000 pieces of equipment (Journal of Petroleum Technology, 2022).
In terms of the banking and financial services industry, during the 1980s and 1990s
banks increasingly adopted artificial intelligence based expert systems for specific fi-
nancial services functions. In 1987, Security Pacific National Bank (now acquired by
Bank of America) began using artificial intelligence to combat fraud (Christy, 1990).
That year, Chase Lincoln First Bank launched the Personal Financial Planning System
(PFPS) an expert system that provides financial planning advice to individuals with
household incomes of between 25,000 and 150,000 USD (Kindle, Cann, Craig, & Martin,
1989). In 1988, Blackrock launched the artificial intelligence powered investment man-
agement and operations platform Aladdin (Asset, Liabiltiy, Debt and Derivative Invest-
ment Network), by 2020 21.6 trillion USD in global assets sit on Aladdin (Henderson &
Walker, 2020). In 1993, the US Treasury Department’s recently established Financial
Crimes Enforcement Network (FinCEN) launched the FinCEN Artificial Intelligence Sys-
tem (FAIS) which evaluates financial transactions to identify possible financial crimes
such as money laundering; by 1995, FAIS was processing 200,000 transactions per week
and identified 400 suspicious transactions representing 1 billion USD in potentially
laundered money (Senator, et al., 1995).
Until recently, the main users of artificial intelligence technology in the fianncial
services industry were hedge funds, program traders, and high frequency traders
 2.3 Disruptive Technologies for Banks in the Platform Economy Age 29

(HFTs). However, during the 2010s, the applications of artificial intelligence in financial
services became much broader. Many banks and financial services firms use artificial
intelligence to combat financial crimes, such as Mastercard’s Decision Intelligence (DI)
technology to prevent credit card fraud, NatWest, which uses machine learning to fight
redirection fraud amongst its corporate banking clients, and HSBC which uses artificial
intelligence provider Quantexa AI to combat money laundering (Buchanan, 2019). A
large number of banks launched artificial intelligence powered chatbots and robo-
advisors to support their retail banking customers (e.g., ING’s Marie, Lionel, and Inga
for its retail banking clients in Belgium, Australia, and the Netherlands launched in
2017; Bank of America’s Erica launched in 2018), their corporate banking customers
(e.g., HSBC’s Xiaohui chat bot for corporate banking clients in mainland China; ING’s
Bill chatbot launched in 2017), their private banking and wealth management customers
(e.g., Toronto Dominion Bank’s TD Automated Investing launched in 2021; DBS’ digiPort-
folio launched in 2019), and their own staff (e.g., Credit Suisse’s internal chatbot Amelia
launched in 2018; Crédit Agricole’s Hector launched in 2018).
Artificial intelligence is also being used in loan and insurance underwriting
where machine learning algorithms can analyse millions of consumer data points. It
is being used to shorten the time it takes to review documents and quickly extract
actionable insights from them; for example, JP Morgan launched its Contract Intelli-
gence (COIN) system in 2017 to decrease human error in loan servicing processes
while several banks use artificial intelligence start-up Kensho’s analytical tools like
Kensho NERD to identify key items in document such as people, companies, and
events and then link them to vast databases (Kensho was acquired by S&P Global in
2018 for 550 million USD). Regulatory authorities have also started to rely on artificial
intelligence for various activities, for example in 2017, the Bank of England partnered
with MindBridge to conduct artificial intelligence powered audits of transactions and
reports, in 2018 Hong Kong Exchanges and Clearing which operates the Stock Ex-
change of Hong Kong rolled out Nasdaq’s artificial intelligence powered surveillance
software to detect unusual trading activity and to prevent market manipulation and
abuses (Buchanan, 2019).
Looking to the future, while the US has traditionally dominated the artificial intel-
ligence landscape, China is rapidly catching up and will potentially overtake. Between
2000 and 2016, over 37% of artificial intelligence start-ups globally were from the US,
in 2017, China surpassed the US in artificial intelligence start-up funding for the first
time. In 2018, over 50% of all artificial intelligence patents were held by the US and
China (an almost equal amount held by each), however, China has been filing them at
a faster pace in the last five years, for example, in 2017 China published around five
times as many artificial intelligence patents than the US (Buchanan, 2019). Chinese re-
searchers are also publishing more papers on artificial intelligence than any other
country; Chinese researchers’ share of research papers on artificial intelligence globally
went up from around 4% in 1997 to around 27% in 2017 (Li, Tong, & Yangao, 2021). How-
ever, US and Chinese researchers diverge somewhat in their artificial intelligence focus,
30 Chapter 2 Second Machine Age and the Platform Economy

for instance, US bigtechs like Google, IBM, and Microsoft tend to focus on machine
learning and speech recognition while Chinese ones like Alibaba, Tencent, and Baidu
tend to focus on image recognition and search capabilities (Buchanan, 2019). The United
Kingdom is also an important European hub for artificial intelligence, with around one
new artificial intelligence start-up launched every week since 2014 (COADEC, 2017), in-
cluding prominent ones like DeepMind which was later acquired by Google.
As technologies become exponentially more powerful, the economy more digitised,
and big data becomes even bigger, the call to explore wider applications of artificial
intelligence (e.g., through artificial general intelligence or strong AI) will become more
pronounced. For firms, this would mean rethinking how they apply artificial intelli-
gence to their businesses. Firms will have to move away from simply augmenting exist-
ing approaches with artificial intellegince, to rearchitecting how business decisions are
made to fully marshal in a systemic way the capabilities presented by new, more com-
plex, wider-reaching artificial intelligence technologies, new techniques, and ever ex-
panding data sets. They will need to upskill or reskill their workforce to scale artificial
intelligence across their organisations. As artificial intelligence carries out more and
more business processes, firms will also need to address ethical and governance-related
ramifications, including questions of risk management, accountability, and transpar-
ency. These implications are also true for banks. According to the management consul-
tancy firm McKinsey & Company (2021) banks in the future will need to take an “AI first”
approach in their strategy and operations to reduce operating costs, reduce errors, im-
prove customer satisfaction, and drive new revenue streams through new business mod-
els and new and previously unrealised opportunities. To achieve this, banks will need to
reimagine how their customers engage with banking services (e.g., personalised offers,
smart servicing), modernise their technological infrastuctures (e.g., automated cloud pro-
visioning, API architectures), upskill and reskill their workforce, and deploy operating
models at a platform level that bring together resources and capabilities across organisa-
tional siloes to drive business outcomes (McKinsey & Company, 2021).

2.3.3 Cloud Computing

Cloud computing describes the ability of individuals and firms to access computer re-
sources and capabilities like computing power, storage, servers, hardware, software,
and networking on an on-demand basis (or on an as a service – XaaS – basis) over the
internet from a cloud provider (e.g., Amazon Web Services (AWS), Microsoft Azure,
Google Cloud). The cloud provider owns and maintains the underlying technological
infrastructure and can allow several customers to access the same underlying infra-
structure components through virtualisation. Cloud computing allows individuals,
start-ups, and small and medium enterprises to rapidly create innovative new digital
services without needing to establish restrictively expensive technological infrastruc-
tures. Jack Ma, the founder of Alibaba, encapsulated this logic in an interview with
 2.3 Disruptive Technologies for Banks in the Platform Economy Age 31

Bloomberg’s Charlie Rose at Davos in 2015; he recounted how he joked with a visiting
Walmart executive that “in 10 years we’ll be bigger than Walmart on sales. If you
want 10,000 new customers, you have to build a new warehouse and this and that.
For me: two servers”. Moreover, cloud computing enables traditional small and me-
dium enterprises that were previously prevented from embracing new technologies
due to high infrastructure costs to digitalise their services. It also enables larger firms
to digitalise more rapidly, launch new products and services faster and in nimbler
ways, and avoid technology sunk costs and large capital expenditures.
The roots of cloud computing emerged in the 1960s from the need to pool cumber-
some, expensive computing resources among several users, and from developments
relating to connecting computers in networks. In 1963, the US Department of Defense’s
Defense Advanced Research Projects Agency (DARPA) funded Project MAC at MIT,
which among other things sought to develop technology that would allow computers
to be used by several users simultaneously. This led to the Compatible Time-Sharing
System (CTSS), the first time-sharing operating system that was implemented on an
IBM computer system. In 1967, IBM was able to virtualise operating systems through
its CP/CMS, CP (Control Program) was the hypervisor component that created several
independent virtual machines (VMs) each of which was a full virtualisation of the un-
derlying hardware, and CMS (Cambridge Monitor System, later renamed Conversa-
tional Monitor System) was the single-user operating system (Bitner & Greenlee, 2012).
In 1969, DARPA launched ARPANET (Advanced Research Projects Agency Network),
the first computer network based on the TCP/IP (Transmission Control Protocol/Inter-
net Protocol) protocol, which was the forerunner of the internet. Several large infor-
mation technology firms like IBM, HP, DEC, and CDC built on these developments
during the 1960s and 1970s to offer time-sharing services that allowed many users to
share the same computing resources.
The building blocks of cloud computing continued to develop during the 1980s
and 1990s, including advances in network operating systems technologies and com-
puter storage. The release to the general public of the World Wide Web in 1991 was a
watershed moment. The millions of machines now connected to the internet led to
the dot-com boom of the 1990s and the rise of e-commerce. The internet enabled new
business models; for instance, innovative new technology firms like Salesforce began
offering businesses with on-demand software through the internet in 1999. The first
mention of cloud computing came from an internal Compaq document in 1996 and in
an article written by Professor Ramnath Chellappa from Emory University a year
later (Varghese, 2019).
In 2002, realising that it was only using a small proportion of their technology infra-
structure capacity at any time, the posterchild of the dot-com and e-commerce boom
Amazon launched its Amazon Web Services (AWS) public cloud to offer computer serv-
ices to individuals and organisations on an on-demand basis. In 2008, Google announced
the App Engine, which was later launched in 2011, and which eventually became part of
the Google Cloud Platform. Microsoft also announced its cloud platform, Azure, in 2008
32 Chapter 2 Second Machine Age and the Platform Economy

and launched it as Windows Azure in 2010 (renamed in 2014 as Microsoft Azure). In

2009, Alibaba launched the Alibaba Cloud. Amazon, Microsoft, Google, and Alibaba rap-
idly came to dominate the cloud computing market with AWS and Microsoft Azure dom-
inating the European and North American market and Alibaba Cloud dominating the
Chinese market and countries in which China has a strong influence. During this period,
cloud providers also began offering private cloud infrastructures, usually to individual
enterprise clients. In 2010, OpenStack, a free, open-source cloud platform was launched
by NASA and Rackspace Hosting, it was later managed independently through the Open-
Stack Foundation (now known as the Open Infrastructure Foundation) and quickly be-
came popular both with individual developers and enterprises like T-Mobile, Société
Générale, and Fujitsu.
The period 2002–2011 represents the first generation of cloud technologies, where
cloud computing was increasingly adopted by firms. Incumbents and start-ups began
using cloud computing to launch new innovative, scalable, and elastic on-demand
services such as Dropbox’s cloud-storage-as-a-service, Github’s source-code manage-
ment open-source community, Adobe’s Creative Cloud for graphic design video and
photo editing, and Xero’s cloud-based accounting software.
Second generation cloud technologies began to emerge from 2012 (Varghese, 2019)
as new entrants like Oracle, IBM, and Tencent entered the field to compete with the
dominant incumbents Amazon, Microsoft, Alibaba, and Google. The introduction by
Docker Inc. of Docker, a functional container, was an important development in the evo-
lution of second-generation cloud computing. Container technology allows applications
along with their dependencies (e.g., libraries, configuration files) to be packaged as con-
tainers so that they can be run in a way that is isolated from other processes. While
container technology is not a new phenomenon – it has long been a feature of Linux, for
example – Docker made containers easier to use which led developers to embrace them
very quickly. The standardisation, modularity, and simplicity of container technology
mean that programs can be broken down into smaller pieces known as microservices.
Different teams of developers can work separately and simultaneously on microservices,
which leads to faster software development and containers being quickly moved from
one operating environment to another without encountering compatibility issues. Con-
tainer technology also meant that many legacy applications could be modernised through
containerisation, which would facilitate their portability from legacy on premises envi-
ronments to the cloud. In 2014, Kubernetes, which was originally developed by Google
and subsequently made open source, accelerated the momentum of container technol-
ogy. Kubernetes is a container orchestration tool that facilitates the automation of appli-
cation deployment, scaling, and management. As applications began to be containerised,
legacy applications modernised, and container orchestration tools rapidly adopted, the
notion of hybrid cloud was popularised as firms discovered that they could use both pub-
lic and private clouds, shifting workloads between them, and restricting more sensitive
data and operations to private clouds. As was the notion of multiclouds since firms could
use various cloud-based software-as-a-service providers (SaaS) for various services such
 2.3 Disruptive Technologies for Banks in the Platform Economy Age 33

as human resource management and customer relationship management technolo-

gies without needing to be committed to one single cloud provider or facing interop-
erability challenges. These developments also accelerated firms’ adoption of DevOps
and agile methodologies that enabled faster development and delivery of applica-
tions and services.
Banks are increasingly adopting cloud computing. In a 2019 survey, Gartner found
that over half of financial services institutions were planning to deploy workloads in
both public and private clouds and that 40% of banks had already done so (Malo & Gill,
2020). A 2022 study by Accenture found that North American banks had migrated 12%
of their workloads to the cloud compared to 5% for European banks and 7% for banks in
growth markets; for all geographies, over half of cloud deployments were on hybrid
cloud environments (Abbott, Caminiti, & Anand, 2022). They found that the most com-
mon workloads that banks migrated to the cloud were operational such as collaboration
and productivity tools, customer relationship management and sales tools, procurement,
marketing, and human resources. This was followed by some data and analytics capabil-
ities and capabilities relating to customer interactions like mobile banking, online bank-
ing, and call centres. The workloads that banks were avoiding migrating to the cloud
were core systems such as their core banking, payments, capital markets, and risk and
compliance platforms.
The most common reasons banks are increasingly adopting cloud computing is to
drive down IT infrastructure costs and to accelerate the launch of new services. For
instance, in 2021 Wells Fargo announced a new digital infrastructure strategy whereby
it would transition to third-party owned data centres, and partner with Microsoft and
Google to use their public cloud platforms to enhance customer experience through
cloud-based data and analytics services, as well as to improve collaboration among the
bank’s employees (Wells Fargo, 2021). In 2019, IBM launched the world’s first financial-
services-ready public cloud which is designed to incorporate regulatory compliance, se-
curity, and resilience issues that are specific to the financial services industry (IBM,
2019), with Bank of America as the first banking partner. Bank of America embraced
the cloud quite widely, building an internal cloud platform that reduced its servers
from 200,000 to 70,000, its data centres from sixty-seven sites to twenty-three sites, and
contributed to around 2 billion USD a year in savings (Bloomberg, 2019). Santander had
migrated 80% of its IT infrastructure to the cloud by 2022 and was one of the first banks
to digitalise its core banking system to commence shifting it to the cloud. As well as
reducing costs, Santander’s migration to the cloud also reduces the bank’s energy con-
sumption and allows its developers and engineers to more quickly create new banking
services that are better suited to their customers’ evolving needs (Santander, 2022).
However, as banks increasingly rely on Amazon, Microsoft, and Google for many
of their services, regulators began to raise concerns of concentration risks and the
ability of cloud providers to dictate prices, and terms and conditions. In 2021, the
Bank of England’s Financial Policy Committee raised concerns over financial stability
risks associated with cloud computing suggesting that new policy measures may be
34 Chapter 2 Second Machine Age and the Platform Economy

required. The Governor of the Bank of England Andrew Bailey stated that concen-
trated power “can manifest itself in the form of secrecy, opacity, not providing cus-
tomers with the sort of information they need to monitor the risk in the service”
(Reuters, 2021 (2)). The European Banking Authority expressed similar concerns as
well as risks associated with cloud service providers subcontracting parts of their ser-
vice to other providers (chain outsourcing) (European Banking Authority, 2017).
Looking ahead, new innovations are emerging that will drive the next generation
of cloud computing, and enterprises are increasing their adoption of cloud technol-
ogy. The concept of edge computing, where some computing can be processed outside
of the cloud via networking devices (e.g., routers) to reduce communication latencies
has received a lot of attention particularly given the advances in internet-of-things
(IoT) technologies where billions of devices are expected to be connected to the inter-
net (Varghese, 2019). Firms are also increasingly adopting cloud-native architectures
and deploying cloud-native applications that are designed specifically to benefit from
cloud computing, while more industry clouds are being built that are tailored to the
needs and nuances of specific industries (Katsurashima, et al., 2022). Cloud computing
is expected to become even more ubiquitous especially given advances in wireless
communications such as 5G and non-geosynchronous-orbit (NGSO) satellites. It is also
expected that regional cloud ecosystems will emerge driven by geopolitical changes
such as increased protectionism (e.g., Gaia-X, the European Union’s federated data
and infrastructure ecosystem that will link together different cloud services providers
and users and which was announced in 2019), as well as regulatory requirements
around data residency, privacy, and resiliency (Cecci & Bala, 2021).
For banks, advances in cloud computing, especially containerisation and con-
tainer orchestration technologies, will mean that increasingly banks will start shifting
back-office and core infrastructure systems like their core banking systems to the
cloud. These advances will also allow them to modernise their legacy applications
more rapidly, including those applications that were built in-house. Edge computing
will allow banks to better use real-time advanced analytics to offer their customers
more personalised services. As banks widen their cloud adoption, they will drive
down spending (especially capital expenditures), improve their ability to rapidly
launch new services to better serve their customers, and uncover new revenue
streams from innovative business models and services that cloud computing enables.
However, banks will also have to grapple with the growing geopolitical backlash sur-
rounding the concentration of power held by the few bigtechs that dominate the
cloud space. This will be especially true for large, global banks that will need to navi-
gate this challenge across different geographies and geopolitical spheres. Banks will
also need to tackle regulatory concerns about the risks of vendor lock-in, single points
of failure, transparency, data sovereignty, and privacy.
 2.4 Ramifications for Banks: The Need for Digital Acceleration 35

2.4 Ramifications for Banks: The Need for Digital Acceleration

Banks are no strangers to adapting to changes in technology and consumer behav-

iour. In 1973, 239 banks from fifteen countries collaborated to establish the Society for
Worldwide Interbank Financial Telecommunication (SWIFT), a messaging service for
interbank transactions that quickly replaced the Telex technology that was until then
used to fulfil this function; by 2019, over 11,000 institutions from over 200 countries
were connected to SWIFT (SWIFT, 2019). Visa, the world’s most dominant card pay-
ment firm, began in 1958 as Bank of America’s consumer credit card programme
BankAmericard. During the dot-com boom of the 1990s banks began offering internet
banking. Around a decade later when smartphones emerged, banks launched mobile
banking services.
The world has become much more connected and digitalised over the last two dec-
ades. Banking has not been immune to this. For example, customers are increasingly
conducting banking activities digitally instead of in branches resulting in banks digital-
ising further and closing physical branches; among the twenty-eight countries of the
European Union, the number of domestic bank branches fell from 237,702 in 2008 to
163,265 in 2019 (European Banking Federation, 2021). Most banks have recognised that
digitalisation is part of their future; consequently, they embarked on digital transforma-
tion strategies to successfully digitalise their channels. In doing so they have optimised
and modernised their business models, but they have not fundamentally changed
them. The exponential, hypercompetitive pace of technological change, the digitisation
of everything, the combinatorial capacity of new technologies, and the rise of platforms
widen the digital disruption faced by banks, challenging the fundamentals of their busi-
ness models. These forces require banks not only to digitalise existing business models
but to strategise for digital acceleration whereby they exploit the potential for technol-
ogy to drive the evolution of existing business models and indeed the emergence of
new ones.
Digital transformation involved firms digitalising the existing way in which they
worked and often meant large-scale technology projects that aimed to modernise exist-
ing workflows. Digital acceleration brings technological innovation and digitalisation to
the heart of firms’ operations – digital becomes the de facto way firms do business. This
allows firms to exploit new technologies to fundamentally change their business models
and workflows for the purpose of better serving their customers, tapping into new sour-
ces of revenue, and reducing their expenditures. This requires firms to – among other
things – execute at speed, recognise the centrality of technology innovation and digital-
isation in the future of their business models, use technology innovation and digitalisa-
tion to advance new business models, exploit new technology-driven channels, and
effectuate cultural changes in their organisations, which includes embracing more agile
ways of working and multidisciplinary fusion teams to drive faster and continuous busi-
ness outcomes (Tyler, Sanchez Reina, & Fujiwara, 2020; Forbes, 2022).
36 Chapter 2 Second Machine Age and the Platform Economy

As part of their strategies of digital acceleration, an important reality that banks

(and firms more generally) must acknowledge is that in the hypercompetitive, plat-
form economy age, an increasing number of strategically important resources and ca-
pabilities will reside outside their ownership and control. Consequently, they will
need to consider how they interact with these strategically important resources and
capabilities, and whether and to what extent they seek to replicate or respond to
them through developing or acquiring their own internal resources and capabilities,
engaging in partnerships, and/or participating in or originating ecosystems and plat-
forms; this new strategic reality will be elaborated on in Chapter 5.
Many commentaries and observations on the pace of technological innovation
and its impact on society paint an overall positive picture and are optimistic about
future developments. While these views are mostly on target, many are rooted in, or
developed during the dot-com boom of the 1990s. With the fall of the Iron Curtain
in November 1989, the world during the 1990s was very much unipolar. These com-
mentaries on the impact and future of technological innovation were coloured by the
prevailing optimism of the post-Cold War world. However, starting in the 2010s, the
world once again became more multipolar, particularly given the rapid rise of China.
As we progress through the 2020s, technology has come to play a central role in the
life of nations. Technology behemoths like Google and Huawei control critical techno-
logical capabilities and vast amounts of data. These private firms are increasingly
playing a crucial role in the geopolitical calculations of countries and groups of coun-
tries, as well as in the strategies of banks and other multinational firms that need to
navigate these geopolitical intrigues across their global business operations. For in-
stance, in 2019 the US sanctioned the Chinese technology giant Huawei, leading to
Google barring the world’s second largest smartphone maker from its Android operat-
ing system (BBC, 2019) and leading to other countries decoupling from Huawei like
the United Kingdom who banned the buying of Huawei equipment for all 5G infra-
structures (gov.uk, 2020).
The central role of technology in the second machine age has also led to important
social changes that are likely to continue to accelerate in the future. As new technologies
and rampant digitisation automate many jobs, labour markets are undergoing a period
of upheaval as governments, firms, and society as a whole grapple with challenges relat-
ing to the future of work. Realising – as many others have – that it is not the end of
history as Fukuyama (1992) suggested, and that we now live in an increasingly multipo-
lar and protectionist world, banks will have to contend with the new geopolitical and
social challenges presented by technology in the second machine age, taking a more
measured, pragmatic approach than the overoptimism of the 1990s had suggested.
Chapter 3
Financial Services Newcomers: Fintechs
and Bigtechs

In the years that followed the GFC, a new breed of competitor arose in banking and
financial services: financial technology start-ups (or fintechs). Fintechs benefited from
the regulatory and public policy enablers detailed in Section 1.4 and the new technolo-
gies and business models discussed in Section 2 to challenge banks. Section 3.1 elabo-
rates on their rise. Section 3.1 also elaborates on the vast investments in fintech –
1 trillion USD between 2010 and 2021 – that have minted 159 fintech unicorns as of
2021, particularly the important role played by venture capital firms.
Bigtechs like Apple, Google, and Alibaba have also entered into banking and fi-
nancial services. Given, their size, reach, and institutional legitimacy, they may pose
an even more potent challenge to banks. In China, the Alibaba affiliate Ant Financial –
the parent company of the ubiquitous payment platform Alipay – had 700 million
monthly active users in 2020 and processed a greater volume of payments than Visa.
Section 3.2 elaborates on the penetration of bigtech into financial services.
Fintechs and bigtechs pose a real challenge for banks, not least the threat of disin-
termediating them from several important functions that they have long dominated.
However, the threat that they pose has potentially been overstated and mischaracter-
ised. The dynamic between banks, fintechs, and bigtechs is likely more nuanced and
involves collaborative strategies as well as competitive forces. Banks also possess im-
portant capabilities that are not easily replicable or substitutable and which they can
lean on to formulate more proactive strategies vis-à-vis fintech and bigtech new-
comers. Section 3.3 expands on these themes and dynamics.

3.1 The Rise of Fintech

While banks struggled with tightening revenues in the aftermath of the GFC, much
higher net regulatory burdens (Chapter 1), and new technologies and business models
(Chapter 2), new start-up companies emerged that capitalised on favourable regulations
and public policy enablers, new technologies, and changing consumer behaviours.
These innovative new entrants termed fintechs (a neologism combining “finance” and
“technology”) applied disruptive technology to financial services to offer more efficient
and flexible financial services that better met new consumer expectations (Puschmann,
2017; Gomber, Kauffman, Parker, & Weber, 2018). Fintechs were often the result of en-
trepreneurial activity of banking staff that had lost their jobs in the aftermath of the
GFC, and which attracted significant investment from venture capital firms. They began
to unbundle the value chains of incumbent financial services institutions and contest

https://doi.org/10.1515/9783110792454-003
38 Chapter 3 Financial Services Newcomers: Fintechs and Bigtechs

certain financial functions. In Europe, fintechs were especially emboldened by favour-

able regulations (e.g., PSD2, Open Banking Standard) and public policy enablers (e.g.,
GDPR) that facilitated their activities.
Fintechs challenged conventional banking business models across diverse segments
and reshaped how customers bank. For example, the digital payments processor Stripe,
which processes hundreds of billions of dollars of payments for companies around the
world became the most valuable US technology start-up in 2021 with a valuation of
95 billion USD (Reuters, 2021). The Swedish online payments fintech Klarna provides
shoppers with interest-free financing on retail purchases (buy now, pay later); in 2020 –
fifteen years after it was founded – Klarna became the largest European fintech, valued
at 10.6 billion USD with over 200,000 retail partners and 12 million monthly active users
across the world (CNBC, 2020). DriveWealth allows other financial services firms to
offer their customers fractional equity trading (the ability to trade fractions of a single
share of an equity) and embedded investing (the ability to trade financial instruments
through nonfinancial services platforms like social media sites) (Bloomberg, 2022). Rob-
inhood, a zero-cost trading platform, is already challenging revenue streams from
banks’ brokerage fees; in 2020 Robinhood had over 31 million users and 959 million USD
in revenues (Financial Times, 2021). Stash provides microinvesting services for younger,
less affluent customers; in 2021 – six years after it was founded – it had attracted
5 million customers, had 2.5 billion USD under management, and was exploring a public
listing (Bloomberg, 2021). UK based digital-only bank Revolut, provides retail customers
engaging, socially enabled experiences with lower fees; in 2021 – six years after it was
founded – Revolut was valued at 33 billion USD, more than NatWest, one of the UK’s Big
Four retail banks (Financial Times, 2021 (2)). As of 31 December 2021, PayPal had
426 million active consumer and merchant accounts, and processed 1.25 trillion USD in
payment volume during 2021 at a rate of 40,000 payment transactions per minute (Pay-
Pal, 2021). OppFi, uses artificial intelligence and real-time data analytics to automate the
underwriting of consumer loans and to generate credit scores based on nontraditional
data sources like online shopping habits (The Wall Street Journal, 2022 (2)).
In 2017 there were 1,537 fintechs in sixty-four countries that had received 80.4 billion
USD in venture capital funding. Gomber, Kauffman, Parker, & Weber (2018, p. 223) de-
scribed these capital formation activities as “one of the largest historical expansions in
entrepreneurship to date among modern economies” the likes of which were last seen
during the dot-com boom of the late 1990s. By 2021, global fintech investment (including
mergers and acquisitions, venture capital, and private equity funding) reached 210 billion
USD across 5,684 deals (KPMG, 2022). Between Q1 2010 and Q1 2021, there was 1 trillion
USD of equity investment in fintechs across more than 35,000 deals (Cornelli, Doerr,
Franco, & Frost, 2021). According to PwC (2022), fintech is now the largest destination for
pre-IPO capital, with the number of fintechs valued in excess of 1 billion USD more than
quadrupling between 2016 and 2021 (from 36 in 2016 to 159 in 2021). Fintechs participate
in a variety of financial services subsectors; the Bank for International Settlements
(BIS) provides a useful taxonomy of the fintech environment based on a) fintech
 3.1 The Rise of Fintech 39

activities, b) enabling technologies, and c) policy enablers (Ehrentraud, Ocampo, Garzoni,

& Piccolo, 2020) (see Figure 3.1).

Fintech Activities Enabling Technologies Policy Enablers

- Deposit and lending • APIs • Digital identity
- Loan crowdfunding • Cloud • Open banking
- Fintech balance sheet • Biometric technology • Data protection
lending • Blockchain (distributed ledger • Innovation facilitators
- Digital banking technology) • Cyber security
- Capital-raising • Artificial intelligence and
- Equity crowdfunding machine learning
- Asset management
- Robo-advice
- Payments, clearing,
settlement
- E-money
- Digital payment
services
- Insurance
- Insurtech business
models
- Cryptoassets
- Financial activities
related to cryptoassets

Figure 3.1: Taxonomy of Fintech Landscape.

Source: Bank for International Settlements (Ehrentraud, Ocampo, Garzoni, & Piccolo, 2020)

3.1.1 The Role of Investors and Innovation Partners

As well as the fundamental roles played by the technological, regulatory, and public
enablers discussed in Chapters 1 and 2, investors and innovation partners are an impor-
tant driving force behind the fintech boom. A formidable player in fintech financing is
venture capital. Venture capital are pooled funds that usually invest in maturing start-
ups that have developed products and have started generating revenues. Venture capi-
tal contributes to the board of the fintechs they invest in or undertake advisory roles
and therefore often have a say on the direction and strategy the fintech takes (Hill,
2018). As such, the strategies adopted by fintechs can be influenced by the objectives of
its funders who may push it to collaborate with, compete against, or be acquired by
incumbents. There are several forms of venture capital, including private venture capi-
tal and corporate venture capital. The goals of private venture capital are focused on
making successful investments with manageable exit strategies. Corporate venture capi-
tal firms are owned by large established firms and often have nonfinancial goals too
such as business strategy and technology (Block, Colombo, Cumming, & Vismara, 2018).
In the aftermath of the GFC, governments also sought to fund and encourage com-
petition in the banking sector, especially in the small and medium enterprises (SME)
banking segment. For example, as part of the European Commission’s approval for
the UK government to provide state aid to the Royal Bank of Scotland (RBS), RBS –
40 Chapter 3 Financial Services Newcomers: Fintechs and Bigtechs

which is now known as NatWest – had to divest part of its retail banking business
and its SME business as part of an Alternative Remedies Package (gov.uk, 2018). The
UK government established Banking Competition Remedies Limited (BCR) to imple-
ment the Alternative Remedies Package. BCR manages the 425 million GBP Capability
and Innovation Fund (CIF) that is aimed at promoting fintech and innovative SME
banking solutions and that helped fund challenger banks, digital only banks, and fin-
techs such as Metro Bank, Starling Bank, Tide, iwoca, Atom Bank, and Modulr Finance
(UK Tech News, 2019; Financial Times, 2019).
Innovation partners also play a key role in supporting the growth and development
of fintechs. These innovation partners include the formal entrepreneurship and innova-
tion programs supported by governments or government-linked entities, supranational
organisations, and the private sector in the form of incubators, accelerators, and innova-
tion labs. Innovation labs (sometimes called “innovation hubs” or “innovation spaces”)
are “a safe place for organizations to run experiments and iterate on projects, and
they’re an important investment for firms that have rigid approaches or that work in
highly regulated industries” (Ahuja, 2019). Incubators are programs that provide start-up
companies with the mentorship and support to develop and grow, while accelerators
are more targeted programs for established start-ups that are aiming to scale for rapid
growth (Inc., 2012). Examples of innovation labs, incubators, and accelerators include
Level 39 (owned by Canary Wharf Group), Innotribe (supported by SWIFT), and the Fin-
Tech Innovation Lab (supported by Accenture and the Partnership Fund for New York
City). These entrepreneurship programmes also played an important role in the growth
of cities like London and Singapore as fintech hubs, which in turn served to attract fur-
ther fintech innovation (Cassis & Wójcik, 2018).

3.2 The Penetration of Bigtechs in Banking

Another important set of actors that have recently entered into banking and financial
services are bigtech companies like Google, Amazon, Apple, and Alibaba. Unlike fin-
tech start-ups, these firms have access to vast customer data and relationships, very
large customer bases, institutional legitimacy, brand loyalty, large cash reserves, and
expertise in emerging technologies that they can build upon to add financial services
capabilities. Thus, the roadblocks facing fintechs such as the cost of building a cus-
tomer base and cash reserves are speed bumps for bigtechs (Hill, 2018). Google and
Apple offer payments services through Google Pay and Apple Pay. Google obtained an
e-money payment license from the Bank of Lithuania in 2018 and in 2019 the Central
Bank of Ireland authorised the firm to operate as a payments institution. Apple Pay
already accounts for 5% of all global credit card purchase volume, a number that is
estimated to grow to 10% by 2025 (Forbes, 2020). A lot of the literature on banking and
financial technology uses the term fintech to describe the financial services related
activities of bigtechs, which risks causing confusion as the term fintech is commonly
 3.3 Banks, Fintechs, and Bigtechs: A Nuanced Dynamic 41

used to refer to financial technology start-ups. To distinguish fintech start-ups from

the financial technology affiliates and subsidiaries of bigtechs, the term techfin was
coined to describe the latter (e.g., Ant Group and Apple Pay are the techfins of Alibaba
and Apple, respectively).
The foray made by bigtechs into banking and financial services can be considered
only a first step in what can potentially be a far deeper, more disruptive incursion,
especially in the West (Zetzsche, Buckley, Arner, & Barberis, 2017; Hill, 2018). This in-
cursion has been far deeper and more pronounced in China, where Ant Financial (Ali-
baba’s techfin affiliate) has rapidly grown to play a dominant role in many facets of
financial services across China and beyond, through diverse services such as pay-
ments, wealth management, lending, insurance, and credit references (Shim & Shin,
2016). In the twelve months ending in June 2020, Ant Financial‘s Alipay had over
700 million monthly active users and 80 million business users. During these twelve
months Alipay processed 118 trillion RMB (17 trillion USD) in China and 622 RMB
(91 trillion USD) internationally in transactions (Financial Times, 2020); by compari-
son, Visa’s payment volume was 8.8 trillion USD for the twelve months ending on
30 September 2020.
Telecommunications firms have also entered the payments space, especially in
developing markets. A notable case is M-Pesa, which started as a mobile phone
money transfer service that was established by Vodafone and Safaricom in Kenya and
has grown into an integrated financial services company reaching over 50 million
monthly active users in 2021 (Vodafone, 2021). During 2021, more than 500,000 busi-
nesses transacted over 7 billion USD each month on M-Pesa (Vodafone, 2021). In 2020,
there were 300 million monthly active users of mobile money accounts (159 million of
which were in Sub-Saharan Africa, with another 118 million in South Asia, East Asia,
and the Pacific), with 2 billion USD in daily transactions globally which is expected to
exceed 3 billion USD by the end of 2022 (GSMA, 2021).

3.3 Banks, Fintechs, and Bigtechs: The Need for a More Nuanced
Understanding of their Relationship
The aftermath of the GFC saw the start of a prolonged period of low interest rates and
flattening yield curves across the majority of developed economies. Such an environ-
ment has had a negative impact on banks’ net interest income. However, as Borio,
Gambacorta, & Hofmann (2015) identify, in such periods, banks’ noninterest income
(such as those derived from fees and commissions) become important sources of in-
come for banks and are positively impacted by low interest rates. However, it is pre-
cisely in the areas that generate noninterest income that fintechs and bigtech are
challenging banks. For example, robo-advisory fintechs challenge the fees that banks
derive from private banking and wealth management, transfers and remittances fin-
techs and bigtechs such as PayPal, Apple Pay, and Google Pay challenge traditional
42 Chapter 3 Financial Services Newcomers: Fintechs and Bigtechs

retail banking and fees that banks derive from payments services, and SME financing
and crowdfunding fintechs challenge traditional SME banking and corporate banking
services. This means that in prolonged periods of low interest rates and flatter yield
curves – while banks’ net interest income is being eroded – any potential positive im-
pact to their noninterest income is itself being contested by fintechs and bigtechs.
Moreover, as banks struggled with low interest income and noninterest income,
keeping pace with the rapid technological changes discussed in Chapter 2 while being
lumbered with expensive, inflexible, and legacy technology infrastructures, and with
a higher net regulatory burden at a time where regulation and public policy enablers
(discussed in Chapter 1) are stimulating new competitors, innovation in financial serv-
ices is increasingly taking place outside of banks. This is potentially a more funda-
mental implication that banks need to grapple with. As fintech start-ups, bigtechs, and
telecommunications companies take a bigger lead in financial services innovation,
they will likely play a more important role in shaping as well as responding to how
consumers interact with financial services. Fintechs and bigtechs have, to an extent,
redefined value creation in banking, which poses a potential threat to banks’ business
models. Additionally, the incursion of bigtech into banking in the West is potentially
the tip of the iceberg, and much as Alibaba and Ant Financial have revolutionised e-
commerce and financial services in the East, Amazon, Apple, Google, and other big-
techs may yet do the same in the West. Thus, unless banks respond by adapting their
strategies, they risk becoming disintermediated (e.g., merely assuring regulatory com-
pliance, executing transactions) from value systems they have long dominated. A
study conducted by McKinsey & Company in 2015 sought to quantify the risk of this
disintermediation; the study found that, unless they take mitigating actions, banks
risk losing up to 40% of retail banking revenues by 2025 (McKinsey & Company, 2015).

3.3.1 Tempering the Hubris

While it is important that banks do not underestimate the threat that fintechs and big-
techs pose for them, it is equally important not to overstate or mischaracterise the nature
of that threat. After the GFC, the long-term low interest rate environment meant that in-
vestors seeking higher returns started pouring money into the high growth technology
sector. As a result, from around 2011, technology start-ups with valuations exceeding
1 billion USD – or unicorns – began to emerge, by 2014 there were 90 technology unicorns
globally, by 2019 the number grew to 348, and two years later it was over 500 (The
New York Times, 2022). PwC (2022) put the number of unicorns at the end of June 2021 at
743, while 188 fintech unicorns had raised the most capital between 1 January 2016 to
30 June 2021 compared to other subsectors. As easy money chased the next technology
unicorn in the decade after the GFC, many unicorns went public at staggering valuations
that were many times greater than their revenues (e.g., Facebook’s 104 million USD valu-
ation when it IPOed in 2012; Uber’s 75 million USD valuation when it IPOed in 2019).
 3.3 Banks, Fintechs, and Bigtechs: A Nuanced Dynamic 43

While many observers began talking of a second technology bubble, the technology
boom continued unabated into a new roaring twenties, to the point that technology uni-
corns had become commonplace, and investors began to focus on decacorns (start-ups
valued at over 10 billion USD), with fifty-two decacorns having emerged between 2016
and the first half of 2021 (PwC, 2022). At the time of writing, central banks have started to
tighten monetary policy in response to inflation rates that have reached generational
highs and have triggered cost of living crises across developed economies, consequently
the technology boom has cooled. Whether this second technology boom bursts in the
same way as the dot-com bubble did in 2000 is to be seen. The fintech boom/bubble is
part of this second technology boom/bubble. Any slowdown of the second technology
boom – or indeed a bursting of the bubble – will undoubtedly be reflected in the fintech
space as well.
At the height of the fintech hype in the second half of the 2010s, many observers
not only presented fintechs as direct competitors to banks but as likely usurpers. In
2014, Jamie Dimon, the CEO of banking giant JP Morgan warned “When I go to Silicon
Valley [. . .] they all want to eat our lunch. Every single one of them is going to try” (The
Wall Street Journal, 2014). A year later, The Economist (2015) heralded “The fintech revo-
lution”. The American Banker (2019) declared that “Traditional banks continue to flirt
with obsolescence”. However, as the 2010s were coming to a close, it became apparent
that fintechs and bigtechs were not about to make banks obsolete. Accenture (2017) pro-
vocatively asked “Fintech – did someone cancel the revolution?”, while the American
Banker (2020) remarked “more of them [fintechs] will look for opportunities to work
with banks because their inherent strengths complement each other”.
As the 2010s drew to a close and a new roaring twenties commenced, several
high-profile events served to shake the hubris of fintechs, bigtechs, and their cheer-
leaders. In 2018, in a move that symbolised the overturning of the old order, the Ger-
man fintech giant Wirecard replaced Commerzbank in the prestigious Dax 30 index;
two years later, Wirecard which was valued at 24 billion EUR, went bankrupt after it
was revealed that the firm was involved in vast fraudulent activities to inflate its
sales and fool investors (The Wall Street Journal, 2020). In 2019, Facebook (now known
as Meta Platforms) announced the cryptocurrency project Libra (later renamed Diem)
with an impressive ecosystem of partners. Many of these partners very quickly aban-
doned the initiative including Mastercard, Visa, PayPal, eBay, and Vodafone, and in
light of concerns from multiple regulators, Facebook scaled back the initiative signifi-
cantly, eventually abandoning it and winding it down in 2022 (Financial Times, 2022).
In 2020, Chinese regulators embarked on a trust-busting campaign with Jack Ma’s Ali-
baba and its techfin affiliate Ant Group firmly in sight. Ant Group was set to list on the
Hong Kong and Shanghai exchanges in November 2020 in what would have been the
largest IPO in history, raising 37 billion USD and valuing the techfin at 315 billion USD.
Chinese regulators, however, pulled the plug on the IPO at the last minute, with many
observers remarking that Jack Ma‘s criticism of Chinese regulators the previous month
was an important catalyst for the ensuing crackdown. As part of the crackdown, Ant
44 Chapter 3 Financial Services Newcomers: Fintechs and Bigtechs

Financial had to become a financial holding company that would be overseen by the
People’s Bank of China and that would be subject to similar regulations as banks, it had
to shrink the assets under management of its popular money-market mutual fund Yu’e
Bao, and had to restructure its popular online personal lending services Jiebei and Hua-
bei into a separately licensed personal credit reporting company (The Wall Street Journal,
2021).
While fintechs and bigtechs can replicate some banking functions more efficiently
at a lower cost using innovative new technologies, or marshal new technologies to-
wards better meeting consumer demands through innovative services, they lack the
financial expertise and the ability to establish and curate customer relationships that
banks have nurtured over decades. Fintechs in particular also lack the size and insti-
tutional legitimacy of banks. Thus, as Hill (2018) remarked, while fintechs changed the
basis of competition in financial services, they did not materially change the competi-
tive landscape.
While bigtechs do not have an issue with size and institutional legitimacy, to fully
compete with banks they will need to eventually face the same regulatory scrutiny that
banks face – Ant Group’s travails with Chinese regulators is a good case in point. Boston
Consulting Group (2020) warned that “If they are to survive, banks must start acting
more like digital giants before digital giants – including Amazon, Facebook, and Google –
start acting like banks”, but is this a foregone conclusion? Are bigtechs prepared to take
on the regulatory burden of being a regulated financial services firm?
Importantly, the majority of observers ignore a fundamental characteristic of
banks: the ability of banks to originate new money through lending (as opposed to
simply intermediating existing money). By ignoring this key point and instead treating
banks as any other firms from other industries, the disruptive power of fintechs and
bigtechs is overrepresented. This has important strategic ramifications for banks;
overlooking this important characteristic may lead banks to adopt an unnecessarily
defensive strategic posture rather than taking a more proactive approach. Chapter 4
elaborates on the important and unique ability of banks to originate new money.
Chapter 4
The Uniqueness of Banks

As was elaborated on in Section 3.3, most of the practitioner literature considers banks
as standard firms that are susceptible to disruptive technological and competitive forces
in much the same way as firms from other industries like retail, transport, and media;
this is also true of academic literature. They consider that banks compete with new en-
trants such as fintechs and bigtechs for the intermediation of existing money. A critical
and fundamental characteristic of banks is overlooked: the ability to create new money
through lending. This characteristic is unique to banks. Nonbanks – such as fintechs
and bigtechs – cannot create new money, they can only intermediate existing money.
Neglecting this important distinction when formulating strategy risks mischaracterising
the competitive dynamic between banks, fintechs, and bigtechs, as well as adopting sub-
optimal strategic stances.
The failure to consider the unique ability of banks to create new money through
lending is part of a much broader misunderstanding of how banks operate and the role
they play in money creation. This misunderstanding stems from erroneous assumptions
contained in the financial intermediation theory of banking that has been dominant
across most developed economies since the 1960s, which maintains that banks are sim-
ply intermediaries that collect deposits that are then lent out and are thus not materi-
ally different from other nonbanking firms. The psychologist Kurt Lewin famously
stated, “there is nothing as practical as a good theory” (Lewin, 1943, p. 118); the opposite
is also true. I have therefore dedicated this chapter to elaborating on what makes banks
unique, and different from fintechs and bigtechs, as this will have important implica-
tions on the strategies that banks adopt vis-à-vis these new entrants and in relation to
how they navigate the second machine age and the platform economy.
Much is owed to the eminent economist Richard Werner who was one of the few
voices over the last three decades (e.g., Werner, 2003; 2014; 2014 (2); 2016) to bravely
challenge the financial intermediation theory of banking that today is widely accepted
canon, culminating in his empirical demonstration of the ability of banks to create
new money when they lend (Werner, 2014; 2016). Section 4.1 presents three main theo-
ries of banking that have been dominant at various times during the past century and
a half and – echoing Werner – calls for a better understanding (and resurgence) of
the credit creation theory of banking. Section 4.2 elaborates on the unique ability of
banks to create new money through lending, something that nonbanks do not possess.
Section 4.3 presents the strategic ramifications of this important consideration, specif-
ically in terms of how banks should navigate the regulatory, technological, and com-
petitive challenges discussed in Chapters 1–3.

https://doi.org/10.1515/9783110792454-004
46 Chapter 4 The Uniqueness of Banks

4.1 Three Theories of Banking

Over the last 150 years or so, three theories of banking dominated at various times.
The credit creation theory of banking had its roots in the mid-to-late 19th century,
came to prominence in the early 20th century when it was widely accepted until the
1930s. According to this theory, individual banks create new money – creatio ex ni-
hilo – through the act of extending credit. From the 1930s to the 1960s, this view was
supplanted by the fractional reserve theory of banking. This maintained that banks
cannot individually create money but do so collectively through the money multiplier
effect. This view recognised the uniqueness of the banking sector in aggregate but
considered individual commercial banks simply as financial intermediaries that col-
lected deposits which they then lent out. This view was superseded in the 1960s by the
financial intermediation theory of banking, which saw individual banks as financial
intermediaries that were not much different from nonbanks, that gathered deposits
that they subsequently lent out, and which neither individually nor collectively cre-
ated new money.

4.1.1 Credit Creation Theory of Banking

The ability of private, commercial banks to create new money is something that was
commonly recognised during the 19th century, especially in nations – like the US and
the UK – where such banks issued promissory notes that circulated in the economy as
paper money, though the issuance of notes was eventually monopolised by central
banks. Yet, given that most private, commercial banks no longer issue physical notes,
can they still create money out of nothing? The credit creation theory of banking posits
that they can, through their ability to lend.
The Scottish economist Henry Dunning Macleod was an important advocate of
this theory. The two volumes of his The Theory and Practice of Banking written in 1855
and 1856, and the two volumes of his The Theory of Credit written in 1890 and 1891
clearly articulated the ability of banks to create new money through lending:
In modern times private bankers discontinued issuing notes, and merely created Credits in their
customers’ favour to be drawn against by Cheques. These Credits are in banking language termed
Deposits. Now many persons seeing a material Bank Note, which is only a Right recorded on
paper, are willing to admit that a Bank Note is cash. But, from the want of a little reflection, they
feel a difficulty with regard to what they see as Deposits. They admit that a Bank Note is an
‘Issue’, and ‘Currency’, but they fail to see that a Bank Credit is exactly in the same sense equally
an ‘Issue’, ‘Currency’, and ‘Circulation’. (Macleod, 1855–1856, vol. 2, 6th edition, p. 310)

Thus, “a bank is therefore not an office for “borrowing” and “lending” money, but is a
Manufactory of Credit” (Macleod, 1891, p. 594). This view was also supported by Hartley
Withers, the editor of The Economist from 1916 to 1921 and one of the most influential
financial journalists in London during the early part of the 20th century. According to
 4.1 Three Theories of Banking 47

Withers “Most of the money that is stored by the community in the banks consists of
book-keeping credits lent to it by its bankers” (Withers, 1909, p. 57) and “The greater
part of the banks’ deposits is thus seen to consist, not of cash paid in, but of credits
borrowed. For every loan makes a deposit” (Withers, 1909, p. 63). Withers also noted
that banks had effectively taken over and privatised – at least to a significant extent –
the ability to manufacture currency, which had traditionally been the prerogative of
governments and nations. Consequently, as Withers reflects
we see how great is the responsibility of the bankers as manufacturers of currency, seeing that
by their action they affect, not only the convenience of their customers and the profits of their
shareholders, but the general level of prices. If banks create currency faster than the rate at
which goods are being produced, their action will cause a rise in prices. (Withers, 1909, p. 54)

The credit creation theory of banking had broad support from leading economists like
Joseph Schumpeter, L. Albert Hahn, and Knut Wicksell. In Schumpeter’s The Theory of
Economic Development, published in English in 1934 and in German in 1911, he is clear
about the role played by banks: banks are manufacturers of credit that create – rather
than intermediate – the purchasing power that is lent to entrepreneurs. In History of
Economic Analysis, Schumpeter states that credit “is essentially the creation of pur-
chasing power for the purpose of transferring it to the entrepreneur, but not simply
the transfer of existing purchasing power” (Schumpeter, 1954, p. 107). As Wicksell
(1907, p. 214) observed “banks in their lending business are not only not limited by
their own capital; they are not, at least not immediately, limited by any capital what-
ever; by concentrating in their hands almost all payments, they themselves create the
money required”. L. Albert Hahn, one of the most respected economists in pre-World
War II Germany and heir to the Deutsche Effecten- und Wechsel-Bank banking dy-
nasty, was key to the popularisation of the credit creation theory of banking in Ger-
many. Hahn maintained that “every deposit that exists somewhere and somehow in
the economy has come about by a prior extension of credit” (Hahn, 1920, p. 28).
In 1929 the British government commissioned the Committee on Finance and In-
dustry – more commonly known as the Macmillan Committee – to investigate the
root causes of the Great Depression in the aftermath of the Wall Street Crash of 1929.
In 1931, the committee, which included prominent economists and bankers like John
Maynard Keynes and Reginald McKenna, produced the final report which saw “no
doubt as to the power of the banking system [. . .] to increase or decrease the volume
of bank money” (Macmillan Committee, 1931, p. 102). The report elaborated that:

the bulk of the deposits arise out of the action of the banks themselves, for by granting loans,
allowing money to be drawn on an overdraft or purchasing securities a bank creates a credit in
its books, which is the equivalent of a deposit. (Macmillan Committee, 1931, p. 34)
48 Chapter 4 The Uniqueness of Banks

4.1.2 Fractional Reserve Theory of Banking

The English economist Alfred Marshall was an early proponent of the fractional re-
serve theory of banking during the late 19th century, though at the time, his was a
decidedly minority perspective. During the 1920s and 1930s, several economists, such
as Chester Arthur Phillips (1920) and Friedrich August Lutz (1939) began casting doubt
on the significance of the credit creation theory of banking arguing instead that banks
are financial intermediaries that can collectively – but not individually – create new
money. This paved the way for the fractional reserve theory of banking to dominate
from the 1930s until the 1960s. The fractional reserve view suggests that banks act as
financial intermediaries that grant loans only when they receive new reserves of
which a portion must be deposited with the central bank. Phillips (1920) elaborated
that the banking system, as a whole, creates money when reserves are split into many
fragments, disperse across different banks, with each fragment then becoming the
basis of multiple new loans.
One of the most influential economists of the 20th century, Nobel laureate, Paul
Samuelson was unequivocal regarding his thoughts on the credit creation theory of
banking:
According to these false explanations, the managers of an ordinary bank are able, by some use of
their fountain pens, to lend several dollars for each dollar left on deposit with them [. . .] As every
banker well knows, he cannot invest money that he does not have; and any money that he does
invest in buying a security or making a loan will soon leave his bank. (Samuelson, 1948, p. 324)

Samuelson’s Economics has appeared in twenty editions (the 20th edition was published
in 2019) and has become a canonical economics texbook. In terms of money creation,
Samuelson states “The banking system as a whole can do what each small bank cannot
do!” (Samuelson, 1948, p. 324). Samuelson’s Economics was influential in popularising
the fractional reserve theory of banking. The fractional reserve theory of banking man-
aged to abstract the ability to create money to the aggregate, industry level, to the point
that banks individually are scarcely aware of the role they play. As Nobel laureate, and
the former Chief Economist of the World Bank, Joseph Stiglitz proposed:

when there are many banks, no individual bank can create multiple deposits. Individual banks
may not even be aware of the role they play in the process of multiple-deposit creation. All they
see is that their deposits have increased and therefore they are able to make more loans. (Stiglitz,
1997, p. 737)

4.1.3 Financial Intermediation Theory of Banking

The fractional reserve theory of banking soon gave way to the rise of the financial in-
termediation theory of banking from the 1960s to the present day. John Maynard
Keynes was, curiously, one of the few economists to journey from the credit creation
 4.1 Three Theories of Banking 49

to the fractional reserve and finally to the financial intermediation theories of bank-
ing and an important bellwether of how the theory of banking evolved during the
20th century. As one of the most influential economists of the 20th century especially
in the post-World War II period, Keynes’s embrace of the financial intermediation the-
ory of banking was important in driving the new theory into the mainstream. In his A
Tract on Monetary Reform, Keynes observed “The internal price level is mainly deter-
mined by the amount of credit created by banks [. . .] The amount of credit, so cre-
ated, is in its turn roughly measured by the volume of the banks’ deposits” (Keynes,
1923, p. 178). Less than a decade later Keynes stated in the second volume of his A
Treatise on Money “When a bank has a balance at the Bank of England in excess of its
usual requirements, it can make an additional loan to the trading and manufacturing
world, and this additional loan creates an additional deposit” (Keynes, 1930, p. 218)
and throughout his treatise referred to the “creation” of bank money in inverted com-
mas. By the time he wrote The General Theory of Employment, Interest and Money,
banks were reduced to financial intermediaries that needed to gather deposits before
they could extend loans and where:

the notion that the creation of credit by the banking system allows investment to take place to
which ‘no genuine saving’ corresponds can only be the result of isolating one of the consequen-
ces of the increased bank-credit to the exclusion of the others. (Keynes, 1936, p. 82)

During the 1960s Stanford economists John Gurley and Edward Shaw advanced the no-
tion that banks are simple financial intermediaries whose function is no different from
other nonbanking financial intermediaries (e.g., Gurley & Shaw, 1955; 1960). The finan-
cial intermediation theory of banking gained another highly influential backer in the
American economist and Nobel laureate James Tobin. For Tobin, “Commercial banks do
not possess, either individually or collectively, a widow’s cruse which guarantees that
any expansion of assets will generate a corresponding expansion of deposit liabilities”
(Tobin, 1963, p. 412). Prominent economists like Keynes, Tobin, Gurley, and Shaw were
important in quickly making the financial intermediation theory of banking, the domi-
nant view, from the 1960s onwards. This was true both in academia and in practice. In
academia, the majority of papers published in leading economics journals from the
1960s until the present day have been based on the financial intermediation theory of
banking, often to the exclusion of other theories, particularly the credit creation theory
of banking. Influential economists have continued to support the financial intermedia-
tion theory of banking including Douglas Diamond (e.g., Diamond & Dybvig, 1983), Gary
Gorton (e.g., Gorton & Pennacchi, 1990), and Franklin Allen (e.g., Allen & Santomero,
2001). The financial intermediation theory also dominated important finance and eco-
nomics textbooks like The New Palgrave Money by John Eatwell, Murray Milgate, and
Peter Newman (1989), International Economics: Theory and Policy by economist and
Nobel laureate Paul Krugman and former chief economist at the International Monetary
Fund Maury Obstfeld (1987), and Money, Banking And Finance Markets by economist and
50 Chapter 4 The Uniqueness of Banks

former head of the Monetary and Economic Department at the Bank for International
Settlements Stephen Cecchetti (2006).
In practice, the financial intermediation theory of banking was the dominant view
adopted by policy makers, many of whom began their careers in academia or who
continued to straddle both worlds. This included former European commissioner and
prime minister Mario Monti (e.g., Monti, 1972), the chief economic adviser to the La-
bour Party in the UK during the 1980s John Eatwell (Baron Eatwell) (e.g., Eatwell, Mil-
gate, & Newman, 1989), former chair of the Federal Reserve Ben Bernanke (e.g.,
Bernanke & Gertler, 1995; Bernanke, 1993), and the former chief economist at the In-
ternational Monetary Fund, Governor of the Reserve Bank of India, and the Vice
Chairman of the Bank for International Settlements Raghuram Rajan (e.g., Kashyap,
Rajan, & Stein, 2002).

4.1.4 The Need for a Credit Creation Revival

Proponents of the financial intermediation theory of banking went a long way to deni-
grating the credit creation theory of banking. Keynes referred to money “creation” in
inverted commas, using it as a rhetorical device to cast doubt, Tobin likened money
creation to the mythical widow’s cruse, while Eatwell, Milgate, and Newman’s (1989)
The New Palgrave Money refers to supporters of the credit creation theory of banking
as “cranks”. With the exception of a few economists like Basil Moore (1988) who con-
tinued to support the credit creation theory, the financial intermediation theory of
banking had seemingly secured its dominance resigning the idea that banks could cre-
ate money through lending to the realm of financial and economic alchemy.
Richard Werner‘s work on the quantity theory of credit, became a lone voice in the
wilderness calling for the revival of credit creation theory of banking, a voice that in-
creasingly could not be ignored. An economics and banking expert, Werner’s work at
the University of Tokyo and the Nomura Research Institute in the early 1990s brought
him into close contact with the Japanese economic situation in the run up to the asset
price bubble collapse in 1991 that triggered a prolonged period of economic stagnation
that was later referred to as the Lost Decade. Werner’s book Princes of the Yen was the
number one best seller in Japan in 2001 (the English edition was published in 2003) and
among other things highlighted how banks create money, how the creation of money
leads to cycles of booms and busts, and the role of central banks in manipulating credit
credtion. While serving as the chief economist for the Hong Kong-based investment
bank Jardine Fleming he coined the term quantitative easing (a literal translation of the
Japanese ryoteki kinyu kanwa) in 1994 and was quoted in an article in the The Nihon
Keizai Shinbun (Nikkei) on 2 September 1995 (Werner, 1995); the term became pervasive
in Japan and was used to describe the Bank of Japan’s monetary policy in the early
2000s; it gained global prominence after the GFC.
 4.1 Three Theories of Banking 51

As Werner (2014) notes the three theories of banking have predominantly relied on
the hypothetico-dedcutive methods that dominated 20th century economics research.
The debate between the different theories of banking would have likely continued in the
theoretical space – albeit with a revived credit creation school reinvigourated by Wern-
er’s contributions (for instance, Wener (2016) asks, if banks are merely intermediaries
why are customer deposits included on their balance sheets?). The question of whether
banks can create money through their lending activities would have remained unsettled
and confined to various deductive theoretical models had Werner not done something
very unique in 2013. In 2013 Werner conducted the first empirical test (in an uncon-
trolled, real-world setting) in the history of banking that demonstrated that banks create
new money when they lend. Werner published his findings in the International Review
of Financial Analysts (Werner, 2014). By empirically examining what happened to actual
internal bank accounting when he took out a 200,000 EUR loan at the German bank Raif-
feisenbank Wildenberg eG:

It was examined whether in the process of making money available to the borrower the bank
transfers these funds from other accounts (within or outside the bank). In the process of making
loaned money available in the borrower’s bank account, it was found that the bank did not trans-
fer the money away from other internal or external accounts, resulting in a rejection of both the
fractional reserve theory and the financial intermediation theory. Instead, it was found that the
bank newly ‘invented’ the funds by crediting the borrower’s account with a deposit, although no
such deposit had taken place. This is in line with the claims of the credit creation theory.
Thus it can now be said with confidence for the first time – possibly in the 5000 years’ his-
tory of banking – that it has been empirically demonstrated that each individual bank creates
credit and money out of nothing, when it extends what is called a ‘bank loan’. The bank does not
loan any existing money, but instead creates new money. The money supply is created as ‘fairy
dust’ produced by the banks out of thin air. The implications are far-reaching. (Werner, 2014,
p. 16)

In 2014 – the same year that Werner published the findings of his empirical study
that demonstrated how commercial banks create new money through their lending
activities – the Bank of England‘s Monetary Analysis Directorate published Money Cre-
ation in the Modern Economy in its Quarterly Bulletin in which they clearly supported
the credit creation theory of banking. In it, the Bank of England explained that broad
money is “a measure of the total amount of money held by households and companies
in the economy” (McLeay, Radia, & Thomas, 2014, p. 15) and is composed of currency
(coins and notes) and bank deposits, with bank deposits making up 97% of broad
money. The Quarterly Bulletin elaborated that:

Most of the money in circulation is created, not by the printing presses of the Bank of England,
but by the commercial banks themselves: banks create money whenever they lend to someone in
the economy or buy an asset from consumers. And in contrast to descriptions found in some text-
books, the Bank of England does not directly control the quantity of either base or broad money.
(McLeay, Radia, & Thomas, Bank of England, 2014, p. 25)
52 Chapter 4 The Uniqueness of Banks

and that

One common misconception is that banks act simply as intermediaries, lending out the deposits
that savers place with them. [. . .] Indeed, viewing banks simply as intermediaries ignores the
fact that, in reality in the modern economy, commercial banks are the creators of deposit money.
(McLeay, Radia, & Thomas, Bank of England, 2014, p. 15)

4.2 How Banks Create Money

Having demonstrated empirically that banks create new money when they lend
(Werner, 2014; 2016), Werner went on to describe in detail the mechanics of how
banks can do this, and how nonbanks cannot (Werner, 2014 (2); 2016). To do this,
Werner (2014 (2); 2016) considers, from a corporate banking perspective, what hap-
pens when banks and nonbanks (including nonbank financial intermediaries) issue
loans. The ability of individuals and businesses to grant loans is not necessarily a reg-
ulated activity, for example in the UK, a business can issue loans to other businesses
without the need for regulatory authorisation. When a nonbank issues a loan (e.g., a
100,000 USD loan) to another firm, the loan contract, which is considered a promis-
sory note, is treated as an asset since the lender now has a new claim on debtors.
Thus – maintaining the same example – the nonbank issuing the loan now has an
additional 100,000 USD in assets on their balance sheet. So long as the loan amount
has not been disbursed to the borrower, a balancing entry is added to the liabilities
side of the balance sheet under accounts payable. The nonbank now has an accounts
payable liability of 100,000 USD, which will only be removed once they transfer the
loan amount to the borrower. Thus the 100,000 USD in assets (the loan contract) is
balanced by the 100,000 USD in accounts payable. Up until this step in the process, the
situation with a bank issuing the loan would be identical. The difference between
banks and nonbanks becomes apparent when the lender disburses the loan to the
borrower thereby discharging its obligation to make the money available to the
borrower.
For the nonbank, to disburse the loan amount to the borrower, they would need
to draw from their funds (e.g., cash, or deposits the nonbank holds with banks). Thus,
at the moment of disbursing the money owed to the borrower, the nonbank lender
draws on their monetary deposits (a balance sheet asset) thereby reducing them; at
the same time, the nonbank lender’s accounts payable liability is removed (given that
they have satisfied their obligation to make the money available to the borrower). In
our example, the nonbank lender withdraws 100,000 USD from their monetary depos-
its to pay the borrower. To the additional 100,000 USD loan contract on the asset side
of the balance sheet we now subtract 100,000 USD in reduced monetary deposits. The
asset side of the balance sheet therefore nets to zero (100,000 USD loan – 100,000 USD
in reduced monetary deposits). Simultaneously, the account payable liability on the
other side of the balance sheet is removed (reduced to zero) as the lender has met
 4.2 How Banks Create Money 53

their obligation to transfer the loan amount to the borrower. Thus, both the asset and
liability sides of the balance sheet are again balanced. As Werner (2014 (2)) comments:
For firms without a bank licence, the disbursement of the loan is from funds elsewhere within the
firm. Thus there is an equal reduction in balance of another account from which the lent funds
came from. Therefore, the balance sheet shrinks again. There is no overall change in the total
size of the balance sheet (Werner, 2014 (2), p. 74, emphasis in the original)

For banks, from the point where they disburse the loan amount to the borrower, the
process looks quite different. For banks, they simply reclassify the accounts payable
liability as a customer deposit. They then present to the borrower a statement of this
liability as a customer deposit that satisfies the banks obligation to make the money
available to the borrower; the borrower acknowledges this liability in the form of
their (the borrower’s) deposit at the bank. In our example, the bank which thus far
has 100,000 USD as loans on the assets side of their balance sheet and a 100,000 USD
accounts payable on the liabilities side of their balance sheet, simply removes the
100,000 USD accounts payable liability and replaces it with a 100,000 USD customer
deposit liability. The bank’s balance sheet still balances with 100,000 USD on each
side; however, it has expanded on both sides by the loan amount (100,000 USD).
Werner (2014 (2)) elaborates:

The bank, having ‘disbursed’ the loan, remains in a position where it still owes the money. In
other words, the bank does not actually make any money available to the borrower: No transfer
of funds from anywhere to the customer or indeed the customer’s account takes place. There is
no equal reduction in the balance of another account to defray the borrower. Instead, the bank
simply reclassified its liabilities, changing the ‘accounts payable’ obligation arising from the bank
loan contract to another liability category called ‘customer deposits’.
While the borrower is given the impression that the bank had transferred money from its
capital, reserves or other accounts to the borrower’s account (as indeed major theories of bank-
ing, the financial intermediation and fractional reserve theories, erroneously claim), in reality
this is not the case. Neither the bank nor the customer deposited any money, nor were any funds
from anywhere outside the bank utilised to make the deposit in the borrower’s account. Indeed,
there was no depositing of any funds. (Werner, 2014 (2), p. 74, emphasis in the original)

What gives banks this unique ability to reclassify the liabilities that arise from them
originating loans into customer deposits, is not their ability to lend but their role in
maintaining customer deposits. Since banks not only originate loans but also maintain
customer deposits, they control the record-keeping of these customer deposits; it is
this control over deposit taking that allows them to reclassify accounts payable loan
liabilities into customer deposits. However, deposit taking is a necessary but insuffi-
cient condition for money creation. Other nonbanking financial intermediaries such
as stockbrokers also accept customer deposits, as do nonfinancial services firms (e.g.,
real estate firms receiving customer deposits). However, these firms cannot create
new money. The deposit taking activities of nonbanking firms are regulated. For non-
banking firms, moneys deposited with them by customers must be segregated and
cannot appear as part of the nonbanking firms’ assets or liabilities. For instance, in
54 Chapter 4 The Uniqueness of Banks

the US, the Securities and Exchange Commission requires nonbanking firms to segre-
gate investor funds from their own balance sheet, specifically through Securities Ex-
change Act (SEA) Rule 15c3-3 (Securities and Exchange Commission, 2016). In the UK,
the Financial Conduct Authority imposes strict Client Money Rules on deposit taking
nonbanking firms; the Financial Conduct Authority’s Handbook dedicates Chapter 7
to Client Money Rules, in which it states in Section 7.13.3:

A firm, on receiving any client money, must promptly place this money into one or more ac-
counts opened with any of the following:
1) A central bank
2) A CRD credit institution
3) A bank authorised in a third country
4) A qualifying money market fund (Financial Conduct Authority, 2022 (2), p. 30)

However, banks are exempted from client money rules and are thus not required to
segregate customer deposits from their own balance sheets. Thus, as Werner (2014 (2))
observes:

Thanks to this exemption [to client money rules] they are allowed to keep customer deposits on
their own balance sheet. This means that depositors who deposit their money with a bank are no
longer the legal owners of this money. Instead, they are just one of the general creditors of the bank
whom it owes money to. It also means that the bank is able to access the records of the customer
deposits held with it and invent a new ‘customer deposit’ that had not actually been paid in, but
instead is a re-classified accounts payable liability of the bank arising from a loan contract. [. . .]
banks are not financial intermediaries, but creators of the money supply, whereby the act of creat-
ing money is contingent on banks maintaining customer deposit accounts, because the money is in-
vented in the form of fictitious customer deposits that are actually re-classified ‘accounts payable‘
liabilities emanating from loan contracts. Banks could not do this if they did not combine lending
and deposit taking activities. But, as we saw, combining these activities is a necessary yet insuffi-
cient condition for being able to create credit and money. The necessary and sufficient condition for
being able to create credit and money is being exempt from the Client Money Rules. [. . .] What
makes banks unique and explains the combination of lending and deposit-taking under one roof is
the more fundamental fact that they do not have to segregate client accounts, and thus are able to
engage in an exercise of ‘re-labelling’ and mixing different liabilities, specifically by re-assigning their
accounts payable liabilities incurred when entering into loan agreements, to another category of liabil-
ity called ‘customer deposits’. (Werner, 2014 (2), p. 75, emphasis in the original)

In 2001, the former president of the Central Bank of the Republic of San Marino and
banking scholar Biagio Bossone, provided a good comparison of banks and nonbank
financial intermediaries:

(1) Banks allow the circuit to start by providing new money for new production. Such money is
in the form of banks’ own liabilities, or debt claims on the banks themselves, that are made avail-
able to the borrowers under loan contract terms. Banks do not intermediate existing money, but
add to it every time they extend new loans to firms in the form of new deposit claims, while
simultaneously committing to honor the deposit claims already outstanding. Banks specialize in
selecting borrowers to whom they allocate the new deposit claims.
 4.3 The Importance of Accounting for Banks’ Unique Ability to Create Money 55

(2) Nonbank financial intermediaries allocate existing liquidity (bank deposits) from investors
with long liquidity positions to fund users with short liquidity positions. Unlike banks, the money
intermediated by financial intermediaries does not represent claims on the intermediaries them-
selves; such money consists of claims on banks (i.e., deposits) and, as such, it can only move
across bank accounts. Thus, while intermediaries transfer money across agents with different
liquidity preferences, in no case do they create money. By funding investment, financial
intermediaries enable capital goods producing firms at circuit end to appropriate the money
spent in production and to service their short-term debt obligations to banks. (Bossone, 2001,
p. 2252, emphasis in the original)

Bossone (2001) infers important implications from this. Banks extract seigniorage since
they finance loans by issuing new deposit claims, “the interest charged on the loans are
not a compensation for foregone consumption and intermediation services. The interest
rate (net of the resource costs to process lending and remunerable deposits) is a pure
rent that banks extract from borrowers by virtue of their exclusive power to create
money” (Bossone, 2001, p. 2253, emphasis in the original). On the other hand, seignior-
age is not extracted by nonbank financial intermediaries who are only reallocating ex-
isting liquidity, “interest payments on a company’s debt to a financial intermediary
represents a production cost item against the company’s revenues. [. . .] they are a com-
pensation to investors for parting with liquidity and to intermediaries for providing in-
termediation services” (Bossone, 2001, p. 2253). Thus, the dual role that banks play in
originating loans and taking deposits, and their exemption from client money rules, not
only allows banks to create new credit and new money, but also gives them seigniorage
(from the right of the lord or droit du seigneur) to charge interest on the loans they
originate eo ipso because they are able to originate credit and money.

4.3 The Importance of Accounting for Banks’ Unique Ability to

Create Money When Considering Strategies

This chapter has gone to some lengths to clarify the true role of banks in creating new
money. This role was clearly understood at the start of the 20th century and sup-
ported by such luminaries as Macleod, Hahn, and Schumpeter. From the 1960s on-
wards banks’ role in money creation was obfuscated. As the financial intermediation
theory of banking quickly came to dominate both academia and practice, banks were
considered mere financial intermediaries that were no different from other nonbank-
ing financial intermediaries or indeed nonfinancial firms (save for some distinguish-
ing features related to reserve requirements and capital requirements). Werner was
one of the few economists in recent times to call for a revival of the credit creation
theory of banking and was the first person to demonstrate empirically that banks cre-
ate money through their lending activities. The ramifications of this are wide ranging,
from economic theory to monetary reform, to government policy, to banking regula-
tions. However, all these are not directly relevant to the scope of this book. The reason
56 Chapter 4 The Uniqueness of Banks

I have given considerable attention to the ability of banks to create money when they
lend is because this unique ability also has important ramifications for strategy, both
banking strategy – which this book is primarily concerned with – as well as the strat-
egy of other stakeholders such as fintechs, bigtechs, venture capital firms, and regula-
tors. Werner (2016, p. 17) concludes “. . . it does not make much sense to build
economic theories of the financial sector, if these are not based on institutional (and
accounting) realities”; it also makes no sense to build strategies in the financial sector
if these are not based on institutional realities.
Given the dominance of the financial intermediation theory of banking it is no
wonder that so many observers of the fintech boom over the last decade and of the
dire situation many banks found themselves in after the GFC concluded – as was dis-
cussed in Section 3.3.1 – that banks faced a real threat of disintermediation. If banks
are merely financial intermediaries, it would therefore follow that a new entrant –
such as a fintech or bigtech – that could conduct their intermediation activities more
effectively would eventually disintermediate them. If this was the case, then banking
leaders would contend with this competitive threat in much the same way that incum-
bent firms in other industries deal with innovative new entrants. They may, for exam-
ple, seek to renew their capabilities, upskill their staff, or acquire the new entrants.
However, as Werner empirically demonstrated, banks are not merely financial
intermediaries; instead, they have the unique ability to create new money when they
lend given that they are also deposit takers who do not need to comply with client
money segregation rules. Recognising this unique ability has important implications
for the formulation of strategy. Firstly, it means that banks do not face the threat of
disintermediation in their core activity of money creation (usually the source of
banks’ interest-income). Secondly, they do still face the threat of disintermediation
when it comes to (often ancillary) activities relating to the intermediation of existing
money that the banks have created such as in payments and remittances, and private
banking and wealth management (usually the sources of banks’ noninterest income).
Thirdly, given this better understanding of where banks face the threat of disintermedi-
ation and where they do not, banks can draw on their unique ability to create money to
take less defensive and more proactive strategies to contend with the challenges dis-
cussed in Chapters 1–3. For instance, banks can draw on their unique ability to create
money, as well as their institutional legitimacy, client relationships, and financial know
how to proactively originate ecosystems of different stakeholders that come together on
a technological platform to cocreate value that none could have created alone and
which all can benefit from. This is explored further in the next chapter which considers
the strategic implications of the phenomena discussed in Chapters 1 to 4.
There is a further consideration which is important to account for. While none of
the phenomena discussed so far – new regulations, new technologies, new business
models, new entrants (fintechs and bigtechs) – pose the threat of disintermediation
when it comes to banks’ core activity of money creation through lending, a couple of
phenomena have arisen that could present such a threat. Fintechs, bigtech, and other
 4.3 The Importance of Accounting for Banks’ Unique Ability to Create Money 57

nonbank financial intermediaries cannot compete with banks on money creation un-
less they obtain a banking license thus becoming banks themselves (with all the regu-
latory ramifications that that would entail). However, what if there was a global
seismic change in the way that money is created? Decentralised, peer-to-peer crypto-
currencies like Bitcoin, retail central bank digital currencies (retail CBDCs), and de-
centralised finance (DeFi) – which were discussed in Section 2.3.1 – are examples of
such fundamental disruptions. However, these more fundamental changes would
need to be universally and sustainably adopted for them to disintermediate banks,
which so far, they have not. Whether these become more widely adopted is to be
seen, however, by better strategising for the more established phenomena presented
in Chapters 1 to 4, banks would be better positioned to cope with these more radical
changes should they ever enter the mainstream.
Chapter 5
Implications for Bank Strategies: Interdependence,
and Value Cocreation

This chapter examines the implications of the forces discussed in Chapters 1 to 4 on

banks’ strategies. The chapter starts by providing this book’s definition of strategy
and this book’s Resource Based View (RBV) of strategic management in Section 5.1. Re-
flecting on the forces and themes that were elaborated on in Chapters 1 to 4 and the
need for digital acceleration, Section 5.2 presents two important strategic implications
for banks that are key components of digital acceleration: interdependence, and value
cocreation, particularly in the context of networks. With this in mind, Section 5.3 ex-
plores the different facets of interdependence and value cocreation, including the eco-
nomic aspects (Section 5.3.1), structural and behavioural considerations (Section 5.3.2),
alignment mechanisms (Section 5.3.3), and technological factors (Section 5.3.4). Sec-
tion 5.4 concludes Part 1 of this book by posing the question: What strategies of inter-
dependence and value cocreation have banks adopted in the platform economy age?
This book maintains that banks’ strategies of interdependence and value cocreation
can best be captured by observing modalities of strategies of interdependence and
value cocreation; the rest of Section 5.4 details the four modalities and seventeen sub-
modalities that this book has identified. In doing so, Section 5.4 sets the scene for
Part 2 of this book which attempts to answer the question empirically.

5.1 Defining Strategy

Before this chapter delves deeper into the strategic implications of the themes and
forces discussed in Chapters 1 to 4, it is important to define strategy and to present this
book’s perspective on strategy. While the concept of strategy can have several defini-
tions – Henry Mintzberg (1987), for example, offers five definitions – a consensual defi-
nition of strategic management was formulated by Nag, Hambrick, & Chen (2007) based
on a large-scale survey of strategic management scholars. Their definition – which this
book aligns with – presents strategic management as dealing with “the major intended
and emergent initiatives taken by general managers on behalf of owners, involving utili-
zation of resources, to enhance the performance of firms in their external environments”
(Nag, Hambrick, & Chen’s, 2007, p. 944, emphasis in the original).
Identifying and interpreting sources of firms’ performances – or sustained com-
petitive advantage – has been an enduring and important focus of the discipline of
strategic management. Jay Barney provides a useful definition of sustained competi-
tive advantage, he states that a firm has “a sustained competitive advantage when it is
implementing a value creating strategy not simultaneously being implemented by any

https://doi.org/10.1515/9783110792454-005
 5.1 Defining Strategy 59

current or potential competitors and when the other firms are unable to duplicate the
benefits of this strategy” (Barney, 1991, p. 102). As do Peteraf & Barney (2003) who
elaborate that an enterprise “. . . has a Competitive Advantage if it is able to create
more economic value than the marginal (breakeven) competitor in its product mar-
ket” (Peteraf & Barney, 2003, p. 314, emphasis in the original) and “The Economic
Value created by an enterprise in the course of providing a good or service is the dif-
ference between the perceived benefits gained by the purchasers of the good and the
economic cost to the enterprise” (Peteraf & Barney, 2003, p. 314, emphasis in the origi-
nal). The value that is being created can be defined as the difference between the
price customers are willing to pay for a firm’s products and services and the cost in-
curred by the firm to produce them (Brandenburger & Stuart, 1996). Competition
drives prices down, which means more value is captured by customers and less value
is appropriated by firms; however, firms that can create a differential advantage that
rivals cannot fully compete away will be able to appropriate more of the Ricardian
rent that is generated and sustain a competitive advantage (Demsetz, 1973).
The positioning school of strategy popularised by Michael Porter presented an ap-
proach to achieving sustained competitive advantage that became dominant during
the 1980s. Building on Industrial Organisation‘s structure-conduct-performance (SCP)
paradigm (Bain, 1959), the positioning school’s proposition was that a firm derives sus-
tained competitive advantage against competitive forces by undertaking strategies
that use its internal strengths while limiting internal weaknesses to capitalise on ex-
ternal opportunities and counteract any external threats. Many researchers focused
on further understanding these four elements (strengths, weaknesses, opportunities,
and threats) and analysing how the interplay between them leads to the generation
and selection of strategies. Although the positioning framework is useful in highlight-
ing the impact of environment on a firm’s performance, some of its underlying as-
sumptions have been disputed. Barney (1991) disputes two assumptions made by the
positioning framework, first the assumption that all firms within an industry or
group control identical strategically relevant resources; and second, the assumption
that if a new entrant injects any source of resource heterogeneity, any resultant com-
petitive advantage will be short-lived due to high resource mobility. Thus, based on
the understanding that firms with a differential advantage can appropriate more of
the value generated (Demsetz, 1973) and on Ricardo’s (1817) theory of scarcity rents,
Barney’s (1991) analysis of the sources of firms’ sustained competitive advantage led
him to propose instead the RBV – coined by Birger Wernerfelt in 1984 – which as-
sumes that firms in an industry or group may be heterogeneous in terms of their stra-
tegic resources and that this heterogeneity can be long-lasting as resources are not
perfectly mobile. Firms’ resource heterogeneity means that firms of varying capabili-
ties can compete in the market with those controlling superior resources able to de-
rive Ricardian or monopoly rents (Peteraf, 1993). This book predominantly takes an
RBV of strategy.
60 Chapter 5 Implications for Bank Strategies: Interdependence, and Value Cocreation

While Barney’s 1991 article in the Journal of Management was critical to the popu-
larisation of the RBV, its adoption by practitioners and the large body of academic
research that subsequently sought to deepen and enrich it, the roots of RBV go further
back to Penrose (1959) who theorised how firms could generate economic value and
profitable growth through the effective management of resources as well as their idio-
syncratic combination and deployment as innovative products and capabilities. Pen-
rose (1959) made the link between how firms manage resources and the sustaining of
the competitive advantage those resources afford the firm, as well as highlighting im-
portant characteristics of resources and capabilities such as path-dependencies and
social-complexity (the evolution of idiosyncratic, firm-specific knowledge).
The RBV considers that a firm’s resources and capabilities are “bundles of tangible
and intangible assets, including a firm’s management skills, its organisational processes
and routines, and the information and knowledge it controls that can be used by firms
to help choose and implement strategies” (Barney, Ketchen Jr., & Wright, 2011, p. 1300).
These resources and capabilities can be defined as physical capital resources (e.g., phys-
ical technology, plant and equipment, and access to raw material), human capital
resources (including training, expertise, judgement, and relationships of individual
managers), and organisational capital (including firms’ reporting structures, planning,
and coordination systems) (Barney, 1991). Barney (1991) provides a model for applying
the RBV to create strategies for achieving sustained competitive advantage. Based on
the assumptions of resource heterogeneity and resource immobility, firms can achieve
sustained competitive advantage by exploiting resources that have the following attrib-
utes: a) value, b) scarcity, c) imperfectly imitable, and d) imperfectly substitutable. A
resource is valuable if it helps firms create strategies that capitalise on opportunities
and/or neutralise threats. The rarity of resources is important because if a large num-
ber of firms possess and exploit a valuable resource using a common strategy, no single
firm will have a competitive advantage. Valuable and rare resources can only be sour-
ces of sustained competitive advantage for firms if other firms that do not possess them
cannot easily imitate them. A firm can derive sustained competitive advantage from
valuable, rare and imperfectly imitable resources only if other firms cannot implement
the same strategy in a different way by using strategically equivalent resources (substi-
tutes). There are several factors that contribute to a resource’s imperfect imitability: the
impact of unique historical conditions on a firm’s ability to obtain resources; causal am-
biguity, whereby the link between a firm’s resources and the firm’s sustained competi-
tive advantage is not understood or imperfectly understood; social complexity, in that a
firm’s resources may have arisen through socially-complex constructs like culture, rep-
utation, and interpersonal relationships between managers; interconnectedness (the ve-
locity of an asset’s accumulation is influenced by the accumulation of other assets);
asset erosion; asset mass efficiencies (the velocity of an asset’s accumulation is influ-
enced by its initial level); and, time compression diseconomies (Barney, 1991; Dierickx &
Cool, 1989).
 5.2 Strategic Implications: Interdependence, Value Cocreation 61

5.2 Strategic Implications: Interdependence, Value Cocreation

Reflecting on Chapters 1 to 4, banks will need to take into account the following im-
portant considerations when formulating their strategies:

– After the GFC, the net regulatory burden has risen significantly for banks.

– After the GFC, financial regulators and public policy makers enacted regulations
and policies that boosted the activities of fintechs and bigtechs.

– Historically, banks are experienced at navigating periods of tightening and loosening

banking regulations, adopting a long-term approach to lobby for regulatory changes,
and a shorter-term approach of regulatory arbitrage.

– Partnering with fintechs and bigtechs can present banks with a source of regulatory
arbitrage.

– Banks are no strangers to navigating technological changes and have recognised the
importance of digital transformation, they have therefore digitalised their current
business models.

– However, the characteristics of the second machine age, the hypercompetitive pace
of technological innovation, changing customer behaviours of the digitally native gen-
eration, and the rise of the platform economy, require banks not only to digitalise
their existing business models, but to digitally accelerate by considering the possibil-
ity of business models evolving, and new digital-first business models emerging.

– Increasingly, banks will need to consider the social and geopolitical aspects of technol-
ogy decisions, especially as the world continues to become more multipolar.

– After the GFC, long-term near-zero interest rates eroded banks’ net interest incomes.

– After the GFC, fintechs emerged to contest banks in certain financial functions, chal-
lenging various sources of banks’ noninterest incomes; fintechs have received tremen-
dous amounts of financial support from investors especially venture capital.

– Bigtechs began penetrating into financial services, also challenging sources of

banks’ noninterest incomes, especially in payments and remittances.

– During the 2010s, there was much hubris regarding the potential of fintechs and
bigtechs to disintermediate banks.

– Fintechs and bigtechs lack banks’ long-lasting relationships and financial expertise,
moreover, fintechs also lack banks’ size and institutional legitimacy.

– The majority of mainstream observers mischaracterise the role of banks due to an

erroneous adherence to the financial intermediation theory of banking that has become
dominant in economics; they consider banks as mere financial intermediaries, and
62 Chapter 5 Implications for Bank Strategies: Interdependence, and Value Cocreation

therefore at significant risk of being disintermediated by new competitors that can fulfil
the role of financial intermediary in a more efficient way.

– Banks are nor mere financial intermediaries (fintechs, and bigtechs are); as was em-
pirically demonstrated by Werner (2014; 2016), banks have the unique ability to create
new money when they lend by virtue of their ability to accept customer deposits with-
out being required – as nonbanks are – to segregate them from their balance sheets,
they are then able to charge interest on this newly created money through their abil-
ity to extract seigniorage.

– Fintechs and bigtechs do not pose a threat for banks’ core function of creating money
through lending, they do, however, pose a threat to banks’ other functions relating to
the intermediation of existing money (e.g., payments and remittances), banks can use
their unique and core function to adopt more proactive strategies vis-à-vis the new regu-
latory, technological, and competitive challenges that they face.

– Innovation in financial services is increasingly taking place outside of banks, which

means an increasing number of strategic resources and capabilities are outside the
ownership and control of banks; this in turns means that banks will need to consider
how they respond and interact with these external resources and capabilities.

Given these important considerations, what then are the strategic implications for
banks? This book does not pretend to cover all the strategic implications presented by
these various regulatory, competitive, and technological considerations. However,
these considerations have two important strategic implications for banks, which this
book expounds upon: interdependence, and value cocreation. Interdependence refers
to how a firm (in this case a bank) accounts for external stakeholders as key compo-
nents of their strategies for sustained competitive advantage. In today’s platform
economy, and given the strategic considerations highlighted in Chapters 1 to 4, this
relationship with external stakeholders goes beyond traditional supply chain dynam-
ics, or short-to-medium term alliances based on discrete scopes. Interdependence in
today’s world therefore becomes a more fundamental consideration to firms’ business
models. Thus, in formulating their strategies for sustained competitive advantage,
firms need to consider how they integrate external stakeholders into their business
models, and whether they evolve their business models to facilitate that integration.
The second strategic implication, value cocreation, is tightly linked to interdepen-
dence. Value cocreation, describes the value that an ecosystem of stakeholders can
create through the comingling of their resources and capabilities, that none could
have created alone, that is beneficial to all cocreators, and which can be internalised –
to varying degrees – by all the cocreators.
Thus, banks cannot afford to react to these new strategic considerations as they have
in the past, by simply developing resources and capabilities internally and through their
supply chains (e.g., mobile banking, internet banking) or in collaboration with other
 5.2 Strategic Implications: Interdependence, Value Cocreation 63

banks (e.g., SWIFT). In today’s networked economy, banks, like most firms, will need to
strategise for interdependence and value cocreation. Banks need to strategise for inter-
dependence due to the proliferation of strategically important resources and capabili-
ties across firm boundaries and the rapid rate at which those resources and capabilities
are evolving. The wider a bank’s business operations and the greater the number of
geographic and regulatory environments in which it operates, the greater the level of
interdependence it will likely face. The proliferation of strategically important resour-
ces and capabilities outside the ownership or control of banks can pose an important
risk for banks, including the risk that new technologies lead to new business models
that disintermediate banks from certain functions. This means that there will be situa-
tions where banks need to guard against increasing interdependence and protect impor-
tant resources and capabilities from spilling over to external stakeholders. However,
there will also be situations where banks can benefit from interdependence to cocreate
value with external stakeholders, for example, to benefit from the situations of regula-
tory arbitrage mentioned in Chapter 1.
Banks can cocreate new value propositions and business models through adopt-
ing new ways to assemble, manage, and govern hybrid architectures of their own re-
sources and capabilities and the resources and capabilities of others. In fact, the
platform economy age may present banks with the opportunity to originate or lead
platform-based value propositions that are impossible for any individual stakeholder
to create in isolation, and which create benefits for all participants, especially the plat-
form leader who can tailor the development of the platform in line with their own
strengths to capture a greater share of the cocreated value.
Moreover, given banks’ unique ability to create new money, their financial exper-
tise, established relationships, and institutional legitimacy, they can build on these ad-
vantages to take a more proactive approach when incorporating interdependence
and value cocreation in their strategies. For instance, rather than participating in eco-
systems, banks can lead them, and rather than joining existing ones, they can origi-
nate new ones. Regulatory arbitrage via fintechs and bigtechs is by no means the only
scenario; the relationship between banks, fintechs, and bigtechs is far more nuanced
than many observers present, and deeper examination uncovers opportunities for
banks to assume a proactive approach towards strategies of interdependence and
value cocreation.
Many observers present the dynamic as lumbering, legacy banks on one side ver-
sus innovative fintechs and bigtechs on the other. The real dynamic is more complex
and involves competition, collaboration, and coopetition across the three groups of
actors. As innovative as they are, fintechs and bigtechs still rely on banks for regu-
lated operations like holding customer deposits and issuing debit cards (The Wall
Street Journal, 2022), which means that they more often than not need to partner with
banks. Hornuf, Klus, Lohwasser, & Schwienbacher (2021) demonstrate how banks
partner with fintech start-ups to accelerate the digitalisation of their business activi-
ties. Bigtechs also provide banks with the technologies they need to digitalise. Given
64 Chapter 5 Implications for Bank Strategies: Interdependence, and Value Cocreation

the substitutability of their value propositions in relation to banks, bigtechs and fin-
techs – as Harasim (2021) points out – are likely to compete as potential technology
providers for banks. Bigtechs are also critical third-party providers of technology (e.g.,
cloud computing platforms, artificial intelligence, and machine learning software) for
banks, which raises important considerations around conflicts of interest, market con-
centration, and systemic risk. This may lead banks to adopt a more measured stance as
to how much they compete or collaborate with bigtechs, as well as viewing fintech col-
laboration as a potential counterbalance. By taking a more proactive, leading approach
in their strategies of interdependence and value cocreation, banks can collaborate or
coopetate with fintechs and bigtechs in areas that are mutually beneficial, while identi-
fying the areas that they should erect barriers around.

5.3 The Different Facets of Interdependence

and Value Cocreation
Interdependence and value cocreation will increasingly be important components of
banks’ strategies. Banking leaders will need to renew many of their resources and ca-
pabilities (e.g., technology infrastructures, the skills of their staff) to make them better
adapted to interdependence and value cocreation. However, the notions of interde-
pendence and value cocreation have different facets, which banking leaders need to
understand in order to successfully incorporate interdependence and value cocrea-
tion into their overall strategies. These facets include the economic benefits (and
risks) of interdependence and value cocreation, alignment mechanisms and new man-
agerial imperatives, and technological aspects. This section examines these facets in
more detail.

5.3.1 Economic Aspects of Interdependence and Value Cocreation

During the 1990s and early 2000s, the notion of interdependence and value cocreation
was predominantly considered in the context of two firms forming dyadic relation-
ships, or a small group of firms creating multifirm alliances. The dyadic and multifirm
relationships often had defined, discrete scopes – both in terms of duration and busi-
ness operations. In 1998, Jeffrey Dyer and Harbir Singh proposed the Relational View
to explore the economic benefits of dyadic or multifirm interdependence and value
cocreation, and the structural and behavioural aspects of such relationships that drove
or dampened the resultant economic benefits. Dyer & Singh’s (1998) Relational View
proposed that a firm can combine its resources and capabilities with those of other
firms to create unique, idiosyncratic combined resources and capabilities that generate
relational rents and competitive advantage. Dyer & Singh (1998, p. 662) define rela-
tional rents as “a supernormal profit jointly generated in an exchange relationship
 5.3 The Different Facets of Interdependence and Value Cocreation 65

that cannot be generated by either firm in isolation and can only be created through
the joint idiosyncratic contributions of the specific alliance partners”. They elaborated
that those relational rents are in fact a form of quasi-rents (returns exceeding a factor’s
short-term opportunity cost and its next best use, which can often be generated as
added value through firms’ idiosyncratic, specialised resources and capabilities) and
as such are not permanent in nature.
In 2006, Dovev Lavie expanded on Dyer & Singh (1998) to highlight additional eco-
nomic aspects of interdependence and value cocreation. Lavie (2006) grouped relational
rents (quasi-rents) that a focal firm can internalise from its inter-organisational activi-
ties along with the Ricardian rents it can derive from valuable, scarce nonshared re-
sources and capabilities into what Lavie (2006) calls “Internal Rent”. Lavie (2006) also
identified other sources of rent created by interdependence beyond relational rent: in-
bound spillover rent and outbound spillover rent. Inbound spillover rent is generated
when the focal firm can access knowledge that is unintentionally leaked from partner-
ing firms and that is beyond the scope of the partnership; outbound spillover rent is the
rent that can be appropriated from the focal-firm by partners who obtain unintention-
ally leaked knowledge from the focal firm beyond the scope of the partnership (Lavie,
2006). Lavie (2006) also made the point that a focal firm’s nonshared resources and ca-
pabilities may be affected positively or negatively by complementarities with a partner
or multiple partners’ nonshared resources and capabilities, which means that interde-
pendence impacts the focal firm beyond the scope of the resources and capabilities it
has decided to share. Thus, as Lavie (2006) suggests, strategies of interdependence can
be value-destructive and not always value-creative depending on how they are em-
ployed (e.g., the cost of managing diverse relational initiatives may be greater than the
value derived from them). Lavie’s (2006) model can thus be expressed through the fol-
lowing formula:
Internal Rent appropriated by focal firm = Ricardian rents derived from nonshared focal firm
resources + Relational rents internalised from focal-firm and partner firm(s) shared resources +
Inbound spillover rents gained from partner firm(s) nonshared resources – Outbound spillover
rents lost from non-shared focal firm resources

It is important to note that Dyer & Singh (1998) and Lavie’s (2006) contributions pre-
ceded the rise of the platform economy. At the time, the platform economy was in its
infancy and neither the technologies (e.g., cloud computing, blockchain, smartphones)
nor the firms (e.g., Facebook, Uber, PayPal, Google, Alibaba) that came to define it
were prevalent. From a banking perspective, the majority of the strategic considera-
tions detailed in Section 5.2 were either not present or relevant at the time. In today’s
world, to adequately make sense of the economic aspects of interdependence and
value cocreation, additional economic dimensions that are specific to the nature of
interdependence and value cocreation in the platform economy context need to be
accounted for.
66 Chapter 5 Implications for Bank Strategies: Interdependence, and Value Cocreation

Both Dyer & Singh (1998) and Lavie (2006) present relational rents as quasi-rent,
which are short term in nature. This is logical given that the nature of interdepen-
dence and value cocreation during the 1990s and early 2000s more often than not had
limited temporal and operational scopes. However, the business models that have
since emerged as part of the platform economy can also result in conditions whereby
relational rents drive the generation of Ricardian or even monopoly rents. In the plat-
form economy age, this is especially true when firms create networks. For example, a
network of firms can commit resources and capabilities for the origination of a new,
idiosyncratic value proposition through which the participating firms can internalise
a portion of the generated rent, which are then sustained through various isolating
mechanisms (e.g., barriers to imitability) and thus become long-lasting differential (Ri-
cardian) rents or monopoly rents. As Neil Kay, Sohvi Leih, and David Teece (2018,
p. 633) point out a value proposition created by a network “is not reducible to what
any firm has, or even to any single aggregation of the various capabilities of all indi-
viduals and sections of the firm” and that firms can thus internalise rents generated
at the network level by developing capabilities that allow it to participate or lead the
network and coevolve its own capabilities in line with those of the network.
There are important differences between firms strategising for interdependence
and value cocreation through networks versus doing so in dyadic or multifirm con-
texts. A network describes the interdependencies and interconnectedness of nodes
(participating individuals or firms) (McIntyre & Srinivasan, 2017). Economists from
the Industrial Organisation field have studied networks and their benefits since the
1980s and have observed network effects (or network externalities) which are the ex-
ternal benefits that participants in a network (such as end users, firms, complemen-
tors, suppliers) derive through the participation of others in that network (Katz &
Shapiro, 1986). Participants can maximise network effects by ensuring that their prod-
ucts and services are compatible with others in their network (Katz & Shapiro, 1986).
Markets that experience network effects are more often than not multisided markets
where a platform usually mediates the interaction of network participants from the
different sides (Rochet & Tirole, 2003); for example, the Netflix platform mediates the
interaction of video streaming consumers who value a greater number and variety of
movies or programs, and film studios or other content providers who value the large
viewer base (McIntyre & Srinivasan, 2017).
The benefit a network participant extracts from the consumption of a good or ser-
vice depends on the number of other network participants consuming compatible
goods and services (Farrell & Saloner, 1985; Katz & Shapiro, 1986). There are many ex-
amples of this, like in the video game industry (the more video game developers that
create games for a video game console, the more consumers will buy the console and
the more consumers who buy a console, the greater the number of video game devel-
opers who will want to create games that run on it), in financial services (credit card
issuers, credit card users, merchants), in information technology (operating systems, ap-
plication developers, clients/users), and in media (newspapers, readers, advertisers).
 5.3 The Different Facets of Interdependence and Value Cocreation 67

These network effects can be direct when they result from a participant valuing a net-
work for their ability to transact with other participants, for example a credit card cus-
tomer may be attracted to the American Express network because it is widely accepted
by merchants that are relevant to the customer. Network effects are considered indirect
when a platform participant values a particular network for the variety of complemen-
tary products and services, for example, the same credit card customer may be attracted
to the American Express network because it gives them priority access at hotels and VIP
lounge access at airports. Indirect network effects are particularly driven by complemen-
tors whose presence increases the value and dominance of a network (Brandenburger &
Nalebuff, 1996; Rochet & Tirole, 2003; McIntyre & Srinivasan, 2017; Gupta, Jain, & Sawh-
ney, 1999). Thus, direct, and indirect network effects can act as contributors to short-term
relational rents and, if sustained, long-term rents (e.g., Ricardian or monopoly rents). In
fact, in the age of the platform economy, the primary sources of shorter-term relational
rents are likely to be the dyadic or multifirm alliances that firms enter in and that are
limited to specific temporal and operational scopes, while the main source of longer-term
relational rents are more likely to be from network relationships and business models
that are more likely to generate ongoing network effects. Figure 5.1 builds on Lavie (2006)
to provide an expanded view of relational rents in the platform economy age.

Internal Rent – Internalised by focal firm

=
Ricardian Rents – Derived from non-shared focal firm resources and capabilities in
non-value cocreation activities
+
– Main source: internalised from focal-firm and partner firm shared
Short-term Relational resources and capabilities in dyadic or multi-firm relationships
Rents – Secondary source: internalised from direct and indirect network
externalities in network-based value cocreation relationships
+
– Main source: internalised from direct and indirect network externalities
Long-term Relational in network-based value cocreation relationships
Rents – Secondary source: internalised from focal-firm and partner firm shared
resources and capabilities in dyadic or multi-firm relationships
+
Inbound Spillover Rents – Gained by focal firm from partner firm non-shared resources and
capabilities
–
Outbound Spillover Rents – Lost by focal firm from non-shared focal firm resources and capabilities

Figure 5.1: Relational Rents in the Platform Economy Age.

Adapted from Lavie (2006)

Network effects are therefore an important economic consequence of interdepen-

dence and value cocreation in the platform economy age. Network effects are not the
only economic consequences of interdependence and value cocreation in network
68 Chapter 5 Implications for Bank Strategies: Interdependence, and Value Cocreation

contexts. For instance, by strategically embracing interdependence and value cocrea-

tion in network contexts, firms can benefit from Schumpeterian shocks and the
Schumpeterian rents derived from innovation rather than being the victims of such
shocks and innovations. Moreover, as firms adapt their resources and capabilities to
make them better suited to strategies of interdependence and value cocreation, they
consequently modernise and renew them, allowing them to better generate ongoing
Ricardian and other long-term rents through ongoing, nonshared activities.

5.3.2 Structural and Behavioural Aspects of Interdependence and Value Cocreation

The economic benefits of interdependence, and specifically the amount of network

effects generated through network relationships, is impacted by the structure of the
network and the behaviour of its participants. Dyer & Singh (1998) considered how
firms can generate and appropriate relational rents. They found that relational rent is
increased:
a) The more partners are invested in relation-specific assets
b) The greater the volume of their exchanges
c) The greater the safeguards in place that protect from opportunistic behaviour
d) The more knowledge-sharing routines they establish
e) The greater the partner-specific absorptive capacity
f) The more aligned incentives are towards transparency and reciprocity and the
more they discourage free-riding
g) The greater the proportion of synergy-sensitive resources that can be pooled to
create valuable, rare, inimitable combined resources and capabilities
h) The greater experience partnering firms have in managing alliances and the
greater their investment in internal search and evaluation capabilities (e.g., a spe-
cialised department responsible for alliances and partnerships)
i) The more central a firm is in its network and the stronger its network ties which
allow it to occupy an information-rich position in its network
j) The greater the compatibility among partners’ organisational systems, process,
and cultures

Effective governance also maximises the generation of relational rents, both directly by
lowering transaction costs, and indirectly by incentivising the other factors identified
by Dyer & Singh (1998) relating to commitment of interfirm relation-specific assets,
knowledge-sharing, and complementarities. More specifically, the more partners can
employ self-enforcing safeguards (e.g., trust) instead of third-party ones (e.g., contracts),
the lower the contracting, re-contracting, monitoring, and adaptation costs, and the
higher the incentives to conduct value-creation collaborative initiatives; consequently,
relational rent is maximised through the lowering of marginal costs and the inimitabil-
ity of the collaborative arrangements between partners (Dyer & Singh, 1998).
 5.3 The Different Facets of Interdependence and Value Cocreation 69

Like Dyer & Singh (1998), Lavie (2006) also explored the structural and behaviou-
ral aspects of inter-firm relationships that impact the economic rents generated. Lavie
(2006) found that a focal firm can appropriate more of the relational rent generated if
at the time of alliance formation it negotiated favourable contractual agreements, has
committed a smaller scale and scope of resources to the formation of the joint value
proposition relative to its other partners, and the relationship with partners is not op-
portunistic; while it can continue to appropriate a greater proportion of relational
rents after the alliance is formed, the greater its absorptive capacity and bargaining
power. These considerations also impact the inbound spillover rents a focal firm can
appropriate or the outbound spillover rents it risks giving away. Focal firms with
stronger bargaining power and absorptive capacity will be able to appropriate more
inbound spillover rent from the shared and nonshared resources and capabilities of
its partners thus enhancing their competitive advantage, while focal firms partnering
with partner firms that have strong bargaining power and absorptive capacity will
risk the partnering firms internalising outbound spillover rent from the focal firm
thus reducing the focal firm’s competitive advantage. Similarly, focal firms with
strong isolating mechanisms will lose less outbound spillover rent to partner firms
thus protecting their competitive advantage, while partner firms with strong isolating
mechanisms will prevent focal firms from appropriating much inbound spillover rent
thus reducing the focal firm’s competitive advantage (Lavie, 2006). Examples of isolat-
ing mechanisms include self-enforcing safeguards like trust, partner scarcity (comple-
mentary partners may have already partnered with first mover focal firms), resource
indivisibility, and idiosyncrasies in the institutional environment (e.g., whether gov-
ernment regulation facilitates the formation of trust relationships among networks)
(Dyer & Singh, 1998; Lavie, 2006).
As network-based business models have become a key feature of the platform
economy, additional structural and behavioural considerations need to be taken into
account. The early observers of network effects deemed network size to be sufficient
in determining the strength of the resultant direct and indirect network effects. These
observers (Katz & Shapiro, 1986; 1994; Farrell & Saloner, 1985) posited that, driven by
forces of standardisation and compatibility, a network can grow rapidly and be
widely adopted, reaching a tipping point that allows it to pull far ahead of the compe-
tition. This winner-takes-all outcome can even lead to the dominance of technically
inferior products that benefit from compatibility, standardisation, and a large in-
stalled-base, as exemplified by the dominance of JVC’s Video Home System (VHS) vid-
eocassettes over Sony’s technically superior Betamax (Gawer & Cusumano, 2008) and
the dominance of the “QWERTY” typewriter keyboard over better alternatives such as
the Dvorak Simplified Keyboard (Farrell & Saloner, 1985). However, later studies
found that network size as measured by installed base and number of complementors
does not ipso facto lead to winner-takes-all outcomes. Other important structural
characteristics that impact the generation of network effects include: true multisided-
ness (Rochet & Tirole, 2006), network embeddedness (Venkatraman & Lee, 2004;
70 Chapter 5 Implications for Bank Strategies: Interdependence, and Value Cocreation

Afuah, 2013; Suarez, 2005), variety and differentiation of complementary features

(Hagiu, 2009; Cennamo & Santalo, 2013), any exclusivity agreements that a focal firm
secures with complementors (Cennamo & Santalo, 2013), and multihoming (affiliating
with several networks) costs (Hagiu, 2009).
Most markets that exhibit network effects are multisided in that multiple network
participants (sides) benefit by interacting through a platform. The focal firm that
owns or sponsors the platform needs to ensure that both sides are compelled to inter-
act through the network, this can be coordinated through the manipulation of differ-
ent factors such as the price level, the structure of services, and the availability of
complementary services (Rochet & Tirole, 2003). However, as Rochet & Tirole (2006)
highlight, given that all markets involve transactions between several participants, it
can be misleading to label them all as multisided markets. Rochet & Tirole (2006) pro-
pose a number of factors that make a market truly multisided, which include the abil-
ity of the focal firm controlling the platform to do six critical things:
a) Impact transaction volumes by manipulating price structures and levels between
the different sides
b) Reduce or remove asymmetric information between the different sides
c) Charge transaction costs or membership costs among participants
d) Limit the ability of the different sides to set prices bilaterally
e) Limit the ability of prices to be set through direct bargaining and monopoly price-
setting between buyers and sellers
f) Impose constraints on pricing between participants

Network embeddedness can result from different subcharacteristics. Dyer & Singh
(1998) identify two such subcharacteristics, network centrality and tie strength. Cen-
trality refers to a network participant’s position in the network, the more that that
participant transacts or interacts with others the more central they are in the net-
work. The more central they are, the more value they can create for the network and
the more value they can appropriate from it, providing that their behaviour is nonop-
portunistic (Soh, 2010; Afuah, 2013). The strength of the ties between network partici-
pants is also an important consideration, these can be classified as either strong ties
or weak ties (Ahuja, 2000; Suarez, 2005). The strength of ties is not only a function of
the frequency of interaction between participants but also – as the American sociolo-
gist Mark Granovetter (1973) observed – a function of the level of reciprocal obliga-
tions, emotional intensity, and trust. Weak ties can be beneficial for proliferating
diverse information that is explicit for many sources across a network (Granovetter,
1973). Strong ties are beneficial for transferring tacit knowledge and building the loy-
alty and reputation to coordinate more valuable outcomes (Afuah, 2013; Suarez, 2005).
In environments of uncertainty and complexity, the higher the proportion of strong
ties the greater the network effects generated (Suarez, 2005). There are additional sub-
characteristics of network embeddedness such as the ability to bridge structural
holes. Networks tend to have clusters of subnetworks, which creates holes between
 5.3 The Different Facets of Interdependence and Value Cocreation 71

subnetworks. A participant that can bridge a hole between subnetworks creates more
value for the network and is able to appropriate more value from it (Ahuja, 2000;
Afuah, 2013). A participant that is highly embedded in a network can potentially capture
a greater proportion of the network effects generated and may be able to influence the
evolution of the network in line with their strengths. However, being too deeply embed-
ded in a network can be counterproductive as it limits the adaptability required in rap-
idly changing environments especially if a dominant technology or standard has not
emerged (Venkatraman & Lee, 2004; Brown & Eisenhardt, 1998; Schilling, 2002).
Other structural considerations include network overlap density, and exclusivity
versus multihoming. High network overlap density typically erodes network effects
(Venkatraman & Lee, 2004), to avoid this participants should develop unique, heterog-
enous resources and capabilities that are complementary to other particiapants. In
creating, leading, and/or participating in networks there are occassions where having
a large variety of participants is value creating and other situations where obtaining
exclusivity agreements with certain high value participants is preferable. In a similar
vein, firms participating in networks may decide to commit exclusively to a specific
network or to multihome, whereby they participate in several competing networks.
Both strategies – variety and exclusivity – can be beneficial (or not) in different con-
texts. Management’s ability to assess different contexts and select whether to partici-
pate widely or exclusively in certain networks is important in determining the amout
of network effects that are generated and captured.
Both Lavie (2006) and Dyer & Singh (1998) identified the importance of behaviour
in determining the relational rents generated, a firm’s ability to internalise that rela-
tional rent, and its ability to guard against losing outbound spillover rent. Behaviour
is equally important at a network level as this impacts the network effects that are
generated. Opportunistic behaviour – “calculated efforts to mislead, distort, disguise,
obfuscate or otherwise confuse” (Williamson, 1985, p. 47) – can create information
asymmetries that drive away high quality participants. On the other hand, network
participants’ reputation for retaliation, honesty, trustworthiness, and reliability dis-
courages short-term opportunism and encourages less reputable participants to exist
the network (Afuah, 2013). In networks, there are various mechanisms by which the
reputation of a participant can be signalled to others, for example eBay sellers’ public
reviews or AirBnB hosts’ public reviews and specifically AirBnB’s concept of a super-
host. Trust – confidence that a participant will not exploit other particiapants’ vulner-
abilities – also discourages opportunistic behaviour and reinforces reputation (Gulati,
Nohria, & Zaheer, 2000; Afuah, 2013). Network effects are increased when network
participants conduct themselves in ways that maximises positive reputation and trust
while avoiding opportunistic behaviour; moreover, the impact of reputation, trust
and opportunistic behaviour is amplified the more a participant’s role is central and
embedded.
72 Chapter 5 Implications for Bank Strategies: Interdependence, and Value Cocreation

5.3.3 Alignment Aspects of Interdependence and Value Cocreation

In strategising for interdependence and value cocreation, a firm must coordinate the
participation of the various stakeholders that need to come together to create value.
Dyer & Singh (1998) and Lavie (2006) highlighted several managerial considerations re-
lated to interdependence and value cocreation in dyadic or multifirm alliances, specifi-
cally in the context of how to maximise relational rents. An important consideration for
firms engaged in value cocreation initiatives is the management of contradictory com-
petitive and collaborative forces when dealing with external stakeholders. Those exter-
nal stakeholders are often competitors, or compete with the focal firm in at least some
of its activities. How then does a focal firm reconcile the seeming contradiction of hav-
ing to collaborate with a competitor to create value? In 1996, Adam Brandenburger and
Barry Nalebuff provided a compelling answer in their book Co-opetition. By applying
game theory to strategic management, Brandenburger & Nalebuff (1996) challenged tra-
ditional ideas about business competition and cooperation, suggesting that a business
can succeed without necessitating the failure of their competitors. They proposed that a
win-win situation can be achieved when businesses cooperate to create a new pie or
enlarge an existing pie and subsequently compete when dividing it up. Coopetition was
the term they used to describe this simultaneous competition and cooperation. Bran-
denburger and Nalebuff (1996) identified five elements to the game of coopetition: play-
ers (represented by the value net of a firm’s suppliers, customers, competitors, and
complementors), added-value, rules (e.g., regulation and industry standards), tactics
(how players can change perceptions), and scope (how disparate games can be linked
to create a desired outcome). Fundamental to the notion of coopetition is the simulta-
neous presence of two conflicting forces – competition and collaboration – and the ten-
sions that this creates, as well as the intent of coopetating firms to generate common
value that each can partially internalise. From the point of view of the focal firm, coo-
petition is key to creating the common benefits that will attract external stakeholders to
a value cocreation initiative or to participating in a network.
However, the success of coopetative strategies is nevertheless determined by a
number of factors, which in various circumstances can lead to negative outcomes col-
lectively or for individual firms that are coopetating. Environmental contingencies
are important factors that influence the adoption of coopetative strategies. Hypercom-
petitive, complex, uncertain environments with rapidly evolving technologies in-
crease the likelihood of firms adopting coopetative strategies (Gnyawali & Park, 2011;
Cozzolino & Rothaermel, 2018). In such environments, Cozzolino and Rothaermel (2018)
found that incumbents benefit from coopetating with new-entrants when technological
innovation protected by strong intellectual property rights renders incumbents’ core
knowledge and capabilities obsolete, while they are better served by acquiring new-
entrants if the technological innovation is protected by weak intellectual property
rights. However, if the technological innovation challenges incumbents’ noncore, com-
plementary operations rather than their core operations, then incumbents are better
 5.3 The Different Facets of Interdependence and Value Cocreation 73

served by coopetating with other incumbents to compete against new entrants (Cozzo-
lino & Rothaermel, 2018). Power differences, size, and mutual dependence are other en-
vironmental contingencies that influence firms’ adoption of coopetative strategies
(Akpinar & Vincze, 2016). For example, Chiambaretto, Bengtsson, Fernandez, and Nä-
sholm (2020) found that small firms are often motivated by cost-reduction and learning
when coopetating with larger firms, while larger firms are more likely to coopetate
with smaller firms when they want to reduce their time-to-market.
While environmental contingencies determine the level of firm adoption of coope-
tative strategies, several inter-organisational and intra-organisational elements deter-
mine the success of these strategies. At the inter-organisational level, these elements
include network position, relative bargaining power, technological compatibility, and
coopetition capabilities (Czakon, Srivastava, Le Roy, & Gnyawali, 2020; Ritala, Huizingh,
Almpanopoulou, & Wijbenga, 2017), while at the intra-organisational level, important
elements include the presence of knowledge brokers, firm culture, and a firm’s ability
to assess coopetative situations (Chiambaretto, Massé, & Mirc, 2019; Czakon, Srivastava,
Le Roy, & Gnyawali, 2020). Firms seeking to benefit from coopetition need to possess
the managerial capabilities that are conducive to successful coopetative strategies
(Gnyawali, Madhavan, He, & Bengtsson, 2016; Czakon, Srivastava, Le Roy, & Gnyawali,
2020). These managerial capabilities include, management’s ability to: understand the
opportunities and challenges that are unique to the paradoxical tensions inherent in
coopetition (Czakon, Srivastava, Le Roy, & Gnyawali, 2020; Le Roy & Czakon, 2016), as-
sess the potential value that can be generated from coopetative relationships (Czakon,
Srivastava, Le Roy, & Gnyawali, 2020), manage coopetative relationships including the
tensions that arise at different levels (Czakon, Srivastava, Le Roy, & Gnyawali, 2020; Le
Roy & Czakon, 2016), know when to create organisational separation between competi-
tive and cooperative activities withing an overall strategy of coopetition (Fernandez, Le
Roy, & Gnyawali, 2014), and when to encourage embracing the tensions underlying the
coopetition paradox (Gnyawali & Park, 2011), co-manage collaborative activities (Cza-
kon, Srivastava, Le Roy, & Gnyawali, 2020), arbitrate in situations of conflict (Pellegrin-
Boucher, Le Roy, & Gurău, 2018), establish appropriate governance structures (Czakon,
Srivastava, Le Roy, & Gnyawali, 2020), determine what firm resources and capabilities
are committed to coopetition engagements (Czakon, Srivastava, Le Roy, & Gnyawali,
2020), co-manage at the interfirm working-group level (Le Roy & Fernandez, 2015), and
establish processes to design, form, exploit, and terminate coopetative relationships (Cza-
kon, Srivastava, Le Roy, & Gnyawali, 2020). It is important to note that these coopetition-
specific managerial capabilities are different from firms’ alliance capabilities which are
not suitable for dealing with the tensions arising from simultaneous competition and
collaboration.
The growth of the phenomenon of open innovation in the 1990s and 2000s – thanks
to a large extent to the work of Henry Chesbrough (2003) – has also accelerated the
forces of interdependence among firms. Open innovation is defined as “. . . the use of
purposive inflows and outflows of knowledge to accelerate internal innovation and
74 Chapter 5 Implications for Bank Strategies: Interdependence, and Value Cocreation

expand the markets for external use of innovation” (Chesbrough, 2012, p. 20) as such
firms “. . . can and should use external ideas as well as internal ideas, and internal and
external paths to market, as they look to advance their innovations. Open innovation
processes combine internal and external ideas together into platforms, architectures,
and systems” (Chesbrough, 2012, p. 21). Chesbrough (2012) elaborates that there are two
types of open innovation, the first is outside-in whereby firms open up their innovation
processes to many external contributions and influences, the second is inside-out open
innovation whereby firms “. . . allow unused and underutilized ideas to go outside the
organization for others to use in their businesses and business models” (Chesbrough,
2012, p. 21). While particularly relevant in high-technology, open innovation is increas-
ingly used in other industries as well (Chesbrough & Crowther, 2006) and is a particu-
larly efficient approach in hypercompetitive environments since firms can develop
their knowledge and explore opportunities related to emerging technologies and con-
texts more rapidly and cost-effectively than they would otherwise through internal re-
search and development or acquisition (Chesbrough & Garman, 2009).
In the platform economy age, the new business models based on networks that
are often mediated by technological platforms, have added important new dimen-
sions to interdependence and value cocreation. Section 5.3.1 touched on one of these
new dimensions (value cocreation in network contexts usually leads to longer-lasting
relational rents since these are predicated on new network-centric business models)
while Section 5.3.2 presented several new dimensions related to the structure of net-
works and how these structural elements impact the economic benefits generated
through the network. In the platform economy age, there are also important new di-
mensions to interdependence and value cocreation related to how firms coordinate
and align external stakeholders at the network level. An important new dimension is
the notion of ecosystems.
The first definition of ecosystem in the context of business and management was
presented by James Moore (1996):

An economic community supported by a foundation of interacting organizations and individu-

als – the organisms of the business world. This economic community produces goods and serv-
ices of value to customers, who are themselves members of the ecosystem. The member
organism also include suppliers, lead producers, competitors, and other stakeholders. Over time,
they coevolve their capabilities and roles, and tend to align themselves with the direction set by
one or more central companies. Those companies holding leadership roles may change over
time, but the function of ecosystem leader is valued by the community because it enables mem-
bers to move toward shared visions to align their investments, and to find mutually supportive
roles. (Moore, 1996, p. 26)

More recently, Ron Adner described ecosystems as “the collaborative arrangements

through which firms combine their individual offerings into a coherent, customer fac-
ing solution” (Adner, 2006, p. 98) and as “the alignment structure of the multilateral set
of partners that need to interact in order for a focal value proposition to materialize”
(Adner, 2017, p. 40, emphasis in the original). It is important to note that an ecosystem
 5.3 The Different Facets of Interdependence and Value Cocreation 75

is not the same as an environment. As Benoît Demil and Xavier Lecocq point out, de-
pending on their choice (deliberate, emergent, or constrained) of business model, a
firm will either join an existing ecosystem or originate a new one, seeking out parts of
its environment to effectuate the ecosystem (Lecocq & Demil, 2006; Demil, Lecocq, &
Warnier, 2018). Thus while a firm may find that it inhabits a particular environment,
participating in or originating an ecosystem involves intent and is often influenced by
business model choices.
As Moore and Adner noted, a central theme of ecosystems is the alignment and
coordination of diverse stakeholders – especially complementors – to cocreate value
propositions that none could have achieved in isolation and which generate direct
and indirect network effects that can be beneficial to all participants. These diverse
stakeholders include “the community of organizations, institutions, and individuals
that impact the enterprise and the enterprise’s customers and supplies. The relevant
community therefore includes complementors, suppliers, regulatory authorities, stan-
dard-setting bodies, the judiciary, and educational and research institution” (Teece,
2007, p. 1325). The relationship between these stakeholders in an ecosystem is also
nonlinear in that they can be both horizontal and vertical as opposed to traditional
supply chain and value chain constructs (Autio & Thomas, 2014). However, ecosystem
strategies may also involve risks; depending on others for your success creates risks
beyond the traditional initiative risks related to managing projects: “interdependence
risks – the uncertainties of coordinating with complementary innovators; and integra-
tion risks – the uncertainties presented by the adoption process across the value
chain” (Adner, 2006, p. 100, emphasis in the original).
As Autio & Thomas (2014) point out, a key differentiator of the ecosystem managerial
perspective from other network-centric constructs is the inclusion of side participants,
particularly complementors. Complementors have become increasingly significant actors
especially as industries have continued to evolve away from vertical integration to more
horizontal structures (Casadesus-Masanell & Yoffie, 2007). A complementor is a product
or service that makes another product or service more attractive (Brandenburger & Nale-
buff, 1996). As was noted in Section 5.3.1 the presence of complementors in networks
leads to the generation of indirect network effects. For this created value to be harnessed,
focal firms and complementors (and complementors among themselves) need to coordi-
nate their activities as they are dependent on one-another for success, however, they can-
not rely on established coordination mechanisms like long-term contracts and equity
investments (Gawer & Cusumano, 2002).
As such, key considerations for focal firms seeking to employ ecosystem ap-
proaches will be the orchestration strategies they adopt to select, attract, retain, and
control heterogenous complementors with the aim of maximising the value created
and the value subsequently captured. Several studies that considered the relationship
between focal firms and complementors have shed light on these orchestration strate-
gies. In their study of the US video game industry over an eight-year period, Venkatra-
man & Lee (2004) found that complementors are more likely to link to platforms that
76 Chapter 5 Implications for Bank Strategies: Interdependence, and Value Cocreation

have low density overlap, have little lock-in, are dominant, and technologically inno-
vative. Casadesus-Masanell & Yoffie (2007) analysed the relationship dynamics of two
complementors: Microsoft and Intel; the implications of their study, particularly with
respect to value capture strategies and the prevention of free-riding is a powerful
analysis of the relationship between focal firms and complementors, specifically
when one actor is more concerned about maximizing the installed base than the
other. In Schilling’s (2002) study of what contributes to the dominance of a certain
technology standard (usually championed by a focal firm), the availability of comple-
mentors was a key contributor. The availability of complementors also played an indi-
rect role in relation to another key contributor, installed base, in that both installed
base level and the number of complementors exist in a self-reinforcing virtuous cycle.
Adner (2006) highlights the integration risk faced by the focal firm that is generated
by their dependence on complementors adopting their products and services, while
Adner & Kapoor (2010) found that if focal firms encounter challenges in complemen-
tors adopting their products and services, the risk of substitutability rises and sus-
tained competitive advantage is reduced.
Identifying the different types of participants in an ecosystem is important in un-
derstanding how value is created through the interaction of different stakeholders.
However, ecosystems are not phenomena that arise without cause and are only to be
observed; ecosystems can be created, de novo, through the strategic agency of one or
more focal firms.
A focal firm in an ecosystem (also often referred to as keystone firm, ecosystem
leader or ecosystem champion) has deliberate intent in the creation of the ecosystem
(Jacobides, Cennamo, & Gawer, 2018), manages the health of the ecosystem as a key
business priority (Iansiti & Levien, 2004), aligns partners (Adner, 2017), tailors ecosys-
tem development in line with its own strengths (Gawer & Cusumano, 2002; Iansiti &
Levien, 2004; Adner, 2006) manages risks associated with technological components
and complements (Adner & Kapoor, 2010), and eventually sets the de facto industry
standards once an ecosystem has achieved a critical mass of users (Bonardi & Durand,
2003). De novo ecosystem creation is complex, not least as it raises a strong causality
dilemma in that focal firms need to persuade complementors and other stakeholders
to commit to partaking in an ecosystem whose success and value depends on all par-
ties partaking in it. However, firms that are able to originate de novo ecosystems, or
who assume a leadership position in existing ecosystems or who influence the evolu-
tion of an existing ecosystem to their benefit can strategically influence the genera-
tion, distribution, and internalisation of network effects (McIntyre & Srinivasan, 2017;
Gawer, 2014).
Ozcan and Eisenhardt’s (2009) study on focal firms’ origination of alliance portfo-
lios provides useful insights on focal firms’ potential strategies for de novo ecosystem
creation. They found that executives at focal firms with high-performing alliance port-
folios had a holistic vision of their entire network, and did not view interdependen-
cies in a sequential or dyadic way. They suggest three key strategies that focal firms
 5.3 The Different Facets of Interdependence and Value Cocreation 77

can use to create high performing alliance portfolios: 1) advocating a unique industry
architecture that define the specific interdependencies that are advantageous to the
focal firm and potential partners, which clarifies the roles and actions of potential
partners as well as structuring and motivating the interactions among partners; 2) co-
ordinating among unconnected partners that expands a focal firm’s reach to more
distant parts of their industry network and consequently raises the focal firm’s cen-
trality and importance; and 3) adding multiple ties around areas of critical emerging
industry uncertainties to better defend against them. Santos & Eisenhardt (2009) stud-
ied how entrepreneurs addressing nascent, ambiguous markets shape their organisa-
tional boundaries using power – defined as an actor’s ability to influence the behaviour
of others in ways that produce advantageous outcomes to them – as the unifying
boundary logic. They suggest that focal firms should start with strategies that reduce
ambiguity by shaping meaning to become “the cognitive referent in a market” (Santos
& Eisenhardt, 2009, p. 664) and enforcing favourable market structures that create roles
for other powerful actors. Once the focal firm has claimed and demarcated the nascent
market through these strategies and once that market has crystalised, the focal firm
can proceed to strategies that aim to control the market by owning as much of the mar-
ket space as possible. Dougherty & Dunne (2011) also studied emergence of complex in-
novation that can keep systems balanced in periods of disequilibrium. They identified
three dynamics of emergence: 1) enough connections of actors so that new patterns
emerge; 2) the presence of deviation-amplifying activities that move the system towards
a new equilibrium; and 3) coordinating mechanisms that “recombine, reuse and recre-
ate existing elements into a new order that increases the system capacity” (Dougherty &
Dunne, 2011, p. 1216).
However, as Dougherty & Dunne (2011) observe, in complex systems of innovation –
such as banking and financial services – new products, knowledge, and applications
emerge that cannot be planned in advance. This therefore impedes the extent of a focal
firm’s ability to envision, shape meaning, and create structures such as those suggested
by Ozcan and Eisenhardt (2009) and Santos and Eisenhardt (2009). Dattée, Alexy, and
Autio (2018) sought to address focal firms’ process of de novo ecosystem creation
in situations where a meaningful vision cannot be generated and when focal firms do
not have enough insight to strategise in advance around how they appropriate value
from any ecosystem that is eventually established. They suggest that de novo ecosystem
creation is a process of collective discovery that needs to be orchestrated by the focal
firm. The focal firm should aim to control the ecosystem creation process, ensuring that
it influences, monitors and updates strategies in a way that leads it to control points in
the emerging and evolving value proposition through which it can capture some of the
value created. At the same time, the focal firm should avoid becoming a “fortress in the
desert” (Dattée, Alexy, & Autio, 2018, p. 470) whereby actors it had originally considered
as complementors or suppliers in fact circumvent it through alternative technologies.
The ecosystem context also presents additional dimensions and complexities for
how firms coopetate. Czakon & Czernek (2016) considered coopetition in network
78 Chapter 5 Implications for Bank Strategies: Interdependence, and Value Cocreation

settings, emphasizing that coopetition in networks is more complex than in dyadic re-
lationships, for example, the influence of any single firm is diluted in a network while
noncooperative, opportunistic behaviour is diffused and anonymised, information is
not always evenly distributed across a network, and there are several avenues for
firms to join networks, which is not the equivalent of partner selection in dyadic coo-
petition. Sanou, Le Roy, & Gnyawali (2016) found that firms that have a central posi-
tion in coopetative networks are more likely to derive greater positive performance
outcomes. Yami & Nemeh (2014) found that dyadic coopetition is better suited to in-
cremental innovation while network coopetition is more appropriate for radical
innovation.

5.3.4 Technological Aspects of Interdependence and Value Cocreation

In the second machine age the technological aspects of interdependence and value
cocreation are fundamental considerations. With the rise of the platform economy,
ecosystems of stakeholders are increasingly cocreating value and generating ongoing
network effects through networks that are mediated by technological platforms. Tech-
nological platforms describes the products, services, and technological interfaces that
mediate transactions between several sides (McIntyre & Srinivasan, 2017; Cennamo &
Santalo, 2013), that have been established and championed by one or more focal firms
(Gawer & Cusumano, 2002; Iansiti & Levien, 2004), which form the foundational units
that complementors can use to build ancillary products and services (Gawer & Cusu-
mano, 2002), and which have architectures that facilitate innovation (Gawer & Cusu-
mano, 2014; Jacobides, Cennamo, & Gawer, 2018).
The platform concept has evolved over the years, Gawer and Cusumano (2002;
2014) identified three key phases: internal platforms, supply chain platforms, and indus-
try platforms. The concept of internal platforms, which became increasingly popular in
the 1990s, centred on a firm’s ability to reuse technological components in incremental
innovation and new product development (Gawer & Cusumano, 2002; 2014) through the
simple and efficient alterations of features of core elements to generate derivative prod-
ucts. Supply chain platforms extended this logic beyond the resources and capabilities
of a firm to external, often more cost-effective, sources of innovation in their supply
chain (Gawer & Cusumano, 2014). Although supply chain platforms extends the notion
of platforms beyond the boundaries of a firm to those producing components in its sup-
ply chain, ultimate power remains with the focal firm that assembles those components
(Gawer & Cusumano, 2014). The latest evolution is what Gawer and Cusumano (2002;
2014) describe as industry platforms, whereby the logic is extended further still beyond
the firm and its supply chain to outside complementors who do not necessarily trade
with one another, are not part of the same supply chain, and usually are not cross-
 5.3 The Different Facets of Interdependence and Value Cocreation 79

owned by the focal firm. In this book, the term platform is used as per the definition of
industry platforms.
Platformisation also involves risks. For focal firms that have identified the need
to originate a new ecosystem or to lead an existing one, should they go a step further
to create a technological platform that facilitates the interactions between ecosystem
participants or does it suffice to simply have formal alliances and agreements with
them? A focal firm’s pursuit of a platformisation strategy may mean that it risks ced-
ing at least some control and exposing some of its intellectual property to the wider
market. Should the focal firm be pursuing a platformisation strategy in the first place
rather than a product strategy that reduces dependence on others, and which keeps
control and intellectual property in-house? What conditions therefore are necessary
for the platform option to be relevant and beneficial? Gawer & Cusumano (2008) pro-
vide a compelling answer to these questions. A focal firm should consider a platform-
isation strategy when the proposed platform’s products, services, and technologies
can perform a function that is core to a wider ecosystem while solving business prob-
lems for many firms and users in an industry. A platform can be considered core
when the overall system it serves cannot operate without it. Focal firms can actively
identify or design a platform in a way that makes it core to a technological system or
market (Gawer & Cusumano, 2008).
The managerial abilities of firms to navigate these questions will depend on a
unique set of skills, knowledge, and relationships at the individual management level,
top management team level, and the contingent/related capabilities level (e.g., firm
intellectual property rights protection capabilities, organisation culture). This combi-
nation of skills, knowledge, and relationships at different levels and their interplay
with other contingent/related capabilities is highly path dependent, socially complex,
and prone to the influence of unique historical conditions (e.g., the addition of plat-
form skills and knowledge through mergers and acquisitions) and time-compression
diseconomies (e.g., in relation to a firm’s capabilities to protect its intellectual prop-
erty). Thus, by ensuring that they pay attention to the risks of platformisation, focal
firms can evaluate whether a platformisation strategy is preferable to a standard
product strategy and thus avoid committing costly strategic errors.
The question of when a firm should platformise and when it should avoid doing
so has parallels with the notion of strategic openness, whereby firms voluntarily cede
control of certain resources to gain competitive advantage. The concept of strategic
openness has become increasingly popular in the platform economy age especially
given the popularisation of open innovation (Chesbrough, 2003) and the proliferation
of open source technologies (software where the source code is available for anyone
to access, modify, enhance, or distribute) in the last ten to fifteen years (West &
O’Mahony, 2008; Alexy, West, Klapper, & Reitzig, 2018). Alexy, West, Klapper, and Re-
itzig (2018) found that
80 Chapter 5 Implications for Bank Strategies: Interdependence, and Value Cocreation

for a monopolist, strategic openness is a rational decision when it reduces the costs to produce
the bundle of resources, or increases the value captured from the still proprietary complement.
In oligopoly competition, the decision to strategically open a resource is further determined by
the substitutability of the open resource in the firm bundle as well as by the number of rivals in
the market. (Alexy, West, Klapper, & Reitzig, 2018, p. 1706)

Alexy, West, Klapper, and Reitzig (2018) also found that firms can derive competitive
advantage from a newly opened resource if the firm has superior, idiosyncratic capabil-
ities and proprietary (and potentially more profitable) complementarities allowing it to
better leverage the newly opened resource. Additionally, if the newly opened resource
becomes common across a market or industry it can lead to rivals adopting it and
substituting it for their own resources thus the newly opened resource ends up acting
as a Trojan Horse. Moreover, openness may be disproportionately advantageous to
larger firms who benefit from greater fixed-cost reductions, cross-subsidisation, and the
driving out of competition especially in environments of uncertainty and resource scar-
city (Alexy, West, Klapper, & Reitzig, 2018).
There are two important characteristics of technological platforms that facilitate in-
terdependence and value cocreation: architectural modularity and a set of unified
standards and protocols. Platforms often adopt modular technological architectures to
allow different actors such as complementors to efficiently participate and innovate,
while having a set of unified standards and protocols to facilitate the focal firm’s gover-
nance of overall platform strategy. At a fundamental level, modularity is an approach
to making sense of the complex whole by decomposing it into near-independent, inter-
acting parts. Modularity describes

the degree to which a system’s components can be separated and recombined, and it refers both to
the tightness of coupling between components and the degree to which the ‘rules’ of the system
architecture enable (or prohibit) the mixing and matching of components. (Schilling, 2000, p. 312)

Herbert Simon suggested that most entities can be viewed as hierarchical systems
that can be decomposed into increasingly finer subsystems of components or modules
to the point of reaching the elementary particles (Simon, 1962). Simon also stresses
the concept of near-decomposability as a property of hierarchical, complex systems
that is useful in analysing how complex systems develop and reproduce (Simon, 1965;
Simon & Ando, 1961), and which emphasises that despite modularisation, some resid-
ual interdependence between modules will always be present and the resultant com-
plexity that is created needs to be managed. The level of analysis is important, for
example an industry may be a module of a system (e.g., the economy) or a system
composed of modules (e.g., individual firms) (Schilling, 2000). Yoo (2016) identifies two
further features of modular systems (apart from near-decomposability and interde-
pendence), abstractions leading to information asymmetries that stimulates innova-
tion and the law of requisite variety that allows the platform to respond to exogenous
challenges such as those that would result from changes in regulatory or customer
behaviour.
 5.3 The Different Facets of Interdependence and Value Cocreation 81

The modular approach has multiple benefits both on the supply and demand side.
On the demand side, rapidly evolving consumer behaviours and needs can be catered
for by the platform and specifically complementors providing one or more modules
(Langlois & Robertson, 1992). On the supply side, a modular system stimulates swift in-
novation as well as facilitating the simultaneous and autonomous testing of several dis-
parate approaches and the ability to learn through trial-and-error in ways that are not
possible in traditional, closed, and heavily integrated systems. A modular system “en-
lists the division of labor in the service of innovation” (Langlois & Robertson, 1992,
p. 302) by allowing specialists participating in a platform to focus their innovation capa-
bilities on a specific module without the need to coordinate with other actors (Langlois
& Robertson, 1992; Baldwin & Clark, 2000; Langlois & Garzarelli, 2008). This type of in-
novation that modularity enables is important during cycles of fast technological
change, uncertain markets, and hypercompetition (Nelson & Winter, 1977); platforms
that seek to thrive in such environments need to adopt modular technological architec-
tures which facilitates strategic agility (Weber & Tarba, 2014). Moreover, from the focal
firm’s point of view, modularity increases the platform’s chance of survival and its
adaptability by ensuring that any destructive exogenous forces are localised and ab-
sorbed at the module level (Orton & Weick, 1990).
From a technological point of view, application programming interfaces (APIs) and
mashups are key enablers of platform modularity (Weiss & Gangadharan, 2010). APIs
are bits of code that “. . . act as digital control points that set the terms for which data
and services can be efficiently shared . . .” (Evans & Basole, 2016, p. 26) over the inter-
net; they can be restricted to specific users (Closed APIs) or open to public consumption
(Open-APIs). Firms can open their APIs to other firms who subsequently create new dig-
ital applications and services through mashups that build upon the original API (Google
Maps is an example of an Open-API that can be the basis of a mashup application cre-
ated by a bank for its customers to identify their nearest branch or ATM) (Evans & Ba-
sole, 2016). Between 2006 and 2016, the number of APIs increased thirtyfold to 12,000
while the number of mashups has grown to 6,000 (Evans & Basole, 2016). APIs are not
the only technological enablers of modularity; microservices, blockchain technologies
(e.g., Hyperledger Fabric, Ethereum, R3 Corda), containerisation technologies (e.g.,
Docker), and container-orchestration tools (e.g., Kubernetes) are also examples of tech-
nological enablers of modularity. From an industry point of view, modular systems are
prevalent across multiple industries, most intuitively in technology and manufacturing,
but also across retail as well as banking and financial services; in banking and financial
services, modularity can be observed in the growth of ATMs, payment systems, and the
more recent use of APIs to integrate banking services with third parties such as utilities
providers (Liebenau, Elaluf-Calderwood, & Bonina, 2014).
Modularity, by itself leads to the formation of markets, not ecosystems of actors
interacting through a platform (Baldwin, 2008); for an ecosystem to form, a focal firm
with a certain level of institutional legitimacy and authority needs to coordinate activi-
ties (Jacobides, Cennamo, & Gawer, 2018) and the coordination of activities at a platform
82 Chapter 5 Implications for Bank Strategies: Interdependence, and Value Cocreation

level can be achieved through the enforcement of unifying standards and protocols,
such as the software development kit (SDK). In environments of divided technical lead-
ership and rapidly evolving technologies, platform leadership and platform control can
shift quickly; for example, what used to be called the IBM PC was initially controlled by
the original designer, IBM, but over time, control shifted to two of its suppliers, Intel,
which manufactured the microprocessors and especially Microsoft, which supplied the
operating systems (Bresnahan & Greenstein, 1999). In such environments, it is impor-
tant for the focal firm to determine scope, in other words to decide what functions and
intellectual property to keep control of – by keeping in house and restricting access –
and which functions to open up to other firms (e.g., complementors, suppliers). For the
functions that the focal firm decides to open up to outside firms, the focal firm can
maintain a level of control by creating and enforcing standards and protocols that gov-
ern the compatibility of complementary modules on the platform (Jacobides, Cennamo,
& Gawer, 2018; Gawer & Cusumano, 2002; Bonardi & Durand, 2003). Scope and product
architecture are two of the four levers of platform leadership that Gawer and Cusu-
mano (2002) identify, the other two being how the focal firm manages its coopetative
relationships with complementors and how the focal firm can organise itself internally
in a way that gives assurances that there are no conflicts of interest between the focal
firm’s platform and nonplatform related activities (usually by creating a segregated
unit in the focal firm’s organisation that is focused on platform related activities).

5.4 Setting the Scene for the Empirical Study and the Modalities
of Strategies of Interdependence and Value Cocreation
Having:
a) Identified two important strategic implications of the forces and themes discussed
in Chapters 1 to 4, namely interdependence and value cocreation
b) Explored the economic, structural, behavioural, alignment, and technological as-
pects of interdependence and value cocreation, particularly in the context of net-
works in the platform economy age
c) Provided the definition and perspective of strategy that this book adopts

the question that then arises is:

What strategies of interdependence and value cocreation have banks adopted in

the platform economy age?

While banks’ strategies of interdependence and value cocreation are objective reali-
ties, these can best be captured by examining the modalities of banks’ strategies of
interdependence and value cocreation. These modalities have been identified through
preliminary data collection and analysis, a review of the academic and practitioner
 5.4 Setting the scene for the Empirical Study 83

literature, and my own experience as a practitioner; they were then refined based on
any knowledge that subsequently emerged from the detailed data collection and anal-
ysis process that constitutes the empirical foundation of Part 2 of this book. There are
four modalities: acquisitions and investments, partnerships, open innovation ecosys-
tems, and open IT infrastructure. Each modality is composed of several submodalities,
which the remainder of this section examines in more depth.

5.4.1 Acquisitions and Investments Modality

This strategic modality describes banks’ a) acquisition of or lead investment in fin-

techs or fintech related firms and/or b) internal investment that allow them to better
exploit the opportunities presented by interdependence and value cocreation in the
platform economy age. There are several submodalities that are associated with the
acquisitions and investments modality:
– Acquisition of fintech or fintech related firms
– Divestments
– Significant investments or lead investments in fintechs
– Establishment of corporate venture capital subsidiary and fintech funds (own
funds, or externally administered funds)
– Establishment of fintech subsidiaries
– Establishment of fintech initiatives
– Spin-off of fintech subsidiaries
– Establishment of internal innovation labs, think tanks, incubators, accelerators,
and/or innovation outposts

Acquisition is a particularly nuanced modality. Joshua Sears (2017) found that large, in-
cumbent firms sometimes acquire small technology firms to overcome time-compression
diseconomies and the uncertainties related to internal innovation and development.
Sears (2017) found that the following factors are key to determining the value creation
potential of the acquisition: the purpose of acquisition (resource deepening: where the
acquisition complements and enhances the acquirer’s existing resources, or, resource ex-
tension: where the acquisition brings the acquirer into new markets), the position of the
acquirer (technological leader, or, technological laggard), and the acquirer’s absorptive
capacity (its ability to “value, assimilate, and exploit the resources and capabilities of the
target” (Sears, 2017, p. 34)).
Firms that are technological leaders usually possess the necessary absorptive ca-
pacity to successfully integrate target resources and capabilities to create value, while
technological laggards do not, and any attempt by them to integrate target resources
and capabilities often leads to value destruction. However, even technological leaders
need to consider whether the firms they are considering acquiring possess resources
and capabilities that lead to discontinuous changes and negative complementarities
84 Chapter 5 Implications for Bank Strategies: Interdependence, and Value Cocreation

with their existing resource base, which may increase substitutability and lead to value
destruction (Sears, 2017). Firms that are technological laggards are more successful
when the acquisition is part of a strategic renewal – especially in resource extension
acquisitions – whereby the acquirer recognises its existing technology strategy is failing
and substitutes it with the target’s technological resources and capabilities (Sears, 2017).
When properly managed, acquisitions can “facilitate the gradual accumulation of the
capabilities underlying strategic agility” (Weber & Tarba, 2014, p. 9) which allow firms
to make sense quickly, make decisions nimbly, and redeploy resources swiftly, and
which consequently improves their abilities to react to hypercompetitive environments.
In terms of interdependence and value cocreation, the purpose, timing and nature
of the acquisition are very important considerations. For instance, is the focal firm ac-
quiring a target for the purpose of benefiting from the target’s resources and capabili-
ties to better enable the focal firm to engage in strategies of interdependence? Or is the
focal firm acquiring the target as a rejection of strategies of interdependence and a re-
jection of the notion of value cocreation with resources and capabilities that it does not
own or control? Does the focal firm prefer to counter the forces of interdependence by
owning rather than collaborating with the resources and capabilities it does not cur-
rently have?
Moreover, the acquisition modality needs to be considered in conjunction with
other modalities longitudinally since this can reveal the purpose of acquisitions and the
evolution of a firm’s strategy of interdependence. For instance, a firm that is a techno-
logical laggard may embark on acquisitions initially as a rejection of interdependence
and value cocreation, subsequently establish innovation labs and a corporate venture
capital arm, transform into a technological leader and thereafter only embark on ac-
quisitions that enable it to promote rather than suppress strategies of interdependence.
In a similar vein, it is important to analyse firms’ divestments and the reason behind
them. Have firms divested from businesses that have been impacted by interdepen-
dence and value cocreation with the aim of insulating themselves from the forces of
interdependence and value cocreation, or have they divested from investments as their
strategy of interdependence and value cocreation has evolved?
A related set of submodalities are banks’ internal investments that allow them to
develop the resources and capabilities required to better execute strategies of interde-
pendence and value cocreation. Many banks created corporate venture capital arms
and allocated fintech funds in order to identify, assess, and influence fintechs with
whom they seek to collaborate with, invest in, or acquire. The majority of banks’ fintech
funds are administered through their own corporate venture capital arms, however,
some banks use external venture capital firms to administer their fintech funds or es-
tablish joint funds with external venture capital firms. Another important submodality
is the establishment by banks of internal innovation labs, incubators, and/or accelera-
tors to benefit from the entrepreneurial capabilities of their existing employees, as well
as internal think tanks that typically have broader scopes than innovation labs and
often conduct research on wide ranging topics including futurological analyses, and
 5.4 Setting the scene for the Empirical Study 85

innovation outposts, which are small innovation labs (sometimes composed of only a
few people) that banks establish in innovation hotspots like Silicon Valley so that they
can be better informed on themes that are at the forefront of technological innovation.
In some cases banks may invest in the creation of an internal fintech subsidiary, or
this may evolve as a result of an acquisition or innovations that emerge from an inter-
nal innovation lab, incubator, and/or accelerator. Fintech subsidiaries are frequently
ringfenced from the rest of the bank and allowed to operate semi-independently; this is
often due to the cultural, technological, and operational differences between the fintech
subsidiary and the rest of the bank, but this can also be to facilitate the fintech subsid-
iary’s own strategies of interdependence and value cocreation with other stakeholders
who would otherwise be less likely to collaborate with it if it was simply another fully
integrated department of the bank. In some cases banks embark on fintech related ini-
tiatives that are not branded or operated separately, and which instead are initiatives
that enhance the resources and capabilities of banks’ existing businesses (e.g., an artifi-
cial intelligence powered personal assistant for their retail banking operations). More-
over, in certain cases, the fintech subsidiary is spun-out and ends up operating as a
separate entity, albeit one with historical business and technological ties to the original
parent company. The reason for spinning-off fintech subsidiaries are diverse, in some
cases this could be because the subsidiary does not align with the banks’ strategy, it
could also be that the fintech subsidiary will be more successful (including potentially
in adopting strategies of interdependence with other stakeholders) if it is not owned by
a bank, or it could be that the bank is adopting strategic openness (Alexy, West, Klap-
per, & Reitzig, 2018) whereby it can derive relational rent through its complementarities
with or superior knowledge of the spin-off’s resources and capabilities without needing
to own or control them.
Banks may also look to invest externally as lead investors in fintechs. The status of
lead investor is particularly important as through this position banks exert greater in-
fluence on the development of the fintech and the path it takes compared to other non-
lead investors, for instance, lead investors are more likely to become board members of
the fintech they invest in than nonlead investors (Amornsiripanitch, Gompers, & Xuan,
2019). Thus, a bank acting as a lead investor can influence the evolution of a fintech to
align it more closely with the bank’s strategy and for the purpose of value cocreation
through the exploitation of the fintech’s resources and capabilities, while only having a
partial ownership stake.

5.4.2 Partnerships Modality

The second modality focuses more on the inter-organisational relationships that a bank
can make use of to coexplore and coexploit value generating opportunities (Parmigiani
& Rivera-Santos, 2011) as part of its strategy of interdependence and value cocreation.
This could be in the form of dyadic or multifirm alliances as elaborated on by Lavie
86 Chapter 5 Implications for Bank Strategies: Interdependence, and Value Cocreation

(2006) or value cocreation opportunities through platform-mediated networks. There

are several submodalities associated with the partnerships modality:
– Partnerships or nonlead investments in fintechs
– Partnerships with bigtech
– Partnerships with other financial institutions
– Consortium initiatives, especially blockchain consortia
– Partnership cessations

Of particular interest are banks’ partnerships with bigtechs, which have increasingly
sought to penetrate the financial services industry, as well as any partnerships with
other banks and financial institutions to cocreate value. Furthermore, it is important
to consider the cases where banks chooses to cocreate value with a fintech through
partnerships, without seeking to acquire it or to take a lead investment in it (at most
taking a small, nonlead equity stake to demonstrate commitment or nonopportun-
ism). Banks have also increasingly initiated or participated in consortium initiatives,
particularly those enabled by the development of blockchain technology. Through
these blockchain consortia initiatives, banks along with other stakeholders are able to
create beneficial value propositions that can only come to fruition through the combi-
nation of resources and capabilities of the collaborating stakeholders through the
blockchain platform.
The partnership modality provides banks with quicker and less costly access to
resources and capabilities than the acquisition and internal investment modality (Par-
migiani & Rivera-Santos, 2011) allowing banks to potentially cocreate value with its
partners more rapidly since it does not seek to own or control their resources and
capabilities. This is particularly useful in hypercompetitive environments where
banks may need to take more experimental and agile approaches. In fact, it may be
argued that the very existence of fintechs may be a strategically important resource
and capability, since through partnerships and minority stakes, banks can indirectly
participate in, and derive rents from, activities that have become more onerous for
them (e.g., due to regulatory changes). Thus partnerships is the strategic modality
through which banks can conduct regulatory arbitrage. However, with the partner-
ship modality, banks will need to consider the risks of platformisation and the poten-
tial of losing outbound spillover rents, which is not something they would need to
consider with the acquisition and internal investment modality.

5.4.3 Open Innovation Ecosystems Modality and Open IT Infrastructure Modality

The third (open innovation ecosystems) and fourth (open IT infrastructure) modalities
relate to the notion of open innovation that was popularised by Chesbrough (2003)
(Section 5.3.3 elaborates on open innovation). Open innovation is a particularly effi-
cient approach in hypercompetitive environments since firms can develop their
 5.4 Setting the scene for the Empirical Study 87

knowledge and explore opportunities related to emerging technologies and contexts

more rapidly and cost-effectively than they would otherwise through internal re-
search and development or through acquisitions (Chesbrough & Garman, 2009). There
are two submodalities associated with the open innovation ecosystems modality:
– Establishment of banks’ own external innovation labs, incubators, accelerators,
and/or innovation outposts
– Participation in others’ external innovation labs, incubators, and/or accelerators

There are also two submodalities associated with the open IT infrastructure modality:
– Establishment of open-API portals, developer kits, and sandboxes
– Crowdsourcing platforms for staff, external developers, and customers to co-
innovate

The open innovation ecosystems modality is concerned primarily with whether banks
have established external innovation labs, incubators, accelerators, and/or innovation
outposts that are open to other firms, particularly fintechs, through which the bank
seeks to co-innovate and cocreate value propositions that have the potential of gener-
ating relational rents that can contribute to banks’ competitive advantage. Through
this form of outside-in open innovation, the bank also stands to benefit from inbound
spillover rents through the knowledge it can absorb from the fintechs and other firms
it hosts at its innovation lab, incubator, accelerator, and/or innovation outposts. Banks
also benefit from having preferential access to fintechs and from being able to influ-
ence fintechs’ innovations to be more in line with their own strategies. Bank’s external
innovation labs, incubators, accelerators, and/or innovation outposts are also mecha-
nisms through which banks can form ecosystems to facilitate the origination of value
propositions that are predicated on platform-mediated networks. In a similar vein,
banks may choose to participate in external innovation labs, incubators and/or acceler-
ators that have been established by others. There are numerous reasons for banks
doing this, for example a bank may wish to participate in a niche that that innovation
lab, incubator, or accelerator specialises in, or this may be part of an inside-out open
innovation strategy whereby the bank may wish to expose underutilised resources and
capacities to the innovation of others.
The open IT infrastructure modality is more focused on the technological aspects of
open innovation, such as the establishment of any technological platforms by banks to
facilitate co-innovation and crowdsource ideas among their staff, customers, and exter-
nal developers. Moreover, this modality considers how European banks have responded
to PSD2 and the Open Banking Standard to facilitate access to their APIs to external par-
ties. Have European banks done the minimum required by these new regulations or
have they embraced the concept of open banking, for example, by providing more ad-
vanced access to their APIs, by creating sandboxes and developer portals, by pioneering
open banking in other geographic markets that have less advanced open banking
88 Chapter 5 Implications for Bank Strategies: Interdependence, and Value Cocreation

regulations, or by integrating open banking into their business model to platformise

and become a marketplace for other firms to collaborate and cocreate value?

5.4.4 A Fifth Status Quo Modality?

Aside from these four modalities, there is also the possibility, that faced with the
forces of interdependence, banks may simply choose to double-down on their existing
technologies and business models, a possibility explored by (Adner & Snow, 2010). In
effect, while this may constitute a fifth modality to consider for small, local, or speci-
alised banks, it is not a realistic consideration for large and medium banks, given
their size, scope, and reach. Indeed, given the regulatory, technological, and competi-
tive forces discussed in Chapters 1 to 4, even small, local, or specialised banks will
likely need to engage with innovative external resources and capabilities through
value cocreation at least at a limited, tactical level.
Part 2
Chapter 6
New Strategic Considerations in the Platform
Economy Age

In Part 1 of this book, Chapters 1 to 3 presented the seismic regulatory, technological,

and competitive forces that banks have had to contend with in the platform economy
age. Chapter 4 touched on the unique ability of banks to originate money through
lending, which is often overlooked, and which should be taken into account when an-
alysing banks’ strategic response to the forces discussed in Chapters 1 to 3. Chapter 5
then explored the strategic implications of these different forces, identifying two im-
portant and closely related ramifications. First, in the age of the platform economy,
many strategically important resources and capabilities will increasingly reside out-
side the ownership and control of banks, which creates interdependence between
banks and the owners of these external resources and capabilities. Secondly, given
this interdependence, banks can cocreate value with these external resources and ca-
pabilities that produce relational rents that the collaborating stakeholders can benefit
from. While value cocreation initiatives have been a feature of corporate life for
many decades, especially in dyadic or multifirm relationships (e.g., alliances in the
automobile industry), the technologies and business models of the platform economy
age add a new dimension to value cocreation. In the platform economy age, value coc-
reation can be achieved through platform-mediated networks, and can be imple-
mented as an ongoing, fundamental business model rather than a discrete initiative
bound by the scope of a specific alliance. Chapter 5 then delved into the different eco-
nomic, alignment, and technological facets of value cocreation, especially in the platform
economy age. It then posed a key managerial question: What strategies of interdepen-
dence and value cocreation have banks adopted in the platform economy age? To facilitate
answering this question, Chapter 5 concluded by breaking down strategies of interde-
pendence and value cocreation into four observable modalities (acquisitions and invest-
ments, partnerships, open innovation ecosystems, and open IT infrastructures) and
seventeen submodalities.
The second part of this book enters the field. It presents the results of the empiri-
cal study that was conducted over three and half years to answer the managerial
question. Chapter 6 presents the new empirically derived strategic considerations for
banks in the platform economy age, Chapter 7 presents the taxonomy of banks’ strate-
gies of interdependence and value cocreation, and Chapter 8 discusses the implica-
tions of these findings. Chapter 6 starts by elaborating on the empirical study’s
research design, including the empirical context (largest twenty European banks),
and temporal aspects (between 2008 and 2019). Section 6.2 presents the modalities of
the twenty banks’ strategies of interdependence and value cocreation between 2008
and 2019 based on the results of the empirical study. Section 6.2 also reflects on any

https://doi.org/10.1515/9783110792454-006
92 Chapter 6 New Strategic Considerations in the Platform Economy Age

intermodality relationships that were observed as well as the temporal characteristics

of the modalities and submodalities.

6.1 Research Design of the Empirical Study

Section 5.4 posed the question: what strategies of interdependence and value cocreation
have banks adopted in the platform economy age? It also presented four modalities
and seventeen submodalities through which bank’s strategies of interdependence and
value cocreation can be observed. To answer this important managerial question, I con-
ducted an eighteen-month long empirical study. This section provides a brief summary
of the research design and methodology that was adopted for the empirical study.

6.1.1 Strategy of Inquiry

The study’s empirical context is the European banking sector from 2008 until the end of
2019, and specifically the largest twenty banks in Europe. In demarcating the universe of
banks this study considers, it is important to ensure that the universe selected maximises
the presence of the forces and phenomena discussed in Chapters 1 to 4, thus developed
markets were prioritised over developing markets. Within developed markets, regulation
promoting interdependence and value cocreation were pioneered in Europe through
PSD2 and the Open Banking Standard, which both came into effect in January 2018, while
the rest of the developed markets subsequently began exploring the concept of open
banking inspired by the European model. Moreover, as discussed in Section 1.4.2, Europe
again took the lead in establishing public policy enablers that promoted the activities of
fintechs and bigtechs in financial services. Hence, European banks constitute this study’s
focus. Moreover, the forces and phenomena discussed in Chapters 1 to 3 are more widely
felt by large, international, diversified banks who need to contend with these forces
across diverse geographic, regulatory, and business segment fronts, compared to small,
specialised, local banks. These banks cannot realistically internally develop or acquire all
the necessary resources and capabilities required to address the multitude of forces that
assail them across multiple fronts; they are therefore more likely to engage in value coc-
reation with external stakeholders to address these challenges. Thus, this study focuses
on the largest twenty European banks by assets (and excludes central banks, develop-
ment banks, and nonbank financial institutions): HSBC, BNP Paribas, Crédit Agricole,
Santander, Deutsche Bank, Société Générale, Groupe BPCE, Barclays, Lloyds Banking
Group, ING, Crédit Mutuel, UBS, UniCredit, Intesa Sanpaolo, Royal Bank of Scotland,
Credit Suisse, BBVA, Standard Chartered, Rabobank, and Nordea. The time boundary
used is 1 January 2008 to 31 December 2019, which covers the major events and develop-
ments discussed in Chapters 1 to 3. The time boundary is sufficiently long (twelve years)
to gather enough relevant data and for observations and analysis to be indicative of
 6.1 Research Design of the Empirical Study 93

more significant phenomena rather than temporary noise. Moreover, the time boundary
excludes the COVID-19 period (2020 onward) thus guarding from the inclusion of a new,
evolving crisis that may distort the validity and reliability of outcomes.
This study adopts a circular research process. The research process follows a circu-
lar, iterative progression whereby important new insights that are obtained through
the interpretation of initial data feeds back into the data collection process allowing re-
finements to be made, continuing until saturation. For example, the four modalities
and seventeen submodalities of banks’ strategies of interdependence were identified in
an abductive process incorporating a) the different facets of value cocreation and inter-
dependence discussed in Section 5.3, b) insights that emerged from the data collected,
and c) my experience as a practitioner; in fact, several submodalities emerged from pre-
liminary data collection exercises. To capture these modalities, I used a longitudinal
multiple-case methodology (Yin, 2018). The unit of analysis is banks’ strategies of inter-
dependence and value cocreation as captured by each of the twenty cases. The unit of
observation is banks’ modalities and submodalities of their strategies of interdepen-
dence and value cocreation.

6.1.2 Data Collection

Data relating to modalities and submodalities of banks’ strategies of interdependence

were collected longitudinally for each of the twenty cases and presented in twenty
single-case matrices. I triangulated between different data sources (e.g., press re-
leases, financial databases, financial statements), between types of data (e.g., documents,
archival databases), and between different methods, providing multiple measures of the
same phenomenon and enabling the convergence towards a single representation of a
phenomenon with a greater degree of confidence (Miles, Huberman, & Saldaña, 2019;
Yin, 2018).
Between 2008 and 2019, 2,007 data points were obtained for the twenty cases
(Table 6.1) from archival databases (e.g., Moody’s Analytics BankScope, Dow Jones Fac-
tiva, Crunchbase, La French Tech) and documentary evidence (e.g., press releases, cor-
porate websites, annual financial statements, and 113 sources of financial news and
specialist news). Forty-two different Boolean searches were used in Dow Jones Factiva
and in keyword searches in annual financial statements for each case. Beyond just
conducting keyword searches, the introduction, strategy section, and innovation sec-
tion of annual financial statements were analysed. Moreover, banks’ websites were
consulted in detail as these often have innovation or strategy sections. The corporate
venture capital arms, fintech arms, incubators, accelerators, innovation labs, fintech
funds often have their own websites as well which were consulted in detail.
Each single-case matrix has a brief overview of the bank detailing its organisa-
tional structure (e.g., key subsidiaries), international presence, and other relevant in-
formation (e.g., unique historical conditions). Each single-case matrix then compiles
94 Chapter 6 New Strategic Considerations in the Platform Economy Age

Table 6.1: Data Point Sources for the Twenty Cases.

Case DB PR NS FS CW O Total

Barclays    –   
BBVA       
BNP Paribas       
Crédit Agricole      – 
Crédit Mutuel       
Credit Suisse       
Deutsche Bank    –   
Groupe BPCE      – 
HSBC    –  – 
ING       
Intesa Sanpaolo       
Lloyds Banking Group       
Nordea       
Rabobank       
Royal Bank of Scotland      – 
Santander       
Société Générale       
Standard Chartered       
UBS    –   
UniCredit    –   

      ,

DB: Database; PR: Press Release; NS: News Source; FS: Financial Statement; CW: Corporate
Website; O: Other

the data points for the modalities and submodalities. For each data point, the name
and/or URL of the data source is included. To ameliorate the reliability and construct
validity of outcomes a diligently maintained case study database was used. Moreover,
relevant subsidiaries were considered, including those that the parent disposed of,
consolidated, or merged. Many subsidiaries have different names than the parent
thus all searches conducted using the parent name were repeated using the subsidi-
ary name, and if subsidiaries file separate annual financial statements to the parent
those too were analysed. Furthermore, when conducting database searches and Bool-
ean searches, attention was given to nuances that may affect results like including
and excluding accents and using the full name as well as acronyms.

6.1.3 Data Analysis

Data analysis consisted of two main steps. First, once all single-case matrices were
completed, a content analytic meta-matrix brought together data from all twenty
banks to facilitate analysis (Miles, Huberman, & Saldaña, 2019). Appendix 1 provides a
single, combined summary of these content analytic meta-matrices. In keeping with
 6.1 Research Design of the Empirical Study 95

this study’s abductive approach, the content-analytic meta-matrices rely both on the-
ory driven propositions that were derived from the literature review (Chapters 1 to 5)
and propositions that emerge from the data (Yin, 2018). A holistic case-based approach
(Byrne, 2019) was used to interpret the data. This first step reveals in more detail the
new strategic considerations related to interdependence and value cocreation that
banks need to take into account in the platform economy age, as well as the modali-
ties of these strategies; these are discussed in Sections 6.2 and 6.3.
The second step is that – on the basis of the first step – I empirically derived a
taxonomy (Bailey, 1994) of banks’ strategies of interdependence. To do this, I used
Nickerson, Varshney, & Muntermann’s (2013) approach and adapted it to qualitative,
case-level data. Thus, this study’s approach to taxonomy creation followed the follow-
ing logic: pattern matching, cross-case synthesis, time series analysis, and logic models
were applied to the content-analytic meta matrix to cluster bank’s characteristics (mo-
dalities and submodalities) into dimensions, four further rounds of clustering were
conducted at the dimension level (with the possibility of adding, removing, splitting,
or merging dimensions, except in the final round) resulting in four taxa. This study
considers that a taxonomy is composed of several taxa; a taxon is composed of dimen-
sions; and a dimension is composed of characteristics (modalities and submodalities).
The taxonomy was deemed final based on the following conditions being met: robust
but concise, complete and collectively exhaustive (all twenty cases accounted for; all
modalities and submodalities accounted for in each taxon), extendible, at least one
case in each taxon, no new taxa or dimensions added, merged, or split in the final
iteration, mutual exclusivity at the dimension level (each case figures in only one
taxon, each taxon is unique, each dimension is unique within a taxon). Appendix 2
presents the final iteration of the taxonomy and details the dimensions that constitute
each taxon.
The fact that the empirical study is a longitudinal study, uses multiple cases, cov-
ers a twelve-year period, and triangulates between different data sources, data types,
and data analysis methods, ameliorates the reliability, validity, and generalisability of
outcomes.

6.1.4 Supplemental Contextual Study

Sections 6.1.1 to 6.1.3 detail the empirical study’s research design, however, an addi-
tional side study was conducted to provide a deeper contextual understanding of the
empirical study’s outcomes. This was composed of two exercises, the first was to tabu-
late and rank the twenty banks’ historical financial indicators, and the second was to
segment banks’ revenues. The first exercise involved using financial databases (Thom-
son Reuters/Refinitiv, Bloomberg, and Bureau Van Dijk) to tabulate the historical evo-
lution of seventeen financial indicators of the twenty banks between 1 January 2008
to 31 December 2019. The seventeen financial indicators are: interest income, net
96 Chapter 6 New Strategic Considerations in the Platform Economy Age

interest income, net interest income growth, noninterest income, noninterest income
growth, total income, total income growth, operating income/losses, net income/losses,
net income growth, net interest margin, loan to asset ratio, return on asset ratio
(ROA), efficiency ratio (cost to income ratio), pre-tax profit margin, return on total eq-
uity (ROE), Tier 1 capital adequacy ratio. The second exercise involved using financial
databases (S&P Capital IQ) to segment the total income of the twenty banks a) geo-
graphically, and b) by business, longitudinally over the same twelve-year period.
The tabulated financial indicators for the twenty banks were analysed to identify
any trends or patterns that evolved over time. The top and bottom performing quar-
tiles were identified for all indicators across all years. A ranking exercise was con-
ducted, ranking the banks from one (highest) to twenty (lowest) for all indicators for
each year, so that the evolution of banks’ ranks over time were observed for each in-
dicator. The segmentation of banks’ revenues by geography and business over time
was also analysed. Geographic segmentation is important to identify banks that are
more international (who derive their total income from diverse geographies), those
that are more regional (who derive most of their total income from specific regions
such as Europe or Asia Pacific) and those that are more local (who derive most of
their total income from a specific country such as France or the UK). Business segmen-
tation also identifies banks that are more diversified (who derive their total income
from diverse businesses such as retail banking, corporate banking, and investment
banking) and those that are less diversified (who derive most of their total income
from one business such as retail banking). Any trend reversals were also noted, for
example, any banks that went from being international to being regional, or those
that went from being more diversified to being more specialised.
The purpose of this additional activity is to obtain a deeper understanding of the
financial and segmentation characteristics of the twenty banks across the time bound-
ary considered. The purpose is not to conduct statistical studies but rather to catego-
rise the twenty banks in ways that deepens the reader’s contextual understanding.
The outcomes of this additional study do not impact on, or input in any way into, the
outcomes of the main empirical study as detailed by Sections 6.1.1 to 6.1.3. The out-
comes of the contextual study are designed to supplement and deepen our under-
standing of the twenty banks’ strategies of interdependence and value cocreation by
observing whether banks in specific taxa of the taxonomy presented in Chapter 7
have any commonalities in terms of their institutional context. The additional insights
generated from this supplemental study are included in Section 7.5. Appendix 3 pro-
vides summaries of the outcome of this contextual exercise for each bank.
 6.2 Modalities of Strategies of Interdependence and Value Cocreation 97

6.2 Modalities of Strategies of Interdependence and Value

Cocreation in the Platform Economy Age
Section 5.4 presented four modalities and seventeen submodalities through which
banks’ strategies of interdependence and value cocreation can be observed. These mo-
dalities were identified via preliminary research including reviews of academic and
practitioner literature and my own experience; they were refined through knowledge
that emerged from the empirical study discussed in Section 6.1. This section presents
the study’s empirical findings for the twenty banks considered between 2008 and 2019
split by modalities and submodalities.

6.2.1 Acquisition to Reinforce Value Cocreation Capabilities

Most of the banks considered acquired fintechs; only six banks made no fintech acquis-
itions in the period considered (HSBC, Lloyds Banking Group, UBS, UniCredit, Intesa
Sanpaolo, and Standard Chartered). The majority of fintech acquisitions were in the
payments subsector, with direct/online banking, and crowdfunding being the second
and third most prominent subsectors, respectively. Several banks, targeted fintechs that
augmented their capabilities in core operations, indicating that these were resource
deepening acquisitions (Sears, 2017). For example, Groupe BPCE, whose fintech subsidi-
ary Natixis Payments, boasts over 20% market share of payments in France, accounted
for 31% of payments-related fintech acquisitions, while three quarter of crowdfunding
fintech acquisitions were conducted by cooperative banks (Groupe BPCE and Crédit Mu-
tuel) whose cooperative and mutualist philosophies align with crowdfunding business
models. From a temporal perspective, three quarter of acquisitions were made between
2016 and 2019; a quarter were made in 2018 alone, the year that PSD2 and the Open
Banking Standard came into effect, pointing to a possible regulatory trigger.
Of the forty-four fintech acquisitions between 2009 and 2019, four banks account
for 59% of acquisitions (Crédit Mutuel with nine acquisitions, Groupe BPCE with eight,
BBVA with five, and Santander with four). Two are cooperative banks (Groupe BPCE
and Crédit Mutuel) while the remaining two (BBVA and Santander) are considered lead-
ers in digital transformation within the banking industry. Cooperative and mutual
banks usually have expansive and costly branch networks (Duran, 2019), are often com-
posed of networks of autonomous local cooperatives (New Economics Foundation, 2012)
(e.g., Groupe BPCE is composed of Banque Populaire, Caisse D’Epargne, BRED Banque,
Crédit Coopératif, Natixis, Banque Palatine, Crédit Foncier among others; while Crédit
Mutuel is composed of Crédit Industriel et Commercial, Crédit Mutuel Arkéa, Crédit Mu-
tuel Alliance Fédérale, Crédit Mutuel Maine-Anjou Basse-Normandie, Crédit Mutuel
Nord Europe, Crédit Mutuel Océan among others), and usually lag in terms of techno-
logical innovation (Fonteyne, 2007). Thus, these cooperative banks are likely embarking
on what Sears (2017) describes as strategic renewal through acquisition of resources
98 Chapter 6 New Strategic Considerations in the Platform Economy Age

and capabilities, especially ones that extend the acquirer’s resources and capabilities
into new markets. However, as Sears (2017) elaborates, the absorptive capacity of the
acquirer’s resources and capabilities is also an important consideration, and firms that
are comparative technological laggards may struggle to integrate newly acquired inno-
vative capabilities into their legacy ones. A case in point is Groupe BPCE, which ac-
quired Fidor – a leading German digital banking fintech – in 2016. A couple of years
later the bank was looking to sell Fidor due to concerns of it not fitting with Groupe
BPCE’s strategy and due to a culture clash between the young fintech and the over 200-
year-old cooperative; in 2021, the bank sold Fidor to French software company Sopra
Steria (Sopra Steria, 2021). These banks’ comparatively high number of fintech acquisi-
tions are also indicative of an inclination to control resources and capabilities through
traditional ownership and thus may represent a certain rejection of strategies of
interdependence.
On the other hand, the remaining two banks are considered technological leaders.
Both Spanish banks, Santander and BBVA, are considered digitalisation leaders (BBVA,
2020; Finextra, 2016; D-Rating, 2019). Moreover, Spain is considered one of the three
leading European markets for digital-only banking (Mastercard, 2019). In keeping with
this, the two banks’ acquisitions can be seen as strategies to enhance their existing re-
sources and capabilities. For example, BBVA acquired the digital studio Spring Studio in
2015 to accelerate its digitalisation efforts.
Several banks also divested from fintech investments that they made that no longer
aligned with their strategies of interdependence or that did not yield the results origi-
nally aimed for. For example, a number of banks divested from the German online pay-
ments service Paydirekt, which was originally launched in 2015. Paydirekt was owned
by a consortium of banks: 16.67% owned by Deutsche Bank, 16.67% owned by Commerz-
bank, and the rest owned by other major banks including Santander, Targo Bank
(Crédit Mutuel), ING, HypoVereinsbank (UniCredit), and Consorsbank (BNP Paribas). By
the end of 2019, Santander, Crédit Mutuel, ING, UniCredit, and BNP Paribas divested
their stakes, selling them to Deutsche Bank and Commerzbank. The participants who
divested their stakes believed that Paydirekt was too late in the market and was unable
to compete with the likes of PayPal in Germany (Handelsblatt, 2019).
Several banks like BBVA, Santander, UBS, Rabobank, and UniCredit, also divested
from fintech subsidiaries that they established or fintechs that they acquired when
they deemed these to be no longer in line with their strategies of interdependence.
For example, UBS divested from its robo-advisory service SmartWealth in 2018, which
it sold to the fintech SigFig with whom UBS has a partnership. BBVA and Santander
are well represented in both fintech divestments and in the fintech partnership cessa-
tion, which indicates an advanced and sophisticated managerial ability of knowing
when initiatives and/or investments are not progressing well and acting quickly and
in an agile way to terminate them (fail fast and move on or fail fast and learn).
 6.2 Modalities of Strategies of Interdependence and Value Cocreation 99

6.2.2 Establishing Fintech Subsidiaries, Initiatives, and Spin-Offs

Banks launched fintech subsidiaries through which they developed resources and ca-
pabilities that are better suited to value cocreation with external stakeholders and are
separated from the rest of the bank so as to be unencumbered by the banks’ legacy
technologies and ways of working. In some cases, banks integrated fintech acquisi-
tions into their fintech subsidiaries. In other cases, banks spun-off their fintech
subsidiaries preferring for them to grow as separate entities with whom they can
partner with to derive relational rents. In cases where banks did not deem it neces-
sary to segregate fintech subsidiaries organisationally, they launched fintech initia-
tives that integrated with or ran alongside banks’ existing products and services.
Except for Nordea, all banks established fintech-related subsidiaries. The top three
subsectors for fintech subsidiaries were, direct/online banking, followed by payments,
and crowdfunding (the same as the top three subsectors for fintech acquisitions, albeit
in a different order). From a temporal perspective, almost half of fintech subsidiaries
were established between 2016 and 2019. A few banks established specialist fintech
units that were mandated with creating diverse fintech solutions (e.g., the Santander
Global Platform launched in 2019 as a consolidation of numerous Santander stand-
alone fintech initiatives).
Many of the fintech subsidiaries that the banks established relate to banks’ core
operations. Direct/online banking was by far the most prominent subsector for fintech
subsidiaries. Many of these direct/online banking subsidiaries were telephone or internet
only subsidiaries that banks like HSBC, Santander, Société Générale, ING, and Rabobank
had established decades ago and which they subsequently digitalised (e.g., HSBC’s First
Direct launched in 1989), others were newly launched ones (e.g., BNP Paribas’ Hello
Bank! In 2013), some were originated through banks’ internal open innovation initiatives
(e.g., BBVA’s Azlo launched in 2017 and incubated at the BBVA New Digital Business inno-
vation lab). In terms of payments, Groupe BPCE and Barclays accounted for 33% of the
payment fintech subsidiaries that were established and were earlier than other banks in
launching them. Much like Groupe BPCE plays a dominant role in the French payments
landscape through Natixis Payments, Barclays plays a similarly prominent role in the
British payments landscape through Barclaycard (UK’s largest credit card provider with
27% market share). As for crowdfunding, cooperative banks were again overrepresented
in this regard with Groupe BPCE and Crédit Mutuel accounting for seven of the eight
crowdfunding fintech subsidiaries that were established.
Most of the banks launched fintech initiatives. From a temporal perspective almost
all fintech initiatives were also launched between 2016 and 2019. BBVA, HSBC, and
Rabobank accounted for half of the fintech initiatives that were observed. More than
half of banks’ fintech initiatives related to personal assistants or chatbots, that were
often powered by artificial intelligence technology, and which serve different purposes
such as engagement with retail banking clients or wealth management robo-advisory
services. BBVA is the only bank of the twenty considered to have systematically launched
100 Chapter 6 New Strategic Considerations in the Platform Economy Age

many fintech initiatives via an innovative internal private blockchain platform (e.g., for
syndicated lending, bond issuance, and corporate lending use-cases).
ING accounted for almost all the fintech spin-offs observed. ING systematically
spun-off numerous fintech subsidiaries. This included four payments fintech spinoffs
and several that became prominent such as the payment fintech Payconiq that oper-
ates across the Benelux and was spun out in 2015, and the multibank treasury man-
agement fintech Cobase which was spun out in 2017.

6.2.3 Establishing Corporate Venture Capital Arms, Fintech Funds,

and Making Lead Investments in Fintechs

Most banks established corporate venture capital subsidiaries. The exceptions were
Crédit Agricole, Deutsche Bank, Groupe BPCE, Lloyds Banking Group, and UBS, who
also had a low number of lead investments in fintechs. A few of the banks that did
not establish their own corporate venture capital subsidiaries, but which did commit
fintech funds, delegated the administration of fintech funds to third-party external
venture capital firms (e.g., Crédit Agricole who delegated the administration of its fin-
tech fund in 2017 to Breega Capital). A third of corporate venture capital arms and
fintech funds were established comparatively early (between 2013 and 2015); banks
that established corporate venture capital arms early like Santander, BBVA, Barclays,
and ING were overrepresented in terms of lead investments in fintechs.
Several banks like Santander, BBVA, Barclays, Credit Suisse, Standard Chartered,
UniCredit, ING, and HSBC, launched corporate venture capital arms that were integrated
with well-funded fintech funds and supported by their own internal and external inno-
vation labs, incubators, and/or accelerators. For example, Santander launched its corpo-
rate venture capital arm Santander InnoVentures in 2014 alongside a 200 million USD
fund (100 million USD launched in 2014 and topped up with an additional 100 million
USD in 2016); BBVA launched two corporate venture capital subsidiaries, Propel Venture
Partners (launched as BBVA Ventures in 2013 and renamed in 2016) and BBVA New Digi-
tal Business launched in 2015, alongside the 100 million USD BBVA Ventures I fund
launched in 2013 and increased to 250 million USD in 2016; ING launched its corporate
venture capital arm ING Ventures in 2017 along with a 300 million EUR fund called ING
Ventures Fund I to invest in fintechs, as well as a 25 million EUR a year fund to fund
internal fintech acceleration launched in 2013; and, Barclays launched its corporate ven-
ture capital arm Barclays UK Ventures in 2018, with a 100 million GBP Barclays Technol-
ogy fund to invest in UK fintech start-ups, along with 10 million GBP per cohort fund for
its Barclays Accelerator.
Collectively, the twenty banks made ninety-six lead investments in fintechs in the
period considered, with UBS the only bank not to have made a single lead investment.
The most active banks in terms of lead investments in fintechs were Santander, BBVA,
Barclays, and ING. The least active banks were Lloyds Banking Group, Rabobank,
 6.2 Modalities of Strategies of Interdependence and Value Cocreation 101

Société Générale, the Royal Bank of Scotland, Groupe BPCE, UniCredit, Intesa San-
paolo, Crédit Agricole, Deutsche Bank, and Nordea. The more active banks typically
had well-established corporate venture capital subsidiaries and significant fintech
funds, while the less active banks typically had less well-established corporate ven-
ture capital subsidiaries and smaller fintech funds or no corporate venture capital
subsidiary or fintech fund at all. From a temporal perspective, 83% of lead invest-
ments in fintechs were made between 2016 and 2019.
The most prominent subsector in terms of lead investments in fintechs was lend-
ing; Santander, ING, Standard Chartered, and Barclays accounted for the majority of
lead investments in this subsector. The second most prominent subsector was pay-
ments; Santander, Crédit Mutuel, ING, and BBVA were the major lead investors in this
subsector. Several banks made large lead investments in leading fintechs (e.g., BBVA’s
accumulation of a 39% stake in the prominent direct/online banking fintech Atom
Bank). Intesa Sanpaolo was the only bank to systematically take large equity stakes in
all its lead investments.

6.2.4 Establishing Internal and External Open Innovation Initiatives

Banks launched internal open innovation initiatives (e.g., think tanks, internal innova-
tion labs, internal incubators, and internal accelerators) to invest in their own work-
force and facilitate the creation of new resources and capabilities that are adapted to
strategies of interdependence through the entrepreneurial activities of their staff. These
internal open innovation initiatives often led to the creation of innovative fintech initia-
tives, subsidiaries, and/or spin-offs which generated new sources of rents and competi-
tive advantage for the banks. Banks also launched external open innovation initiatives
in which they sought to cocreate value through alignment mechanisms that facilitate
the interaction and comingling between banks’ resources and capabilities and those of
external stakeholders. These alignment mechanisms include innovation labs, incuba-
tors, and/or accelerators that banks originate and which they subsequently invite part-
ners, such as fintechs, to join. These alignment mechanisms also include consortium
innovation labs, incubators, and/or accelerators that a group of banks and other incum-
bents jointly launch, and which is subsequently open to participation from fintechs.
The majority of banks launched internal open innovation initiatives, except for
HSBC, Barclays, and Intesa Sanpaolo who were the only banks not to have established
internal open innovation initiatives, preferring to exclusively launch ones open to ex-
ternal participants instead. UniCredit and Société Générale established limited inter-
nal open innovation initiatives. UBS, Credit Suisse, and BNP Paribas were the only
banks to have established think tanks (e.g., UBS Y launched in 2014 and the Credit
Suisse Research Institute launched in 2008). UBS established an extensive network of
internal open innovation initiatives. Along with its think tank, UBS also established
four internal innovation labs – one focused on wealth management established in
102 Chapter 6 New Strategic Considerations in the Platform Economy Age

Zurich in 2014, another in Zurich focused on investment banking launched in 2018, one
for design thinking and innovation in Singapore launched in 2015, and an Advisor Tech-
nology Research and Innovation lab launched in San Francisco in 2016 – as well as in-
novation outposts in Tel Aviv and San Francisco. Other banks with extensive networks
of internal open innovation initiatives include Santander, Credit Suisse, and BNP Pari-
bas. Three banks – UBS, the Royal Bank of Scotland, and Standard Chartered – launched
innovation outposts to help them access cutting edge technological innovation in tech-
nology hotspots like San Francisco (e.g., the Royal Bank of Scotland launched its RBS
Silicon Valley Solutions outpost in San Francisco in 2014).
Banks that launched extensive networks of external innovation labs, incubators,
and accelerators include HSBC, Société Générale, Barclays, ING, and BBVA. For example,
ING launched an innovation lab in 2016, a series of innovation labs/incubators in 2018
in Turkey, Poland, and Germany, an innovation lab/incubator in 2015, an incubator in
2019, two incubators/accelerators in the Netherlands and Belgium in 2016, an accelera-
tor in 2016, and a series of innovation labs, incubators and accelerators launched in
2017 in Amsterdam, Brussels, London, and Singapore; while Barclays launched two net-
works of innovation labs (two in New York, London, Tel Aviv, Mumbai) and two net-
works of accelerators (London, Tel Aviv, New York, Cairo). Several of these banks
(HSBC, Barclays, and Société Générale) that launched extensive external open innova-
tion initiatives, did not launch any internal open innovation initiatives (or launched
very few, limited ones). On the other hand, several banks, like Santander, UniCredit,
Nordea, and Credit Suisse, had relatively limited activity in terms of establishing exter-
nal open innovation initiatives. UniCredit stands out as having a limited number of
both internal and external open innovation initiatives. The only bank not to establish
external open innovation initiatives was Rabobank (however, it was early to launch in-
ternal ones such as the Rabobank Moonshot Campaign in 2015 and the Blockchain Ac-
celeration Lab in 2016).
From a temporal perspective very few external open innovation initiatives were
launched before 2013 (over 90% were launched after 2014). BBVA therefore stands out
in this regard as it launched the majority of its external open innovation initiatives be-
fore 2013, some as early as 2009 and 2011. BBVA launched a series of innovation labs in
Madrid, the US, and Mexico in 2011 and in Colombia in 2013, an innovation lab/incubator
in 2009, an incubator/accelerator in London in 2018, an accelerator in Madrid in 2019,
and an open innovation program in 2009. BBVA was also early to launch its internal
open innovation initiatives although they were not as early as BBVA’s external ones.
BNP Paribas, Barclays, and ING also launched their external open innovation initiatives
relatively early. On the other hand, HSBC and Société Générale launched most of their
external open innovation initiatives comparatively late. Several banks launched most of
their internal open innovation initiatives after first launching external ones including
BNP Paribas, Crédit Agricole, Deutsche Bank, Lloyds Banking Group, BBVA, and Nordea.
Conversely, Standard Chartered launched its internal open innovation initiatives much
earlier than its external ones, only launching external ones as late as 2019.
 6.2 Modalities of Strategies of Interdependence and Value Cocreation 103

Several banks, like BBVA, Standard Chartered, and Rabobank, also launched a se-
ries of integrated internal and external open innovation initiatives. Some, like Stan-
dard Chartered and Santander went further to evolve these into innovation units that
also incorporated other initiatives like corporate venture capital arms and fintech
subsidiaries. For instance, Standard Chartered launched its innovation lab/incubator/
accelerator eXellerator in 2016 with offices in Singapore, Hong Kong, two in Shanghai,
London, and Kenya, along with an outpost in San Francisco, all of which were incor-
porated alongside its corporate venture capital arm, fintech funds, and external fin-
tech partnership unit under the SC Ventures umbrella in 2018.
All banks participated in consortium open innovation initiatives. Several consortium
innovation labs, incubators, and accelerators are well represented by the twenty banks,
including Accenture’s FinTech Innovation Lab launched in 2010 in London, New York,
and Hong Kong, TechQuartier & FintechEurope launched in 2018 in Frankfurt, and The
Floor Hub launched in Tel Aviv in 2016 and in Hong Kong in 2018. For example, sixteen
out of the twenty banks considered participated in the FinTech Innovation Lab across its
locations in London, New York, and Hong Kong. From a temporal perspective, at an ag-
gregate level, banks joined consortium open innovation initiatives before they estab-
lished their own external and internal ones. Rabobank, Santander, and Nordea were
comparatively early to participate in consortium open innovation initiatives; these three
banks, which also had no or limited external open innovation initiatives, were also over-
represented in terms of participation in consortium open innovation initiatives. HSBC,
which has no internal open innovation initiatives, was overrepresented in terms of par-
ticipation in consortia open innovation initiatives (in fact HSBC had the joint highest par-
ticipation in consortium open innovation initiatives of the twenty banks considered). On
the other hand, despite its expansive network of both internal and external open innova-
tion initiatives, BBVA only participated in one consortium open innovation initiative –
the least of the twenty banks considered – indicating an inclination to be the focal firm
or originator of open innovation initiatives.

6.2.5 Value Cocreation Initiatives through Partnerships

Banks sought to cocreate value through the combination of their resources and capa-
bilities with those of external stakeholders through different partnerships. These part-
nerships include ones with fintechs, bigtechs, and other banks and financial services
incumbents.
The most active banks in terms of partnerships with fintechs were BNP Paribas,
Société Générale, Barclays, Santander, ING, and Groupe BPCE, while the least active
banks were Lloyds Banking Group, UniCredit, and Intesa Sanpaolo. These partner-
ships were often accompanied by banks making small nonlead investments in the fin-
tech. From a temporal perspective, around two thirds of fintech partnerships were
between 2016 and 2019. BBVA, ING, and UBS were comparatively early to partner with
104 Chapter 6 New Strategic Considerations in the Platform Economy Age

fintechs, while Nordea, Standard Chartered, HSBC, and Crédit Agricole were compara-
tively late in their fintech partnerships. Several fintechs found consensus among a
broad range of banks, particularly the enterprise blockchain fintech R3, collaboration
solutions provider Symphony, blockchain-based payments network Ripple, risk man-
agement fintech AcadiaSoft, and bond trading fintech Neptune Networks.
The most prominent subsectors that are represented in banks’ partnership with
fintechs were payments, crowdfunding, lending, trading, blockchain, asset and wealth
management, and risk management. Groupe BPCE and Barclays have the most pay-
ments related fintech partnerships. This is consistent with Groupe BPCE and Barclays’
overrepresentation in payments-related acquisitions and lead investments and with
their prominence in the payments space in France and the UK. A cooperative bank –
Rabobank – was again overrepresented in terms of crowdfunding-related activities,
in this case partnerships with crowdfunding focused fintechs. The Royal Bank of Scot-
land and Santander were overrepresented in lending related fintech partnerships. So-
ciété Générale was more focused on partnering with trading fintechs. BNP Paribas,
Santander, and ING were focused on blockchain related fintech partnerships. UBS,
Credit Suisse, Crédit Mutuel, and BNP Paribas were overrepresented in partnerships
with asset and wealth management related fintechs. Barclays, HSBC, BNP Paribas,
Credit Suisse, and Société Générale were overrepresented in partnering with fintechs
focused on risk management. Just as with fintech acquisitions, the fintechs that banks
partnered with often aligned with banks’ core operations.
The twenty banks partnered with bigtechs on a more limited basis, especially in
Europe. They restricted their partnerships with bigtechs to the payments subsector.
Payments-related use-cases represent three quarters of the partnerships observed be-
tween the twenty banks and bigtechs. Moreover, the majority of partnerships were
between 2018 and 2019, which indicates that in many cases banks were likely com-
pelled to partner with bigtechs in payments by PSD2 and Open Banking regulations
that came into effect in the EU and UK in 2018. The most active banks in terms of big-
tech partnerships were HSBC, Standard Chartered, Santander, BBVA, ING, and Société
Générale, while the least active were Lloyds Banking Group, Crédit Agricole, Royal
Bank of Scotland, UBS, and Rabobank. The banks that were early to partner with big-
techs were Barclays, Standard Chartered, BBVA, Société Générale, HSBC, ING, and
Santander, while the banks that were late to partner with bigtechs were Crédit Agri-
cole, Deutsche Bank, Credit Suisse, Rabobank, Intesa Sanpaolo, and UBS. The most
prominent bigtechs with whom banks partnered were – in order – Apple Pay (Apple),
Google Pay (Google), Samsung Pay (Samsung), Alipay (Alipay), Garmin Pay (Garmin),
Fitbit Pay (Google), and WeChat Pay (Tencent). UBS was the only bank not to have
partnerships with at least one of either Apple Pay, Google Pay, Samsung Pay, Alipay,
and WeChat Pay, while fellow Swiss bank Credit Suisse partnered with Apple Pay and
Samsung Pay only in 2019. Credit Suisse and UBS along with several other Swiss banks
partnered on a Swiss payment network called Twint that competes with these bigtech
payment solutions.
 6.2 Modalities of Strategies of Interdependence and Value Cocreation 105

Geography is an important determinant of the scope of bank-bigtech partner-

ships. In China and several other countries in the Asia Pacific region, bigtechs have
come to play a far deeper role in financial services compared to the West. Ant Finan-
cial’s (an Alibaba affiliate) ubiquitous Alipay payments application has become a post-
erchild of this phenomenon. It is unsurprising therefore that the most prominent of
the twenty banks in terms of the scope of their bigtech partnerships were HSBC and
Standard Chartered given that both derive large parts of their revenues from the Chi-
nese and Asia Pacific markets. Moreover, both banks were overrepresented in their
partnerships with Chinese bigtechs, and their partnerships with Chinese bigtechs are
wider ranging than the collaboration observed between the twenty banks with non-
Chinese bigtechs. HSBC partnered with Alipay and WeChat Pay in payments, with Ten-
cent in two different personal finance initiatives and one corporate banking initiative.
Standard Chartered partnered with Alipay, WeChat Pay, and Huawei in payments,
with Tencent in corporate banking, with Alibaba on blockchain partnerships as well
as a general partnership agreement with Alibaba. In a similar vein, Société Générale
and Standard Chartered were the only banks to have entered into wide ranging part-
nerships with telecommunications firms in the payment subsector, especially in
emerging markets and particularly in Africa, where telecommunication firms have
penetrated more deeply into payments.
Banks also partnered with other banks and financial services incumbents in
value cocreation initiatives. Just over a third of fintech related partnerships with
other banks and incumbents relate to the payments subsector, while a quarter related
to regulatory activities and standards setting, and about 10% relate to trade finance.
From a temporal perspective, the majority of these partnerships were between 2016
and 2019, however, this was not uniform across subsectors, the majority of partner-
ships in the payments subsector were entered into early on, while the majority of
partnerships that relate to standards setting and trade finance were entered into
later. The most active banks in terms of fintech related partnerships with other banks
and incumbents were HSBC, Santander, Deutsche Bank, Barclays, ING, and Nordea;
Barclays was early to enter into such partnerships, while Deutsche Bank was compar-
atively late in doing so. The least active banks were UniCredit, Intesa Sanpaolo, Credit
Suisse, UBS, and BBVA.
Within the payments subsector, many of the initiatives that banks and financial
services incumbents partnered on relate to the establishment of national payments net-
works such as PayM in the UK, PayLib and Lyf Pay in France, Blik in Poland, Payconiq
in the Benelux, Bizum in Spain, and Twint in Switzerland. For example, in 2014, several
banks in the UK including HSBC, Santander, Barclays, Lloyds Banking Group, and RBS,
partnered with the Payments Council (now known as Payments UK) to launch the na-
tional payments platform PayM. Within this subsector, Nordea, BNP Paribas, Santander,
and Crédit Mutuel were particularly active, while Standard Chartered, Intesa Sanpaolo,
and UniCredit did not enter into any payments related partnerships with other banks
or incumbents.
106 Chapter 6 New Strategic Considerations in the Platform Economy Age

Within the regulatory activities and standards setting segment the UK figures
prominently. For instance, the British Standards Institute’s Fintech Collaboration
Toolkit was launched in 2018, the Financial Conduct Authority’s Regulatory Sandbox
was launched in 2016, and the industry body Innovate Finance was established in
2014. UK banks – especially HSBC and Barclays – are also overrepresented in this seg-
ment. HSBC in particular has taken the lead in these activities; for example, in 2019,
HSBC partnered with SWIFT to define a common industry standard for open-APIs in
Hong Kong, and in 2016, HSBC was one of only two banks to participate in the UK
Financial Conduct Authority’s first regulatory sandbox cohort. This approach is also
reflected in the blockchain consortia that HSBC participated in, for example, in 2016,
HSBC was one of only five non-Singaporean banks to participate in Project Ubin, the
Monetary Authority of Singapore‘s pioneering project to conduct inter-bank payments
on blockchain, and the only non-Canadian bank to participate in Project Jasper, a sim-
ilar project launched by the Bank of Canada in 2016. BNP Paribas, Crédit Agricole,
Deutsche Bank, UBS, Credit Suisse, and Nordea did not participate in any regulatory
activities or standards setting partnerships with other banks and incumbents. As for
trade finance related partnerships with other banks and financial services incum-
bents, HSBC, Deutsche Bank, and Standard Chartered – three of the top four European
trade finance providers – were the most active.

6.2.6 Value Cocreation through Multisided Blockchain Platforms

All banks either joined or sometimes originated multisided blockchain-based plat-

forms. The most prominent use-cases were trade finance, payments, lending, know-your-
customer (KYC), blockchain standards setting, and commodities. From a temporal per-
spective, more than three quarters of participation in blockchain consortia was between
2017 and 2019. The use-cases that banks participated in comparatively early were inter-
bank payments and blockchain standards, while the use-cases that banks participated in
comparatively later were commodities and payments. ING, Lloyds Banking Group, and
Intesa Sanpaolo’s participation in blockchain consortia were all comparatively late. ING
was one of the most prominent banks in terms of blockchain consortia participation,
and even originated de novo a blockchain consortium, but all its activity in this regard
was comparatively late between 2017 and 2019. On the other hand, HSBC was relatively
early to participate in blockchain consortia; around half of HSBC’s participation in block-
chain consortia were between 2015 and 2016. The most active banks in terms of participa-
tion in blockchain platforms were BNP Paribas, Société Générale, Standard Chartered,
Groupe BPCE, and ING, while the least active were Crédit Mutuel, Nordea, and Lloyds
Banking Group.
In terms of underlying blockchain technology, the overwhelming majority of partici-
pation was either on Ethereum, R3, or Hyperledger. Hyperledger was prominent in
trade finance and payments use-cases, R3 in trade finance, lending, interbank payments,
 6.2 Modalities of Strategies of Interdependence and Value Cocreation 107

and shared KYC use-cases, and Ethereum in payments and commodities use-cases.
Banks also coalesced around a number of key blockchain consortia, the most prominent
of which include the trade finance blockchain networks we.trade and Marco Polo, Finas-
tra’s blockchain based lending initiative Fusion LenderComm, the blockchain based pay-
ment networks Bank-to-Bank Transfers (launched by SWIFT), Interbank Information
Network (championed by JP Morgan), and Fnality International (championed by UBS),
the commodities trading platform Komgo, and the shared KYC utility Corda KYC.
Within the trade finance use-case, the most prominent participants are Standard
Chartered, BNP Paribas, and HSBC. These three banks were also prominent when it
came to trade finance-related value cocreation partnerships with other banks and fi-
nancial services incumbents. These banks are prominent in global transaction banking
(trade finance and cash management); HSBC, BNP Paribas, and Standard Chartered are
the second, fifth, and seventh banks globally in terms of transaction banking (first, sec-
ond, and fourth at the European level) based on 2018 numbers. Deutsche Bank, the
third most prominent European Bank in transaction banking is, however, underrepre-
sented in this use-case. Within the lending use-case, the most prominent participants
are Groupe BPCE, Société Générale, and the Royal Bank of Scotland. Within the pay-
ments use-case, the most prominent participants are Santander, Lloyds Banking Group,
BBVA, Standard Chartered, and Rabobank. Groupe BPCE did not participate in any pay-
ments related blockchain consortia, while Barclays only participated in one, despite both
banks dominating other payment-related fintech partnership submodalities. Within the
commodities use-case, ING is by far the most active bank of the twenty considered.
Within the shared KYC use-case, the most prominent participants were Société Générale,
Crédit Agricole, and Groupe BPCE. Within the interbank payments use-case, HSBC repre-
sents a quarter of participation including participation in the Monetary Authority of Sin-
gapore’s Project Ubin, and the Bank of Canada’s Project Jasper. Within the blockchain
standards use-case, BBVA and Santander were the most active. In fact, while BBVA was
the bank that left the most blockchain consortia (it left Contour/Voltron, Marco Polo, and
Corda KYC), it was also the one to have participated the most in blockchain standards
setting activities, which indicates that BBVA prefers to lead or originate blockchain plat-
forms and to influence the direction of blockchain standards in banking as opposed to
simply participating in blockchain platforms.
This submodality is arguably one of the best for demonstrating banks’ strategically
important managerial capability of originating de novo networks and the strategically
important managerial capability of acting as ecosystem leader. UBS, Credit Suisse, ING,
and the Royal Bank of Scotland acted as ecosystem leaders to originate de novo block-
chain consortia. For example, in 2015, UBS began working on the concept of the Utility
Settlement Coin (USC) for international cross-border payments built on Ethereum. In
2019, UBS along with a consortium of banks created Fnality International to commer-
cialise the initiative; six of the twenty banks backed Fnality International. In 2017, UBS
launched the Massive Autonomous Distributed Reconciliation (MADREC) platform that
was built on Ethereum to facilitate banks’ compliance activities in response to the
108 Chapter 6 New Strategic Considerations in the Platform Economy Age

Markets in Financial Instruments Directive (MiFID) II regulation that went live in the EU
in January 2018. Several banks like Credit Suisse and Barclays decided to back MADREC.
UBS was the only bank of the twenty considered to originate de novo two blockchain
consortia. Another example is ING, which has been particularly active in commodities
related blockchain use-cases, and which originated the commodities financing block-
chain platform Komgo. Komgo was originated in ING’s Innovation Bootcamp in 2016
and, after two proof of concepts in 2017 and 2018, was commercialised in 2018, receiving
the backing of seven of the twenty banks considered.

6.2.7 Open IT Infrastructures to Facilitate Value Cocreation

Banks undertook several open IT infrastructure initiatives to facilitate their strategies

of interdependence. This predominantly took two forms, open banking and crowd-
sourcing. All banks established open-API portals, developer kits, and sandboxes, com-
pelled by regulatory forces (especially PSD2 and Open Banking Standard). However,
three banks (BBVA, Groupe BPCE, and Nordea) were early proponents of open-APIs
launching their open-API portals in 2017, a year before PSD2 and the Open Banking
Standard came into effect. While some banks may have opened their APIs just enough
to satisfy PSD2 and Open Banking regulations, several banks like Crédit Agricole,
Groupe BPCE, BBVA, Santander, HSBC, and Standard Chartered, embraced open bank-
ing and extended their open-API portals, developer kits, and sandboxes beyond Eu-
rope and beyond the minimum requirements mandated by regulation. For example,
Groupe BPCE, incorporated their open-API portal, developer kit, and sandbox into a
wider ranging open innovation technological platform called 89C3, which includes a
user experience (UX) charter. BBVA extended its open-API portal, developer kit, and
sandbox beyond Europe to its operations in the US and Mexico. In 2019, HSBC part-
nered with SWIFT to define a common industry standard for open-APIs in Hong Kong.
All banks established crowdsourcing technological platforms for staff, customers,
and external parties to collaborate and co-innovate, except for HSBC, Crédit Mutuel,
UBS, UniCredit, and Intesa Sanpaolo. From a temporal perspective, these crowdsourc-
ing technological platforms were launched earlier than other open innovation initia-
tives; almost two thirds were launched in or before 2014. ING, Barclays, the Royal
Bank of Scotland, Lloyds Banking Group, Santander, Rabobank, and Nordea were
comparatively early in launching crowdsourcing technological platforms, while Stan-
dard Chartered was comparatively late in doing so. ING was an early adopter of
crowdsourcing technological platforms and launched the most of these platforms
over the period considered. Moreover, ING was one of the few banks of the twenty
considered to adopt innovation methodologies (Way of Working (WoW) in 2016 and
PACE in 2017), which, among other things, supports the way its staff co-innovate
among themselves and with external stakeholders, thereby complementing from a
 6.2 Modalities of Strategies of Interdependence and Value Cocreation 109

methodological perspective ING’s crowdsourcing technological platforms as well as its

various open innovation initiatives.

6.2.8 Intermodality Links

While the four modalities and seventeen submodalities can be observed discretely,
they are often interlinked. The submodalities relating to the establishment of internal
open innovation initiatives and venture capital subsidiaries relate to the open innova-
tion modality, which is focused on open innovation with external stakeholders. Both
are also related to the open IT infrastructure modality, which is more focused on the
technological enablers of open innovation. Several banks integrated their internal
open innovation initiatives with their external ones. Some went a step further by inte-
grating their internal and external open innovation initiatives with their corporate
venture capital subsidiaries, and in some cases with their open IT technological inter-
faces, to create integrated innovation units. The acquisition and investment modality
also relates more generally to the partnership modality, in that through investing in
and acquiring resources and capabilities to facilitate the development of strategies of
interdependence, banks are better able to enter into value cocreation partnerships
with other stakeholders like bigtechs and fintechs, either directly or through their fin-
tech subsidiaries or innovation units. The external open innovation modality often
also provides the vehicle through which banks partner with external stakeholders
(e.g., banks’ partnerships with various external stakeholders often originated through
banks’ open innovation initiatives such as their innovation labs or accelerators). The
open IT infrastructure modality relates to the other three in that it provides the tech-
nological enablers related to value cocreation through partnerships, open innovation,
and acquisitions or internal investments. The fintech divestment submodality also
aligns with the partnership cessation submodality, in that both relate to banks’ ability
to recognise when to exit a specific strategy of interdependence that is no longer ben-
eficial, or which risks them losing excessive outbound spillover rents.

6.2.9 Temporal Dimension of Strategies of Interdependence and Value Cocreation

From a temporal perspective, the modalities and submodalities of banks’ strategies of

interdependence and value cocreation followed a pattern over the twelve-year period
considered. Broadly speaking this pattern was composed of a three-phased process:
an exploration phase, followed by an experimentation phase, followed by an exploita-
tion phase (see Figure 6.1).
The exploration phase spanned from 2008 to 2012. During this phase, many banks
participated in open innovation consortia initiatives such as the Fintech Innovation
Lab in London, New York, and Hong Kong which was launched by Accenture and the
110 Chapter 6 New Strategic Considerations in the Platform Economy Age

Exploration Experimentation Exploitation

Phase Phase Phase

Figure 6.1: Temporal Dimension of Strategies of Interdependence and Value Cocreation – Exploration,
Experimentation, and Exploitation Phases.

Partnership Fund for New York City in 2010, and which drew participation from doz-
ens of banks. During this phase banks also launched crowdsourcing platforms where
staff, customers, and third parties could suggest innovations, such as Barclays’ Ring
Community, which was launched in 2012. A few banks established internal and exter-
nal open innovation initiatives such as innovation labs, incubators, accelerators, inno-
vation outposts, and think tanks. For instance, BBVA launched an innovation lab and
incubator in 2009, Credit Suisse launched its think tank (Credit Suisse Research Insti-
tute) in 2008, and Standard Chartered created an innovation outpost (SC Studios) in
San Francisco in 2010. These modalities allowed banks to start encountering new and
emerging technologies, business models, partners (and potential competitors), and
modes of value creation to explore the consequences that these may have on the fu-
ture of banking.
The experimentation phase spanned from 2013 to 2015. A large number of corpo-
rate venture capital arms and fintech funds were launched during this phase. Many
banks also ramped up the establishment of internal and external open innovation ini-
tiatives and of crowdsourcing platforms during this time. These modalities allowed
banks to commence experimenting with some of the technologies, business models,
partners, and value cocreation modes they explored in the previous phase. They began
to use their corporate venture capital arms and fintech funds to commit financially to
certain fintechs. Many of the fintech initiatives and partnerships that were later spun-
out, established as fintech subsidiaries, or launched as blockchain consortia were incu-
bated and accelerated by banks during this period. For example, what later became
Fnality International started as the Utility Settlement Coin, an initiative that UBS incu-
bated at its blockchain innovation lab in partnership with the blockchain company
Clearmatics in 2015.
The exploitation phase spanned from 2016 to 2019. This was the phase that saw
the most activity. Having conducted their exploration and experimentation banks
now sought to exploit the opportunities presented by new technologies, business mod-
els, partners, and value cocreation modes. The majority of fintech acquisitions and
lead investments were in this period, as were the majority of partnerships with fin-
techs, bigtechs, and other incumbents. Most fintech subsidiaries and fintech initiatives
were also launched during this phase.
While this three-phased process is empirically derived and applicable to practi-
tioners in diverse contexts, the span and duration of each phase are illustrative and
based on the study of the top twenty European banks between 2008 and 2019. As such,
 6.2 Modalities of Strategies of Interdependence and Value Cocreation 111

the span and duration of each phase should not be considered as rigid and will differ
depending on the context considered. Moreover, these temporal observations are broad
since they are at the aggregate level; there were differences in the extent to which differ-
ent banks engaged in these phases, and whether they triggered a phase or moved from
one phase to another earlier or later than their peers. These nuances will be touched
upon when discussing the taxonomy of banks’ strategies of interdependence and value
cocreation in Chapter 7. In addition, this three-phased process is cyclical and is put into
motion by diverse triggers such as technological developments or new regulations. For
example, most of banks’ blockchain-related exploration and experimentation activities
were in the period 2016 to 2019, which is likely due to the underlying technology not
being mature enough at the enterprise level for banks to explore it and experiment with
it before that period. All banks considered had to implement open-APIs to the extent re-
quired by PSD2 and the Open Banking Standard in and around 2018 when these regula-
tions came into effect. For several banks, this was a trigger to commence exploring and
experimenting with Open-APIs beyond the scope called for by PSD2 and the Open Bank-
ing Standard.
Chapter 7
Taxonomy of Banks’ Strategies of Interdependence
and Value Cocreation

Chapter 6 demonstrated empirically the modalities and submodalities that banks en-
gaged in as they strategised for value cocreation with external stakeholders. However,
the empirical findings not only provide insights into individual modalities, they also
demonstrate how banks combined these modalities into several overarching strate-
gies of interdependence and value cocreation. By examining relationships between
different modalities and submodalities, combinations of modalities and submodalities –
or dimensions – were identified, following the taxonomy generation process described
in Section 6.1.3. After five rounds of clustering these dimensions, they were combined to
form a taxonomy composed of four taxa. The taxonomy shows that the twenty banks
considered took four broad approaches to interdependence and value cocreation: trans-
formational interdependence, open and central interdependence, selective interdepen-
dence, and generative interdependence (see Figure 7.1).

Transformational Interdependence Open and Central Interdependence

HSBC Santander

BBVA Standard Société

Chartered Générale

BNP Paribas Barclays

Deutsche Bank Nordea ING

Credit Suisse Intesa
Royal Bank of Scotland
Sanpaolo
UBS
UniCredit Groupe BPCE
Crédit Agricole
Rabobank Crédit Mutuel
Lloyds Banking Group

Selective Interdependence Generative Interdependence

Figure 7.1: Taxonomy of Banks’ Strategies of Interdependence and Value Cocreation.

This chapter examines each taxon in detail to understand the nuances of the strate-
gies of interdependence and value cocreation adopted by different groups of banks.
Section 7.5 explores the contextual or institutional similarities of banks in each taxon
especially in terms of their financial performance or evolving geographic and/or

https://doi.org/10.1515/9783110792454-007
 7.1 Transformational Approach to Interdependence 113

business segment focus. This is in line with the supplemental contextual study dis-
cussed in Section 6.1.4. and is intended to provide the reader with additional insights
on each taxon.

7.1 Transformational Approach to Interdependence

This taxon describes banks that embraced the most wide-ranging and sophisticated
strategies of interdependence and value cocreation to the point where they began
transforming the way they operate towards platform-based business models. Only
one of the twenty banks considered figures in this taxon: BBVA. Francisco González,
BBVA’s Chairman & CEO articulated this strategy effectively when he announced at
the 2018 Mobile World Congress that “BBVA will be a software company in the future”
(BBVA, 2018). BBVA engaged with external resources and capabilities in its core oper-
ations, such as retail banking and payments, through a strategy of interdependence
that mobilised value cocreation towards the transformation of the bank’s business
model. It thus enabled the bank to integrate value cocreation into its overall corporate
strategy to drive both the rejuvenation of internal resources and capabilities and to
generate and capture sustained relational rents and competitive advantage.
BBVA was early to trigger the three-phased process (see Section 6.2.9) to explore,
experiment, and exploit strategies of interdependence and value cocreation. BBVA
launched open innovation initiatives earlier than any of the remaining nineteen
banks considered, establishing a wide array of internal and external innovation labs,
incubators, and accelerators in Spain, the UK, the US, Mexico, and Colombia. For ex-
ample, BBVA launched an open innovation program along with an incubator and ac-
celerator in 2009; the bank also established external innovation labs in Madrid, the
US, and Mexico in 2011 and in Colombia in 2013, as well as an internal incubator and
accelerator in San Francisco in 2011. BBVA was also early in launching its corporate
venture capital arm, Propel Venture Partners, in 2013 and allocated one of the largest
fintech funds (250 million USD) of the twenty banks considered (which is higher than
that of larger banks like HSBC and Santander). BBVA was one of the few banks out of
the twenty considered to integrate its open innovation initiatives with other relevant
capabilities. The bank did this in 2015 through an integrated unit it established called
BBVA New Digital Business (BBVA NDB). The unit has offices in San Francisco, Europe,
and Asia, and has a mandate to disrupt BBVA before others do. BBVA NDB includes
an internal and external innovation lab, incubator, and accelerator where the bank
can either build its own fintech ventures or partner with external ones, along with a
venture capital arm to invest in or acquire external fintechs.
In terms of open IT infrastructure, BBVA was early to embrace open banking. It
launched its open-API portal, developer toolkit, and sandbox in 2017, which was before
most of the other twenty banks, and before the deadlines set by PSD2 and the Open
Banking Standard. Furthermore, BBVA went beyond minimum regulatory requirements,
114 Chapter 7 Taxonomy of Banks’ Strategies of Interdependence and Value Cocreation

championing open-APIs in the US and Mexico, at a time when there were no regulatory
requirements to do so.
These capabilities enabled BBVA to make a high number of lead investments in
innovative fintech start-ups, enter into a large number of partnerships, and to partner
with a large number of diverse bigtechs early on and in different contexts. These ca-
pabilities also allowed the bank to launch innovative fintech initiatives and establish
fintech subsidiaries early on to better engage with and serve its customers. BBVA
made eleven lead investments in fintechs between 2013 and 2019, including a 39%
stake accumulated in prominent mobile only bank Atom Bank. It entered into ten fin-
tech partnerships between 2014 and 2019. It also entered into nine bigtech partner-
ships as early as 2015 partnering with the likes of Apple, Alibaba, Google, Facebook,
and Samsung in the payments and personal banking subsectors. BBVA launched more
fintech initiatives than any of the other twenty banks considered and did so as early
as 2012. It also launched six innovative fintech subsidiaries between 2014 and 2018 in-
cluding remittances service provider Tuyyo in 2017 and online-only bank Azlo in 2017,
which was incubated at BBVA NDB.
BBVA undertook a moderate number of targeted acquisitions aimed at enhancing
its existing resources and capabilities. BBVA made five targeted acquisitions between
2014 and 2017 to boost its resources and capabilities. For example, it acquired the San
Francisco-based user experience and design company Spring Studio in 2015, and the
direct banking fintechs Simple and Holvi in 2014 and 2017.
BBVA demonstrated an openness to incorporating strategies of temporary competi-
tive advantage. This could be seen through its advanced open innovation capabilities
that allowed staff and external stakeholders to experiment. The bank was also adept at
terminating or divesting from any initiatives in an agile way and was equally overrep-
resented in the number of partnership cessations (e.g., Denizen, Trust-u). This suggests
a comparatively advanced managerial understanding of temporary competitive advan-
tage, since the bank was able to engage in multiple innovative initiatives that enable
value cocreation – whether through direct ownership and control of the resources un-
derpinning these initiatives or by having access to them via partnerships – but then
was able to quickly terminate them when the overall market conditions changed ren-
dering them less advantageous or if they did not yield the results the bank had antici-
pated. This meant that the bank was able to derive a temporary advantage while it
engaged in these initiatives (e.g., through ensuring that the bank and its staff are
abreast of emerging technologies and business models), while ensuring that these initia-
tives did not become loss makers when it was determined that the temporary advan-
tage could not be sustained.
BBVA demonstrated advanced managerial abilities related to assessing the value
and rent-generation potential of networks, including understanding the risks of plat-
formisation, and often sought platform leadership positions through which it could
maximise the value derived from networks while managing any associated risks. While
BBVA was early to embrace open innovation with external resources and capabilities, it
 7.2 Open and Central Approach to Interdependence 115

was nevertheless aware of the risks associated with platformisation strategies, for ex-
ample, the risk of ceding control or losing spillover rents to external parties. Hence, it
often sought a platform leadership role in any platforms it originated and adopted a
measured approach to joining platforms originated and led by others. While BBVA was
early to establish a wide array of internal and external open innovation initiatives, it
only participated in one consortium-led open innovation initiative (the joint lowest par-
ticipation of the twenty banks considered). Similarly, while BBVA partnered extensively
with bigtechs, it was more reluctant to partner with other banks and financial institu-
tions on fintech initiatives, only entering into three such partnerships, two of which re-
lated to standards setting or the establishment of a country-wide payments platform,
which both align with the aim of maintaining a level of control and/or leadership in a
platform. BBVA joined a moderate number of blockchain consortia, a third of which
related to blockchain standards. The bank was also one of the few of the twenty consid-
ered to originate de novo several blockchain platforms, though unlike the handful of
other banks that did, BBVA was the only one to structure these blockchain initiatives –
several of which were European firsts or global firsts – as internal platforms that it
leads and controls using a hybrid architecture of both in-house, private blockchain tech-
nology and a public blockchain. For instance, in 2018 BBVA completed the first global
corporate loan transaction on blockchain, enabling it to issue a 75 million EUR corpo-
rate loan by conducting the negotiation and completion of the loan through an internal
private blockchain platform built on Hyperledger technology, and then using the Ether-
eum public blockchain to register the unique identifier related to the transaction’s doc-
umentation. That year, BBVA used a similar hybrid blockchain approach to sign a
1 billion EUR synthetic securitisation deal with the European Investment Bank Group;
the first time blockchain was used in a synthetic securitisation in the European Union.

7.2 Open and Central Approach to Interdependence

This taxon describes banks that engaged in open strategies of interdependence whereby
they sought to cocreate value extensively with external resources and capabilities in
areas that were often central to their operations. Banks in this taxon integrated interde-
pendence and value cocreation into different facets of their existing business models
but – unlike banks in the transformation interdependence taxon – did not go so far as
to fundamentally transform them. Six banks figure in this taxon: HSBC, Barclays, Stan-
dard Chartered, Santander, Société Générale, and BNP Paribas. By incorporating inter-
dependence and value cocreation into their business models, these banks were able to
generate and capture relational rents and adapt their existing resources and capabili-
ties towards new modes of value creation in the platform economy age. Santander was
archetypal in this sense; Box 7.1 provides a detailed account of how Santander adopted
an open and central approach to interdependence.
116 Chapter 7 Taxonomy of Banks’ Strategies of Interdependence and Value Cocreation

Box 7.1: Case Summary – Santander

Santander acquired four fintechs between 2016 and 2019, including two payments and financial inclu-
sion fintechs in Brazil – Superdigital and Getnet – as well as a 50.1% controlling stake in UK small and
medium enterprise banking fintech Ebury in 2019. The bank was also the most prolific of the twenty
considered in terms of divesting from and ceasing partnerships with fintechs and fintech initiatives.
For instance, in 2016 Santander wound down payment solution Yaap Money that it developed with
Telefonica and CaixaBank in 2014 preferring to abandon the loss-making fintech in favour of develop-
ing its own payment solutions that built on the skills and knowledge gained from co-developing Yaap
Money. In 2019, Santander abandoned Paydirekt – the German payment solution backed by a consor-
tium of banks – when it became clear that Paydirekt was unable to compete with more established
payments providers like PayPal.
Santander was involved in eleven blockchain consortia in the period considered (including four
that were related to payments, three related to trade finance, and two to blockchain standards). How-
ever, having made the decision to leave R3 in 2016 – one of the three major blockchain frameworks –
Santander has only thereafter participated in blockchain consortia based on the remaining two frame-
works (Ethereum and Hyperledger Fabric). Santander’s participation in blockchain standards setting
initiatives is noteworthy, particularly its participation in 2017 in the Enterprise Ethereum Alliance and in
the Spanish blockchain standards setting consortium Alastria.
The bank was also early to partner with bigtechs, mostly in payments (e.g., Apple Pay in 2015,
Google Pay in 2016, Samsung Pay in 2017, Alipay in 2018, and WeChat Pay in 2018), but also extended a
few partnerships beyond payments (e.g., with eBay in 2019 in small and medium enterprise lending).
It partnered extensively with other incumbents and financial institutions, many of which related to pay-
ments or standards setting. For example, Santander partnered with twenty-seven other Spanish
banks, the Bank of Spain, and the Spanish government to launch the Spanish mobile payments plat-
form Bizum in 2017. The bank was part of the Global Payments Steering Group launched in 2016 to
formalise standards that govern transactions using Ripple.
In 2014, Santander launched one of the most prominent corporate venture capital arms, Santander
InnoVentures, which is based in London but has a global reach, and which focuses on fintech invest-
ments. It allocated 100 million EUR to InnoVentures in 2014, adding an additional 100 million EUR in
2016. Through InnoVentures, Santander was the most active lead investor of the twenty banks consid-
ered, with fourteen lead investments in the period considered. These lead investments included four
lending related fintechs and three that were related to payments, including prominent fintechs such as
Ripple, iZettle (later acquired by PayPal), and MarketFinance.
Santander established a wide network of internal open innovation initiatives. This included the
Santander Centres of Digital Expertise, a 5,000 staff-strong technology hub in the UK in 2018 (which
opens fully in 2022), a Digital Investment Unit launched in 2018, and a blockchain lab launched in 2016.
In 2014, the bank launched SANTANDERideas:) a crowdsourcing platform which was initially aimed at
employees but which – after wide adoption – was extended to customers to enable wider value cocrea-
tion. It launched few external open innovation initiatives preferring to participate in the consortium inno-
vation labs, incubators, and accelerators that were established by others. The bank launched various
fintech initiatives and subsidiaries. As well as converting two of its direct banks launched in the 1990s
into digitalised, online only banks, Santander also launched a number of payments fintech subsidiaries,
including One Pay FX, an international money transfer business that is based on blockchain technology
(Ripple), and PagoFX, launched in 2019, which expands this offering to non-Santander customers. In
terms of open IT infrastructures, the bank adopted open-APIs beyond minimum regulatory require-
ments, for example, in 2018 it extended its open-APIs, developer portal, and sandbox to countries – like
Mexico – where there was no regulatory requirement to do so.
 7.2 Open and Central Approach to Interdependence 117

In 2019, Santander announced a four-year, 20 billion EUR digital transformation strategy, which
saw the establishment of a consolidated fintech unit, the Santander Global Platform. The Santander
Global Platform aims to build Santander’s own digital and fintech solutions which it can then scale in a
software-as-a-service (SaaS) model to the Santander Group, customers, and external parties. The
Santander Global Platform integrates Santander’s internal open innovation initiatives with several
other internal value cocreation focused capabilities. The unit encompasses Santander’s digital banks,
Santander’s Banking-as-a-platform technology subsidiary Open Digital Services, global payment serv-
ices (e.g., PagoFX, Superdigital), and innovation labs (e.g., Centres of Digital Expertise).

Santander’s open and central approach to interdependence and value cocreation, as

detailed in Box 7.1, is representative of the remaining banks in this taxon. Santander,
which is predominantly focused on retail banking, and has an extensive footprint in
Europe and Latin America, focused many of its value cocreation initiatives on a criti-
cal component of its operations: payments. This was also true for other banks in this
taxon.
HSBC, BNP Paribas, and Standard Chartered are, respectively, the second, fifth,
and seven banks globally in terms of transaction banking (which includes trade fi-
nance and cash management) and the first, second, and fourth at the European level
based on 2018 numbers (S&P Global, 2019). The three banks collaborated with several
others to launch the Trade Information Network in 2018, which facilitates trade fi-
nance between corporates and banks. HSBC and Standard Chartered worked with sev-
eral other banks to launch the Trade Finance Distribution (TFD) Initiative in 2019 to
drive standardisation in trade finance. The three banks participated extensively in
blockchain consortia, many of which relate to trade finance such as we.trade (HSBC),
Voltron which was later renamed Contour (all three), Marco Polo (BNP Paribas and
Standard Chartered), Tradeshift (HSBC), and eTradeConnect (all three); in Standard
Chartered’s case nine out of the fifteen blockchain consortia it participated in relate
to trade finance. In 2015, HSBC launched an innovation lab in Singapore that is fo-
cused on trade finance, while BNP Paribas launched its Cash Management Fintech
Lab in Europe in 2017 that it expanded to the Asia Pacific region in 2019.
Another example of this relates to how these banks embraced strategies of interde-
pendence and value cocreation in geographically central and significant operations.
HSBC and Standard Chartered, derive a significant proportion of their revenues from
China and the Asia Pacific region. They partnered extensively with Chinese bigtechs.
HSBC was the first non-Chinese bank to offer digital credit cards that integrated with We-
Chat Pay and Alipay in 2019. Standard Chartered partnered with Alibaba in 2018 on sev-
eral blockchain based cross-border remittance solutions; it was also the only bank of the
twenty considered to engage in a blockchain consortium – WeQChain – that uses the Chi-
nese bigtech Tencent‘s FISCO-BCOS blockchain technology. HSBC and Standard Charter-
ed’s bigtech partnerships as well as their other value cocreation initiatives in China and
the Asia Pacific region are covered in more detail in Section 6.2.5 and in Appendix 1. Simi-
larly, Africa is an important region for both Standard Chartered and Société Générale,
118 Chapter 7 Taxonomy of Banks’ Strategies of Interdependence and Value Cocreation

where both banks have an extensive presence. Standard Chartered and Société Générale
were the only banks out of the twenty considered to systematically partner with telecom-
munications firms to cocreate value, since telecommunications firms have come to play
an important role in Africa in financial services and especially in relation to payments
and financial inclusion. For example, Société Générale launched mobile money solution
YUP in 2017, which operates on an agency banking model across the bank’s network in
Sub-Saharan Africa. Standard Chartered partnered with several telecommunications
firms to integrate mobile money and mobile wallets to enable customers to make cash-
less payments to banked and unbanked beneficiaries, including with MTN Uganda in
Uganda in 2017, MTN in Tanzania in 2016, Airtel in Ghana in 2015, with M-Pesa and Tigo-
Pesa in Tanzania in 2015, with eTranzact in Nigeria in 2014, and with Safaricom’s M-Pesa
in Kenya in 2013. Standard Chartered also launched an online only digital banking sub-
sidiary in the Ivory Coast, which it extended a year later to several other African coun-
tries including Nigeria, Kenya, and Uganda. Both banks extended their open innovation
initiatives to Africa with Société Générale launching innovation labs and incubators in
Senegal, Tunisia and Morocco and Standard Chartered launching an arm of its internal
eXellerator innovation lab in Kenya in 2019. Standard Chartered also extended access to
its open-APIs, developer portal, and sandbox to the African countries it operates in
through its aXess platform.
The banks in this taxon not only engaged in strategies of interdependence and
value cocreation in areas of operation that were central, but also did so in an open
way – just as Santander did (see Box 7.1). Like Santander, they established extensive
open innovation capabilities. Some like HSBC, Société Générale, and Barclays focused
their open innovation initiatives purely externally to tap into external resources and
capabilities by establishing an extensive network of innovation labs, incubators, and
accelerators. For example, HSBC launched data and innovation labs in London and Tor-
onto in 2019, a trade finance lab in Singapore in 2015, a research and development inno-
vation lab in Hong Kong in 2016, and two accelerators in India in 2018. Société Générale
launched nine innovation labs and incubators between 2016 and 2018 in Paris, London,
Luxembourg, Germany, Senegal, Tunisia, Morocco, and the Czech Republic, as well as
an accelerator in 2015 in India and Romania. Barclays was early to launch extensive
networks of innovation labs that were linked to well-funded accelerators in innovation
hotspots such as the Barclays Accelerator launched in 2014 and the Rise innovation labs
launched in 2015 in London, New York, Tel Aviv, and Mumbai. Some like BNP Paribas
and Standard Chartered launched both internal and external open innovation initia-
tives. BNP Paribas was one of the few banks of those considered to have its own inter-
nal think tank, L’Atelier BNP Paribas. L’Atelier BNP Paribas acts as an independent
research and foresight arm of the bank that investigates and identifies new and emerg-
ing technology markets. It was established in Paris in 1978 and later expanded to San
Francisco and Shanghai. The bank also set up several internal innovation labs to en-
hance its capabilities in specific areas (e.g., the Cash Management Fintech Lab in Europe
in 2017 which expanded to Asia Pacific in 2019, and the BNP Paribas Design Factory
 7.2 Open and Central Approach to Interdependence 119

Asia in Singapore in 2017, which is focused on wealth management), as well as external

open innovation initiatives (e.g., in 2017 BNP Paribas collaborated with Plug and Play to
launch a fintech acceleration programme based in Paris, L’Atelier BNP Paribas launched
a fintech acceleration programme in Paris in 2016 called Fintech Boost, which it later
replicated in the US in 2018). Standard Chartered initially took an internally focused
open innovation approach, through the internal eXellerator innovation labs that it
launched in 2016. In 2018, it created an innovation unit called SC Ventures which in-
cluded the eXellerator labs as well as a corporate venture capital arm called SC Ventures
Innovation Investment, and a unit called SC Ventures Internal Ventures that overseas
fintech initiatives partially or wholly owned by the bank. In 2019, SC Ventures added a
fourth unit, SC Ventures Fintech Bridge, which seeks partnerships with external fintechs.
Thus, while banks in this taxon engaged extensively in open innovation initiatives, they
did not take the integrated approach that banks in the transformational interdependence
taxon who integrated their internal and external open innovation initiatives along with
their other value cocreation-related activities such as their fintech subsidiaries and cor-
porate venture capital arms. The two banks in this taxon that came close to doing this –
Santander and Standard Chartered – either did not integrate external open innovation
initiatives into their innovation units or were late in doing so.
These banks’ open approach to value cocreation was also reflected in their open
IT initiatives. Just as Santander embraced open-APIs beyond minimum regulatory re-
quirements, so too, did most banks in this taxon. Standard Chartered for example ex-
tended its open-APIs, developer toolkits, and sandboxes beyond Europe, making them
available across its global geographies. BNP Paribas and Barclays launched crowd-
sourcing platforms to generate new ideas through the collaboration of their staff, cus-
tomers, and third parties. BNP launched OpenUp in 2016, a platform to link start-ups
with BNP Paribas’ staff, the platform had over a thousand participants, more or less
equally split between internal and external stakeholders which resulted in several co-
innovation projects and prototypes. Barclays launched the Barclays Ring Community
in 2012 to crowdsource ideas from its community of cardmembers through a social
media platform; many of these ideas resulted in Barclays developing new features
and products. Three years later, Barclays launched its Launchpad application, a simi-
lar crowdsourcing concept that extends beyond payments to the rest of the bank’s
services and which, as well as customers, also allows developers and start-ups to sug-
gest and trial new ideas.
To update and bolster their resources and capabilities towards strategies of value
cocreation, banks in this taxon took a selective approach to acquisitions while estab-
lishing and developing new internal capabilities. BNP Paribas launched its digital di-
rect banking subsidiary Hello Bank! in 2013 that operates in France and several other
European countries (in Germany it operates under the name Consorsbank). In 2014,
BNP Paribas acquired the German direct bank Direkt Anlage Bank that had over half
a million customers in Germany and Austria, which it later integrated into Consors-
bank. Société Générale relied on its digital bank, Boursorama Banque, for many of its
120 Chapter 7 Taxonomy of Banks’ Strategies of Interdependence and Value Cocreation

value cocreation initiatives. In 2018, to augment its capabilities, Boursorama Banque

acquired Fiduceo that specialises in online personal financial management. Another of
Société Générale’s fintech subsidiaries, Forge, which allows investors and issuers to
manage digital assets through a blockchain-based service, began as an internal start-up
that was incubated and accelerated through one of the bank’s internal open innovation
programmes. Barclays, which has a significant payments business through Barclaycard,
established two payments subsidiaries in 2012, the wearables payments subsidiary
bPay, and the mobile transfer subsidiary Pingit (bPay was later incorporated into Pin-
git). Pingit evolved into a broader payment solution, including mobile payments with
nonsmartphones, payments between Barclays and non-Barclays customers, peer-to-
peer transactions, and international money transfers. In 2015, Pingit partnered with UK
payment system company VocaLink’s Zapp service to allow Pingit to be used as a point
of sales terminal in retail stores.
Another important internal capability that these banks established were corpo-
rate venture capital arms with well-funded fintech funds. Just as Santander was early
to launch InnoVentures in 2014, the other banks in this taxon were also early to launch
prominent corporate venture capital arms and committed substantial funds to investing
in leading fintechs. Standard Chartered’s Singapore-based innovation unit SC Ventures
included a corporate venture capital arm – SC Ventures Innovation Investments –
along with a 100 million USD fintech fund. HSBC launched its Strategic Innovation In-
vestments venture capital subsidiary along with a 200 million USD fintech fund in 2014.
Société Générale established its corporate venture capital arm Société Générale Ven-
tures in 2018 and committed 150 million EUR to a fintech fund a year later. Barclays
created a corporate venture capital subsidiary – Barclays UK Ventures – in 2018 and set
aside a 10 million GBP annual fund which it allocated to each cohort that graduates
from the Barclays Accelerator. In 2015, Barclays also created the Barclays Technology
Fund, a 100 million GBP fund to support fast-growing UK technology start-ups.
These internal capabilities allowed the banks in this taxon to invest in and/or part-
ner with external stakeholders to cocreate value. For example, regarding Société Génér-
ale‘s African mobile money fintech solution YUP, through the bank’s investment in and
partnership with the fintech TagPay, it was able to extend YUP’s services to unbanked
customers via mobile telephones to promote greater financial inclusion in several Afri-
can countries. Moreover, Société Générale was able to use its fintech subsidiary Bour-
sorama Banque to catch up in areas where the bank lagged in; for instance, while the
bank was late to partner with bigtechs, once it began doing so through Boursorama
Banque, it partnered extensively including in areas outside of payments such as per-
sonal finance as exemplified by Boursorama Banque’s partnership with Google to allow
customers to conduct banking activities through the Google Home personal assistant.
Like Santander, Barclays was also a prolific lead investor in fintechs, making nine lead
investments in the period considered including in prominent fintechs like MarketFi-
nance. Barclays’ payment subsidiary Barclaycard subsequently partnered with several
 7.2 Open and Central Approach to Interdependence 121

of the fintechs that Barclays took a lead investment in such as Flux Systems in 2017
which digitises payment receipts, and regtech start-up Evernym in 2019.
These banks widely embraced value cocreation partnerships with bigtechs, fintechs,
and other incumbent financial institutions. There are many examples of how these
banks cocreated value with external stakeholders through partnerships, including HSBC
and Standard Chartered‘s expansive partnerships with bigtechs particularly in China and
the Asia Pacific region, Standard Chartered and Société Générale’s many payments-
related partnerships with telecommunications firms across various African and Asian
countries, and the various national payments systems that banks coopetated to create
such as Paym, PayLib, and BLIK. Furthermore, these banks also embraced network-
based value cocreation partnerships, often via multisided blockchain platforms. BNP Par-
ibas, for example, participated in seventeen blockchain consortia (the highest number of
the twenty banks considered), while Société Générale and Standard Chartered partici-
pated in fifteen (the joint second highest number). The trade finance leaders – HSBC,
BNP Paribas, and Standard Chartered – participated widely in trade finance focused
blockchain consortia like we.trade and eTradeConnect. However, none of the banks in
this taxon originated de novo or took leadership positions in blockchain consortia.
Banks in this taxon took a multifaceted and nuanced approach to interdependence
that was cognisant of the risks of value cocreation and the importance of platform lead-
ership. As is demonstrated in Box 7.1, Santander nimbly terminated internal initiatives
and partnerships when they failed to provide the requisite outcomes and was involved
in several standards setting initiatives. The remaining banks also demonstrated these
discerning managerial abilities. For example, HSBC often took a standards setting ap-
proach to platform leadership including, collaborating with SWIFT in 2019 to define a
common industry standard for open-APIs in Hong Kong, participating in industry body
Innovate Finance and in the trade finance standards setting Trade Finance Distribution
Initiative, working with the British Standards Institute to jointly create the Fintech Col-
laboration Toolkit in 2018, and participating in the UK Financial Conduct Authority’s
first regulatory sandbox. Barclays‘ Barclaycard is a global leader in payments process-
ing, it is one of the world’s largest merchant acquirers and one of the top ten issuers of
Visa and Mastercard credit cards in the US (Nilson Report, 2020); consequently, it took a
measured approach towards value cocreation in the payments space. It was more con-
scious of the need to balance the benefits from relational rents and the renewal of its
payments capabilities on one hand with the risk of losing outbound spillover rents in
value cocreation activities on the other. For instance, Barclays was reluctant to partner
with bigtechs in payments, partnering with them later than other banks and being se-
lective with which bigtechs to partner with. On the other hand, Barclays established
payments focused fintech subsidiaries (Pingit and bPay), acquired innovative payments
fintechs (e.g., the Logic Group in 2014) that it integrated into Barclaycard, incubated and
accelerated payments related fintechs that it subsequently invested in and partnered
with, and partnered with several innovative payments fintechs that complemented and
122 Chapter 7 Taxonomy of Banks’ Strategies of Interdependence and Value Cocreation

enhanced the services it provided through Barclaycard (e.g., Barclaycard invested in

and partnered with iPad-based restaurant point-of-sale system TouchBistro in 2019).

7.3 Selective Interdependence

This taxon describes banks that engaged in selective strategies of interdependence.

While banks in this taxon did engage in value cocreation with external resources and
capabilities they often did so in auxiliary areas of operation. Nine banks figure in this
taxon: Deutsche Bank, Credit Suisse, UBS, UniCredit, Intesa Sanpaolo, Crédit Agricole,
Lloyds Banking Group, Rabobank, and Nordea. These banks took a narrower and less
open approach to interdependence and value cocreation. Moreover, from a temporal
perspective, overall, these banks engaged in the exploration, experimentation, and ex-
ploitation phases of their strategies of interdependence and value cocreation later
than banks from other taxa. UBS was representative of this approach (see Box 7.2).

Box 7.2: Case Summary – UBS

UBS made no fintech related acquisitions, launched no corporate venture capital subsidiaries, did not
launch any fintech funds, and made no lead investments in any fintechs. It only established one fintech
subsidiary in 2017, a robo-advisory subsidiary called SmartWealth, which it quickly sold less than a year
later to asset and wealth management fintech SigFig.
UBS was one of only three banks from those considered to have set up its own internal think
tank, UBS Y, which it launched in 2014. UBS also launched five internal innovation labs relatively early
on that focus on its key businesses (asset and wealth management and investment banking): the UBS
Wealth Innovation Lab launched in 2014 in Zurich that also has two innovation outposts in Tel Aviv and
San Francisco, the EVOLVE – UBS Centre for Design Thinking & Innovation launched in Singapore in
2015, the UBS Strategic Development Lab focused on investment banking launched in Zurich in 2018,
the Advisor Technology Research and Innovation Lab, an internal lab launched in 2016 in San Francisco
in collaboration with SigFig, and UBS Innovation Spaces launched in 2014. UBS’ external open innova-
tion initiatives were less expansive: a blockchain-focused innovation lab launched in London in 2015 at
the Canary Wharf Group’s Level39 accelerator space, a digital hub established in Hong Kong in 2017,
and the UBS Future of Finance Challenge, an incubation challenge that the bank launched in 2014
which runs every two years. In terms of open IT infrastructure, UBS launched its open-API portal, de-
veloper toolkit, and sandbox comparatively late in 2019 and did not extend these capabilities beyond
minimum regulatory requirements.
In terms of partnerships, of the banks considered, UBS was one of the banks that partnered the
least with major bigtechs (e.g., Apple, Google, Samsung, Alibaba, Tencent). The bank preferred to partner
with other incumbents like SIX, Credit Suisse, Postfinance, and Worldline to create the Swiss national pay-
ments platform Twint, which was launched in 2014. UBS entered into ten fintech partnerships between
2014 and 2018 including a wide-ranging collaboration with the asset and wealth management fintech
SigFig and Lufax, China’s largest internet finance company, which is associated with the China Ping An
Group conglomerate.
UBS participated in seven multisided blockchain platforms – a moderate number compared to the
remaining nineteen banks. However, UBS was the only bank of those considered to have originated de
novo two blockchain consortia. In 2015, UBS in collaboration with technology firm Clearmatics began
working on the Utility Settlement Coin (USC), an asset-backed digital cash instrument implemented on
 7.3 Selective Interdependence 123

blockchain technology that can be used for interbank payments and international cross-border pay-
ments. In 2019, the project evolved into the firm Fnality International, UBS remained a shareholder and
ecosystem leader, with participation extended to a consortium of banks who also became shareholders
including Santander, Barclays, Credit Suisse, ING, Lloyds Banking Group, Nasdaq, State Street, and Bank
of New York Mellon. In 2017, UBS launched the Massive Autonomous Distributed Reconciliation platform
(MADREC) with participation from Barclays, Credit Suisse, KBC, SIX, and Thomson Reuters. MADREC facili-
tates banks’ ability to reconcile a wide range of data about their counterparties in response to regulatory
changes associated with the Markets in Financial Instruments Directive (MiFID) II which entered into
force in January 2018.

UBS’ selective approach to interdependence and value cocreation, which is elaborated

on in Box 7.2, is characteristic of the remaining banks in this taxon though there are
important nuances among them. Credit Suisse and UBS, which are specialists in asset
and wealth management, took a narrower and more conservative approach, restricting
value cocreation initiatives to auxiliary operations. As world leaders in asset and wealth
management, they were comparatively more insulated from the challenges posed by fin-
techs and bigtechs. Given that they had to grapple with the impact of new regulations,
technologies, consumer behaviours, and competitors on a comparatively narrower
scope of activities, they could afford to rely more on internal initiatives to make sense of
these forces while being particularly alert to the need to guard against the loss of out-
bound spillover rents in any value cocreation initiatives they did embark on that could
erode their specialist competencies. Just as the forces promoting interdependence and
value cocreation (regulatory, technological, competitive, consumer behaviour changes)
act more narrowly on UBS and Credit Suisse from a business segment perspective, they
also act comparatively more narrowly from a geographic perspective on UniCredit, In-
tesa Sanpaolo, Crédit Agricole, Lloyds Banking Group, Rabobank, and Nordea since these
banks are more regional and less international than many of the remaining banks in
this study like HSBC, Santander, and BNP Paribas. Regional banks must contend with the
aforementioned forces across a lower number of regulatory and national regimes and
thus can also afford to adopt a more selective stance towards value cocreation. More-
over, it is noteworthy that several banks in this taxon like Deutsche Bank, UniCredit, and
Lloyds Banking Group, were severely affected by the GFC and struggled to recover for
several years after. These banks would have been in crisis mode for several years during
the period considered and would have likely deprioritised proactive strategies of inter-
dependence and value cocreation in favour of more immediate concerns in order to get
their houses back in order.
Like UBS, the remaining banks in this taxon made no fintech acquisitions or if they
did, acquired very few, and usually later compared to banks from the other taxa. They
also established comparatively fewer fintech subsidiaries or fintech initiatives, which
were more often than not in relatively more established areas like digital banking or
payments. For instance, Intesa Sanpaolo, UniCredit, and Lloyds Banking Group made
no fintech acquisitions, Rabobank acquired payments provider MyOder in 2012 which it
124 Chapter 7 Taxonomy of Banks’ Strategies of Interdependence and Value Cocreation

sold six years later, Nordea acquired Norwegian online bank Gjensidige Bank in 2018,
Credit Suisse acquired invoice lending fintech TradePlus24 in 2017, Crédit Agricole ac-
quired personal finance fintech WeSave in 2019, and Deutsche Bank acquired open
banking fintech Quantiguous in 2018. Nordea established no fintech subsidiaries, while
several others mainly established direct or online banking subsidiaries like Crédit Agri-
cole’s BforBank which was launched in 2010, UniCredit‘s mobile only bank Buddybank
launched in 2018, and Credit Suisse’s direct banking subsidiary aimed at retail and com-
mercial clients in Switzerland that went live in 2019. Intesa Sanpaolo and Rabobank
were somewhat more active in launching fintech subsidiaries and initiatives. Intesa
Sanpaolo launched its XME Pay Digital Wallet in 2018, a mobile point of sales solution
called Move and Pay for small businesses in 2013, and a crowdfunding platform in 2011.
Rabobank digitalised its direct banking subsidiary RaboDirect, established small and
medium enterprise (SME) lending platform Facturis in 2011, and secure payments sub-
sidiary SurePay in 2017 as well as several initiatives like the peer-to-peer lending plat-
form Rabo & Co and the crowdfunding platform Rabo & Crowd that were launched in
2016 and 2018, respectively. Deutsche Bank was the only bank in this taxon to estab-
lish an internal start-up factory. Deutsche Bank launched Breaking Wave in London
in December 2019, which it segregated organisationally, physically, and technologically
from the rest of the bank; with a maximum workforce of seventy-five people, Breaking
Wave aims to attract new tech-savvy talent to launch experimental projects while being
unencumbered by the parent company’s legacy technologies and ways of working.
The banks in this taxon, like UBS, did not create corporate venture capital subsidiar-
ies and fintech funds, or if they did, were comparatively later in doing so and commit-
ted comparatively smaller funds. For example, lacking a corporate venture capital arm,
Crédit Agricole delegated the management of a small 50 million EUR fintech and insur-
tech fund it created in 2017 to an external venture capital company. Intesa Sanpaolo
launched its corporate venture capital arm Neva Finventures in 2016 along with a
30 million EUR fintech fund. Rabobank launched Rabo Frontier Ventures in 2018 with a
60 million EUR fintech fund that it increased a year later to 150 million EUR. Nordea
launched Nordea Ventures in late 2017. Lloyds Banking Group did not create a dedi-
cated corporate venture capital arm or fintech fund. UniCredit launched UniCredit EVO
in partnership with the financial services technology venture and advisory firm Anthe-
mis Group in 2016 and committed a relatively large sum (200 million EUR) to a linked
fintech fund. Credit Suisse launched Credit Suisse NEXT Investors in 2013, a New York
based venture capital arm. However, the team behind Credit Suisse NEXT Investors has
been investing in financial technology firms on behalf of Credit Suisse since 2000. The
venture capital arm oversees two funds, NEXT Investors I launched in 2014 and consist-
ing of 135 million USD committed by Credit Suisse in 2014 as well as a portfolio of compa-
nies valued at 269 million USD, and NEXT Investors II launched in 2018 with 261 million
USD for fintech investments that was mostly collected from external investors. Thus,
while Credit Suisse seemingly has a well-established and well-funded corporate venture
capital arm, its activities were conducted from an investment perspective that is similar
 7.3 Selective Interdependence 125

to that of traditional venture capital firms. The activities of Credit Suisse’s corporate ven-
ture capital arm were aimed at maximising return on investment, rather than also seek-
ing to augment the capabilities of the bank by creating bridges with the investments
made as was the case with most of the other corporate venture capital arms observed.
Banks in this taxon made less lead investments in fintechs than the remaining banks in
this study. In the case of Credit Suisse, although it made a limited number of lead invest-
ments, these tended to be in prominent fintechs like AcadiaSoft, Digital Reasoning, and
Prosper Marketplace, while Intesa Sanpaolo preferred to exert more control through
larger stakes such as its 37.9% stake in personal finance fintech Oval Money and its
16.7% stake in crowfunding start-up BacktoWork.
In terms of open innovation, most banks in this taxon took a similar approach to
UBS. While they did adopt open innovation initiatives, this was usually more heavily
weighted towards internal open innovation activities. Moreover, no attempts were
made to link internal and external open innovation activities or to integrate other ca-
pabilities. For example, Rabobank was the only bank of the twenty considered not to
establish any external open innovation initiatives while Nordea only launched a
short-lived one between 2015 and 2016. However, both banks established several inter-
nal open innovation initiatives such as Rabobank’s internal Moonshot acceleration
programme launched in 2015 and its internal Blockchain Acceleration Lab launched
a year later, and Nordea’s LC&Ix internal innovation lab and incubator launched in
2019. Indeed, Rabobank’s Moonshot programme spawned several fintech subsidiaries
and initiatives like SurePay, Rabo & Crowd, Rabo & Co, and Rabobank’s SME account-
ing subsidiary Tellow. Crédit Agricole launched several open innovation initiatives
like its CACD2 internal innovation lab in 2017 and La Fabrique by CA, a fintech start-
up studio launched in 2018. Lloyds Banking Group established two internal innovation
labs in 2016 and 2019 including the 500-employee strong Digital Tech Hub launched in
Edinburgh in 2019, an external innovation lab launched in 2015 called the LBG Innova-
tion Lab, and the Lloyds Banking Group Fintech Mentoring Scheme through which
fintech start-ups can receive mentoring from Lloyds Banking Group staff. Like, UBS,
Credit Suisse was one of the few banks considered to establish its own internal think
tank – the Credit Suisse Research Institute launched in 2008 – and was early to launch
several internal open innovation initiatives like Credit Suisse’s Singapore Innovation
Hub in 2014, and its CS Labs launched in three cities in 2015 focused on several tech-
nologies (machine learning and artificial intelligence in San Francisco, cloud machine
learning in London, and machine learning in trading services in New York). Deutsche
Bank launched its 400 strong Digital Factory in Frankfurt in 2016 followed by its Blue
Water Fintech Space in Shanghai in 2019; the bank also launched its Deutsche Bank
Innovation Labs which is open to external stakeholders in London and Berlin in 2015,
extending the labs in subsequent years to Palo Alto, New York, and Singapore.
The banks In this taxon engaged in open IT infrastructure initiatives to a compar-
atively narrower extent. Like UBS, Intesa Sanpaolo and UniCredit launched their
open-API portals in 2019, a year after PSD2 and the Open Banking Standard came into
126 Chapter 7 Taxonomy of Banks’ Strategies of Interdependence and Value Cocreation

effect, although Nordea launched their portal in 2017. None of the banks in this taxon
extended their open-API portals, developer toolkits, and sandboxes beyond the mini-
mum scope required by regulation. Some banks in this taxon established crowdsourc-
ing platforms to generate innovative initiatives from staff, customers, and third parties,
though not as expansively as banks from other taxa. Examples of these crowdsourcing
platforms include Deutsche Bank’s Pitch Portal launched in 2017, Rabobank’s Innovate
with Your Bank launched in 2014, and Nordea’s Nordea Next launched in 2014.
Banks in this taxon were also comparatively more selective in their partnerships.
Like UBS, Credit Suisse was reluctant to partner with bigtechs. Credit Suisse only part-
nered with a few bigtechs as late as 2018 and 2019, preferring to partner with other
incumbents to launch the Swiss national payments solution Twint in 2014 in which
both banks have a significant ownership stake (a combined 26.5% stake) and influ-
ence. Deutsche Bank took a similar approach, preferring to partner with other banks
in 2015 to create the German online payments provider Paydirekt, in which Deutsche
Bank holds a 16.67% stake. While Deutsche Bank had a limited number of bigtech
partnerships, its lead investment in and partnership with the fintech Modo allowed
the bank to offer its customers access to bigtech payment platforms like AliPay, Pay-
Pal, and M-Pesa through Modo. Away from payments, Deutsche Bank leveraged its
partnership with the fintech Symphony Communication Services to allow its Chinese
corporate clients to conduct FX trading through WeChat in 2019. Rabobank‘s partner-
ships with bigtechs were also comparatively limited and late, however, it was early to
partner with an extensive array of crowdfunding fintechs, which align with the Dutch
cooperative bank’s mutualist ideology; for instance, it has partnered with Collin
Crowdfund and with OnePlanetCrowd since 2013, with ZIB Crowdfunding and with
Kapitaal Op Maat since 2016, and with Knab Crowdfunding since 2017. Like Rabobank,
Crédit Agricole‘s partnerships with bigtechs were comparatively limited and late,
however, the bank was proactive in collaborating with other financial services incum-
bents to create the French Association for the Management of CryptoCurrencies (Asso-
ciation Française pour la Gestion des Cybermonnaies, AFGC), later renamed French
Digital Asset Association (FD2A). UniCredit had very few value cocreation partner-
ships with other financial institutions, however, it did partner a little more exten-
sively with bigtechs, for instance it entered into a wide-ranging partnership with
Alibaba in 2017–2018 following the memorandum of understanding that was signed
between Alibaba and the Italian government in 2014. Nordea entered several partner-
ships with banks and financial services providers targeted at establishing national
payments networks in the Nordic countries in which it operates such as Swish in Swe-
den and Siirto in Finland.
In terms of value cocreation partnerships through multisided platforms, while the
banks in this taxon generally participated less widely in blockchain consortia compared
to those in other taxa, they were nevertheless collectively overrepresented in de novo
platform origination. This suggests a propensity to exert greater control over network-
based value cocreation initiatives. UBS’ MADREC and Fnality International (see Box 7.2)
 7.4 Generative Interdependence 127

are good examples of this. However, Credit Suisse was also one of the few banks of those
considered to originate a de novo blockchain based syndicated lending platform in 2016.
Rabobank is the primary banking partner of the blockchain based commodities trading
platform Repo:NOW, which was launched in 2018. In 2018, Nordea began collaborating
with Finnish bank OP Financial Group, Finnish data services provider Asiakastieto
Group, Nordic IT company Tieto, and several public authorities to create a blockchain
based platform that enables limited liability companies to be established completely digi-
tally, providing them with a fully digital identity, and opening the door to potentially
trading unlisted company shares over blockchain.

7.4 Generative Interdependence

The banks in this taxon employed strategies of interdependence to generate new sour-
ces of competitive advantage. They took experimental approaches that explored new
business models and sought to revitalise their internal resources and capabilities. The
banks that figure in this taxon are ING, the Royal Bank of Scotland, Groupe BPCE, and
Crédit Mutuel. ING was an archetypal bank in this taxon (see Box 7.3). ING and the
Royal Bank of Scotland were particularly severely affected by the GFC, with significant
reversals of their financial performances and a reduction of their business activities.
These banks adopted value cocreation strategies to generate new sources of future
growth. Groupe BPCE and Crédit Mutuel are comparative technological laggards. These
banks saw in strategies of interdependence an opportunity for the renewal of their ca-
pabilities to better equip them to generate new sources of competitive advantage
through value cocreation with external stakeholders.

Box 7.3: Case Summary – ING

ING made three fintech acquisitions, customer loyalty focused fintech Qustomer in 2015, small and
medium enterprise lending fintech Lendico in 2018, and payment solution provider Payvision in 2018.
It only had one fintech subsidiary, ING Direct, its direct bank that was launched in 1997 and was subse-
quently digitalised. In 2017, ING launched its corporate venture capital arm ING Ventures along with a
300 million EUR fund to invest in fintechs. It maintained a separate 25 million EUR a year fund to accel-
erate internal fintech initiatives that was launched in 2013. ING was also lead investor in nine fintechs
between 2015 and 2019, including four that specialised in lending (e.g., Hong Kong based fintech uni-
corn WeLab), and two that specialised in payments. Since 2015, ING has run its ING Innovation Boot-
camp internal incubator where employees are encouraged to come up with innovative fintech
solutions and compete for seed funding to bring their ideas to fruition. In 2018, ING supplemented
this by launching the PACE Accelerator, a twelve-week acceleration programme to rapidly validate in-
ternal innovation ideas and take them to market.
In 2016, the bank launched the Think Forward Initiative (TFI) that has an internal innovation com-
ponent and an external acceleration and partnership component. ING launched this initiative in part-
nership with Deloitte, IBM, Amazon Web Services, and the Center for Economic Policy Research. The
initiative includes the TFI Research Hub which conducts data-driven research into social and behaviou-
ral sciences to learn more about people’s decision-making processes, the TFI Accelerator to translate
128 Chapter 7 Taxonomy of Banks’ Strategies of Interdependence and Value Cocreation

these insights into technological innovations and which is open to external fintechs, and the TFI Com-
munity Hub which promotes the activities of the other two hubs. ING was prominent in launching in-
novation labs, incubators, and accelerators that are open to external fintechs. As well as the TFI
Accelerator launched in 2016 as part of the Think Forward Initiative, ING also launched the ING Labs in
2017 in Amsterdam, Brussels, London, and Singapore, where it employs ING’s PACE innovation meth-
odology. In 2018, ING launched a series of incubators, the ING Innovation Centers, in Germany, Turkey,
and Poland. In 2019, it launched the Fintech for Impact incubator in the Philippines.
In terms of open IT infrastructure, as well as ING’s open-API portal, developer toolkit, and sand-
box launched in 2018 the bank also launched several crowdsourcing platforms to facilitate collabora-
tion and cocreation between staff, customers, and third parties, such as ING Web Café launched in
France in 2013, ING Turuncu Destek launched in Turkey in 2014, Orange Sharing launched in 2015, and
the ING Touchpoint Platform launched in 2017. Beyond the technological aspects of open IT, ING was
one of the few banks of those considered to also widely apply its own innovation methodology (PACE
launched in 2016) based on agile, lean start-up, and design thinking, and in 2017 extended this agile
way of working across the organisation through the launch of the ING one Way of Working (WoW)
inspired by agile principles.
ING is significantly overrepresented in the number of internal fintech subsidiaries and initiatives
it subsequently spun-off. ING accounts for nine out of the eleven spin-offs observed by the twenty
banks in the period considered. Most of the spin-offs were initially incubated and accelerated at ING’s
internal innovation labs, incubator, and accelerator. They include four payments related fintechs, in-
cluding the prominent payments fintech Payconiq, which was launched in the Netherlands in 2015,
received backing from the majority of Dutch banks, expanded into Luxembourg through the acquisi-
tion of Digicash Payments in 2017, and then merged with Belgium based Bancontact to form Bancon-
tact Payconiq Company with wide support from most banks across the Benelux region. Other
prominent fintech spin-offs include the corporate banking fintech Cobase launched in 2016, personal
banking fintech Yolt launched in 2016, and artificial intelligence-based bond trading solution Katana
Labs, which was spun-off in 2019 after two years of incubation at ING.
ING partnered with thirteen fintechs, between 2014 and 2019, including with four crowdfunding
fintechs, as well as a strategic partnership with fintech unicorn Kabbage. ING partnered with several
bigtechs; it was late to partner with them in its core market in the Netherlands and other European
countries (e.g., it partnered with Apple Pay, Google Pay, and Garmin Pay in the Netherlands and core
European markets in 2019), while partnering with them earlier in noncore markets like Australia (e.g.,
in Australia it partnered with Google Pay in 2016 and with Facebook and Apple Pay in 2017).
Through its acquisition of the fintech Payvision, ING was also able to extend its bigtech partner-
ships to PayPal in 2018, and to Chinese fintechs WeChat Pay and Alipay in 2018 for Chinese customers.
ING entered into six partnerships with other banks and incumbents, three of which relate to payments
including an innovative partnership with Dutch supermarket chain Albert Heijn in 2019 to create cash-
ierless stores, and one that relates to standards setting (the Dutch Blockchain Coalition in 2017).
ING participated in twelve blockchain consortia between 2017 and 2019, four of which relate to
commodities. ING was also one of the few banks of those considered to have originated de novo and
led a blockchain consortium. This was the blockchain-based commodities financing platform Komgo
which was launched in 2018. Komgo was initially incubated at ING’s Innovation Bootcamp in 2016.

When considering their strategies of interdependence and value cocreation, the four
banks in this taxon can be split into two broad subcategories: ING and the Royal Bank
of Scotland were more focused on generative strategies that allowed them to derive
competitive advantage through new business models, while Groupe BPCE and Crédit
 7.4 Generative Interdependence 129

Mutuel’s generative strategies were more focused on revitalising their resources and
capabilities.
The Royal Bank of Scotland was arguably the worst performing bank of those con-
sidered and had to be bailed out by the UK government, which by 2009 owned 84% of
the bank. Thereafter the Royal Bank of Scotland divested from many of its interna-
tional operations and from certain business functions becoming a more British bank
that is focused on retail and commercial banking. ING also had to be bailed out by the
Dutch government in the aftermath of the GFC and consequently had to divest from
several of its business functions like its insurance business and from several of its in-
ternational businesses. Thus, both became less international and less diversified
banks. Groupe BPCE and Crédit Mutuel are cooperative banks with highly federated
organisational structures. Groupe BPCE was created in 2009 from the merger of two
major French cooperative banks – Caisse d’Epargne and Banque Populaire – who also
co-own the investment bank Natixis, while Crédit Mutuel is composed of five federal
cooperative banks, nineteen federations, and several subsidiaries. Moreover, coopera-
tive and mutual banks are comparative technological laggards, as discussed in Sec-
tion 6.2.1, owing among other thing to their expansive and costly branch networks
and large networks of autonomous local cooperatives.
Having suffered significant declines as a result of the GFC, ING and the Royal Bank
of Scotland employed strategies of interdependence to cocreate value with external re-
sources and capabilities as a path to strategic renewal through which they sought to
grow new revenue streams from relational rents generated from ecosystemic initiatives
with external resources and capabilities. They also renewed their internal resources
and capabilities to make them better adapted to value cocreation with external stake-
holders and to the new and rapidly evolving technological, consumer behaviour, regu-
latory, and competitive forces in their industry. This is exemplified by their origination
of de novo multisided blockchain networks, their establishment of open innovation ca-
pabilities, and their spinning-off of fintech subsidiaries with whom they subsequently
maintained partnerships.
Like ING, the Royal Bank of Scotland also launched a series of internal and exter-
nal open innovation initiatives. The Royal Bank of Scotland launched several internal
open innovation initiatives like the RBS Digital Studio in London in 2015, the Open
Experience (OX) innovation lab and incubator launched in Edinburgh in 2016, and an
innovation outpost – RBS Silicon Valley Solutions – in 2014 in San Francisco. It also
established several external open innovation initiatives like the Rocketspace London
hub launched in 2016. The Royal Bank of Scotland embraced open-APIs and like ING it
launched crowdsourcing platforms such as the Royal Bank of Scotland’s Ideas Bank
portal that the bank created in 2013.
The Royal Bank of Scotland – like ING – made few fintech acquisitions and estab-
lished few fintech subsidiaries. The Royal Bank of Scotland for example, set up a mod-
erate number of fintech subsidiaries relatively late (between 2018 and 2019) like
digital only banks Bó and Mettle and merchant acquiring payment service Tyl by
130 Chapter 7 Taxonomy of Banks’ Strategies of Interdependence and Value Cocreation

Natwest. Both banks also launched a high number of fintech initiatives, though unlike
the other banks considered in this study, they were prominent in spinning-off their
internal fintech initiatives into stand-alone fintechs that they subsequently main-
tained a partnership with. Though ING was by far the most prominent bank to sys-
tematically spin-off and subsequently partner with its fintech initiatives, the Royal
Bank of Scotland also spun-off an important fintech initiative. In 2016, the Royal Bank
of Scotland built the Emerald platform – a Clearing and Settlement Mechanism (CSM)
based on the Ethereum blockchain – which it later spun-off and continued to develop
as an open-source initiative. The platform became the underlying technology of Proj-
ect GreenPay, an inter-bank payments network in Ireland launched in 2017 by a con-
sortium of banks including the Royal Bank of Scotland‘s Irish subsidiary.
Both banks partnered widely with fintechs, though unlike ING, the Royal Bank of
Scotland did not establish a corporate venture capital arm or a fintech fund. This
meant that the Royal Bank of Scotland made less lead investments, though one of them
was nevertheless in the prominent fintech unicorn Transferwise. Both banks also en-
tered into a moderate number of fintech related partnerships with other banks and in-
cumbents (e.g., ING’s participation in the Dutch Blockchain Coalition in 2017, and the
Royal Bank of Scotland’s participation in the British Standards Authority’s Fintech Col-
laboration Toolkit in 2018). The Royal Bank of Scotland and – especially – ING’s system-
atic spinning-off of fintech subsidiaries with whom they then partner with is indicative
of a Trojan Horse approach or strategic openness (Alexy, West, Klapper, & Reitzig, 2018)
(see Section 5.3.5). Thus, while ING and the Royal Bank of Scotland ceded ownership
and control over important fintech resources and capabilities by spinning them off, they
were able to continue to derive relational rents through subsequent partnerships with
the newly spun-off entities especially given their intimate knowledge of these spin-offs.
Unlike ING, the Royal Bank of Scotland participated in comparatively few block-
chain consortia. However, like ING, which launched the commodities financing block-
chain platform Komgo in 2018, the Royal Bank of Scotland was also one of the few
banks of those considered to originate de novo a blockchain platform, the Emerald
inter-bank payments blockchain platform.
As relative technological laggards, the remaining two banks in this taxon, Groupe
BPCE and Crédit Mutuel were especially focused on mobilising strategies of interde-
pendence to renew their internal resources and capabilities to enable them to better
cocreate value with external stakeholders and consequently better respond to rapidly
evolving technological, competitive, and regulatory forces. As such, Groupe BPCE and
Crédit Mutuel accounted for a large and disproportionate number of fintech acquisi-
tions to update and ameliorate internal capabilities. Moreover, for these federated
banks, creating more aligned organisations through which they could orchestrate
their value cocreation strategies was also important, hence the establishment of nu-
merous fintech subsidiaries and open innovation initiatives.
Crédit Mutuel made nine fintech related acquisitions, while Groupe BPCE made
eight, which is by far the highest of the twenty banks considered (the two banks
 7.4 Generative Interdependence 131

represent 39% of all fintech related acquisitions made by the banks during the period
considered). In doing so, they sought to extend existing resources and capabilities
through the acquisitions of new ones. However, given their position as technological
laggards, their acquisitions for strategic renewal are countered by their compara-
tively limited ability to absorb these resources and capabilities. For example, Groupe
BPCE’s was unable to integrate the leading German digital banking fintech Fidor after
acquiring it in 2016. This resonates with the struggle described in Section 5.4.1 that
technological laggards have in integrating new acquisitions due to the acquirer’s lack
of absorptive capacity (Sears, 2017). In a similar vein, both banks established a large
number of subsidiaries (they accounted for almost a quarter of fintech subsidiaries
established by the twenty banks considered). Groupe BPCE, which has an over 20%
share of the payments market in France, established several payments-related fintech
subsidiaries like Natixis Payments and S-Money. Most of Groupe BPCE’s acquisitions
were of payments related fintechs that it subsequently integrated into Natixis Pay-
ments or S-Money. Crédit Mutuel established nine fintech subsidiaries, the majority of
which were focused on crowdfunding and direct banking. Groupe BPCE did not estab-
lish a corporate venture capital arm or a fintech fund, while Crédit Mutuel has a cor-
porate venture capital arm (NewAlpha Asset Management) and a comparatively small
fintech fund (56 million EUR), which it closed in 2017. Consequently, they made few
lead investments in fintechs.
Both banks launched internal open innovation initiatives (e.g., The Square by
Crédit Mutuel Arkea in 2016, and Groupe BPCE’s Spark Program launched in 2015,
which evolved into the BIG Factory innovation lab and incubator). They also estab-
lished ones open to external participants (e.g., Groupe BPCE’s 89C3 innovation lab, in-
cubator, and accelerator launched in 2017, and several regional innovation labs and
incubators launched by Crédit Mutuel between 2016 and 2019). As for open IT infra-
structure initiatives, Crédit Mutuel only adopted open-APIs to the extent required by
regulation. On the other hand, Groupe BPCE embraced open IT infrastructure further,
for example, it adopted open-APIs a year before it was required to by regulation going
beyond minimum requirements (e.g., including a user experience (UX) charter), as
well as creating crowdsourcing platforms (e.g., Start-Up PASS that facilitates the way
the bank works with startups).
The two banks entered into comparatively limited fintech related partnerships with
other banks and incumbents and entered into few partnerships with bigtechs. However,
both banks partnered more widely with fintechs, often focusing on their key businesses
(e.g., half of Groupe BPCE‘s fintech partnerships were in the payments subsector). In
many cases, both banks took significant (though nonlead) stakes in the fintechs they
partnered with, indicating a propensity towards exerting greater control in the partner-
ships they undertake. For instance, Crédit Mutuel took a 30% stake in personal banking
fintech Linxo, a 28% stake in asset and wealth management fintech Vivienne Investisse-
ment, and a 30% stake in asset and wealth management fintech Masuccession.fr. In
terms of participating in blockchain consortia, Groupe BPCE participated extensively in
132 Chapter 7 Taxonomy of Banks’ Strategies of Interdependence and Value Cocreation

various blockchain consortia, usually through its investment banking arm Natixis, while
Crédit Mutuel only participated in one blockchain consortium (the least of the twenty
banks considered).

7.5 Observations on Institutional Context

Based on the supplemental contextual study described in Section 6.1.4 the financial
performance of the twenty banks was studied over the period considered. This sup-
plemental study drew on several financial indicators as well as the evolution of the
banks’ revenue splits across different business segments and geographies. Appendix 3
provides a summary of the findings from this supplemental study; this section ex-
plores these contextual findings from the perspective of the four different taxa.
Looking at the transformational interdependence taxon, the institutional context
suggests that since BBVA – the only bank to figure in this taxon – avoided much of the
fallout from the GFC, and as an initially comparatively smaller and more regional bank,
it was able to proactively engage in strategies of interdependence and value cocreation
much earlier than the remaining nineteen banks. BBVA was able to integrate its strate-
gies of interdependence and value cocreation into its overall corporate strategy to drive
its expansion and growth objectives. Moreover, as a predominantly retail banking fo-
cused bank, the upheavals in regulations, competition, technologies, and consumer be-
haviour since the GFC are likely to have been a more urgent reality for BBVA than
some of its peers who specialise in areas with higher moats (e.g., investment banking,
wealth management). Interdependence and value cocreation became key components
of BBVA’s drive for digital acceleration allowing the bank to evolve its business model
towards becoming a bank-as-a-platform and – as its chairman and CEO expressed – a
software company in the future.
As for the open and central interdependence taxon, the institutional context indi-
cates that the banks in this taxon were, on the whole, able to avoid any significant
negative ramifications from the GFC – certainly in comparison to many of their peers.
Moreover, while many recalibrated their geographic and business segment focus,
they remained, during the period considered, large, global, and integrated banks.
Thus, the regulatory, technological, competitive, and consumer behaviour forces dis-
cussed in Part 1 of this book are likely to impact these banks across multiple geo-
graphic and business fronts. These banks could not realistically acquire or internally
develop all the strategically important resources and capabilities needed to respond
to these forces across so many fronts and consequently needed to engage with strate-
gically important external resources and capabilities through value cocreation initia-
tives. Moreover, by doing so, these banks sought to continuously renew their existing
resources and capabilities. Hence, these banks integrated strategies of interdepen-
dence and value cocreation in many of their central operations, did so widely, and
typically took an open approach to value cocreation with external stakeholders.
 7.5 Observations on Institutional Context 133

Regarding the selective interdependence taxon, four of the banks that figured in this
taxon – Deutsche Bank, UniCredit, Lloyds Banking Group, and Crédit Agricole – were
particularly badly hit by the GFC, while the remaining five were comparatively better
able to weather the GFC and had more steady performances thereafter. In the case of
the four severely affected banks, owing to their poor financial performances, these
banks would not have been able to renew or develop their internal resources and capa-
bilities sufficiently to enable them to cocreate value with external stakeholders as the
bulk of their financial resources and strategic focus would have been centred on redress-
ing their financial situations. Many of the banks in this taxon remained regional banks
(e.g., Lloyds Banking Group, Intesa Sanpaolo, Rabobank) or became more regionally fo-
cused during the period considered (e.g., Deutsche Bank, Nordea). Several were less inte-
grated than their peers (e.g., Lloyds Banking Group’s focus on retail banking) and
several are also leading specialist in certain segments (e.g., UBS and Credit Suisse’s lead-
ing specialism in private banking and in asset and wealth management), indeed many,
like UBS and Credit Suisse, became even more specialised during the period considered.
Thus, with narrower geographic and business segment focuses, these banks likely expe-
rienced the rapidly evolving technological, regulatory, consumer behaviour, and compet-
itive forces discussed in Part 1 in a less wide-ranging way than larger, more global, and
more diversified banks. As such, they did not need to interact with as wide a range of
external resources and capabilities to cocreate value and could be more selective in
their strategies of interdependence. For such banks, value cocreation with external re-
sources and capabilities can be advantageous in narrow, targeted situations. Some of
these banks may also not have been able to develop the necessary resources and capa-
bilities to adopt wider strategies of interdependence. Furthermore, for banks that have
deep specialisms in certain banking operations, like UBS and Credit Suisse, they may be
more aware and cautious of the risks of interdependence and value cocreation such as
the risk of losing outbound spillover rents. If they do deem strategies of interdependence
to be beneficial, these banks are likely to be more targeted in value cocreation initiatives
often seeking to maintain a certain level of control and leadership.
The generative Interdependence taxon is composed of two banks that experienced
massive reversals of their financial fortunes in the aftermath of the GFC (the Royal
Bank of Scotland and ING) and two that are considered comparative technological lag-
gards (Groupe BPCE and Crédit Mutuel). The Royal Bank of Scotland, arguably the
worst performing bank of those considered, had to divest from many of its interna-
tional operations and from certain business functions becoming a more British bank
and becoming more focused on retail and commercial banking. ING, which also had to
be bailed out by the Dutch government in the aftermath of the GFC and thereafter had
to divest from several of its business functions such as its insurance business and from
several of its international businesses, also became a less international and less diversi-
fied bank. The cooperative banks, Groupe BPCE and Crédit Mutuel, have highly feder-
ated organisational structures and lag many of their peers in terms of technological
innovation. These banks saw in strategies of interdependence and value cocreation an
134 Chapter 7 Taxonomy of Banks’ Strategies of Interdependence and Value Cocreation

opportunity for renewal. For ING and the Royal Bank of Scotland, this was the chance
to grow new revenue streams from new business models, such as the relational rents
generated from ecosystemic initiatives while renewing their internal resources and ca-
pabilities to make them better adapted to value cocreation with external stakeholders
to better navigate the forces discussed in Part 1. This was exemplified by their origina-
tion of de novo multisided blockchain networks, their establishment of open innovation
capabilities, and the spinning-off of fintech subsidiaries with whom they subsequently
maintained partnerships. For the banks with federated organisational structures that
cause them to be technological laggards, strategies of interdependence were ways for
them to renew their capabilities and rethink their organisational structures to make
them better adapted to value cocreation and to the new forces of the platform economy
age. For instance, these banks were overrepresented in acquiring fintechs through
which they sought to update and ameliorate the situation of their internal resources
and capabilities. They also established many specialised, central fintech subsidiaries
and open innovation capabilities to stimulate greater alignment across their federated
structures.
Chapter 8
Discussing Strategic Implications, Future
Considerations, and Final Reflections

Part 1 of this book presented the regulatory, technological, and competitive forces that
banks have had to contend with since the GFC and the rise of the platform economy
age. Moreover, it presented the unique ability of banks to create new money through
their lending activities. Part 1 highlighted that an important implication of these forces
is that strategically important resources and capabilities increasingly reside outside the
ownership and control of banks. As such, banks must digitally accelerate and engage
with these external stakeholders through strategies of interdependence and value coc-
reation. Part 1 examined several managerial considerations related to strategies of in-
terdependence and value cocreation and set out different modalities through which
they could be observed. Part 2 went to the field, examining the strategies of interdepen-
dence and value cocreation that the largest twenty banks in Europe adopted between
2008 and 2019. Part 2 brought to life the different modalities of strategies of interdepen-
dence and value cocreation. It demonstrated empirical evidence that deepen the under-
standing of these modalities and the managerial imperatives that are associated with
them. Beyond looking at modalities, Part 2 showed how different banks configured
these modalities to take different approaches to strategies of interdependence and
value cocreation. In doing so, Part 2 presented a taxonomy of banks’ strategies of inter-
dependence and value cocreation.
This final chapter discusses implications. Section 8.1 begins by emphasising the
need for banking leaders to adopt a measured understanding of the regulatory, techno-
logical, and competitive forces that assail them. Section 8.2 discusses the new strategic
imperatives that banking leaders must come to terms with in the platform economy
age, specifically in relation to interdependence and value cocreation. Section 8.2 elabo-
rates on the individual strategic considerations that banking leaders need to take into
account as they formulate their strategies of interdependence and value cocreation. Sec-
tion 8.3 reflects on the different approaches to interdependence and value cocreation
that banking leaders can take, drawing on insights from the taxonomy presented in
Chapter 7. Section 8.4 contemplates the ramifications of this book’s themes and findings
for banking leaders as well as leaders in other organisations such as fintechs, bigtechs,
and regulators. Finally, Section 8.5 considers where further contributions can be made
that build and expand on this book’s themes and findings.

https://doi.org/10.1515/9783110792454-008
136 Chapter 8 Discussing Strategic Implications, Future Considerations

8.1 Overcoming the Hype and Hubris

In the years following the GFC and concurrently with the rise of the platform economy,
a large number of business and management books, banking industry publications, re-
ports from prominent consultancies, grey literature, and the financial media, character-
ised the rise of fintechs, the rapid evolution of new technologies and platform business
models, and the incursion of bigtech into financial services, as heralding the decline
and disintermediation of banks. These sources often characterised these new entrants
as the future replacements of traditional banks, drawing on inaccurate and overused
comparisons with platform economy success stories (e.g., AirBnB versus hotels, Uber
versus traditional taxis). These sources often failed to fully appreciate many of the
strengths that banks continue to possess such as the highly regulated nature of their
activities, their specialised expertise in certain financial operations, and the historic re-
lationships that they have established with their customers. However, above all, what
these sources usually failed to recognise was a unique and fundamental strength that
banks – and only banks – have: the ability to create new money through their lending
operations as opposed to simply intermediating the movement of existing money. Con-
sequently, this has contributed to overstating or mischaracterising the nature of the dis-
ruption to the banking industry that new entrants like fintechs and bigtechs present.
Moreover, while the hypercompetitive pace of technological change in the second ma-
chine and the regulatory dynamics that emerged after the GFC have exerted tremen-
dous pressure on banks, banks are no strangers to navigating and adapting to changes
in technology and regulatory landscapes.
This book considers these phenomena from the point of view of banks and thus
takes into account banks’ strengths and unique abilities as well as their capacity to
adapt to disruptions. In Chapter 1, it is acknowledged that the net regulatory burden on
banks increased after the GFC (e.g., with the passing of Dodd-Frank, Basel III, IFRS9,
MiFID II) while new regulatory and public policy enablers (e.g., PSD2, the Open Banking
Standard, GDPR) supported the activities of new entrants like fintechs and bigtechs.
However, this changing regulatory dynamic was not something new for banks. Banks
have long navigated a regulatory landscape that has tightened and loosened in response
to different triggers over time. In the aftermath of the Great Depression, US banking reg-
ulations tightened (e.g., through the 1933 Glass-Steagall Act and the 1956 Bank Holding
Company Act). The 1970s, 1980s, and 1990s saw increased deregulation and financial
markets liberalisation, especially in Europe, epitomised by the passing in 1986 of the Fi-
nancial Services Bill in the UK and the subsequent Big Bang in the City of London. Dereg-
ulation peaked with the passing of the Gramm–Leach–Bliley Act in 1999, which repealed
most of Glass-Steagall, before the GFC triggered a new wave of regulatory tightening. As
Chapter 1 described, banks have long navigated these cycles through a dual approach of
lobbying for advantageous regulatory changes in the longer term while engaging in reg-
ulatory arbitrage in the short term. Just as several US banks established themselves in
the City of London from the 1950s onwards to participate – through the Eurodollar
 8.1 Overcoming the Hype and Hubris 137

market – in activities that US regulations prohibited them from in their domestic market,
banks today can also engage in regulatory arbitrage by partnering with fintechs to bene-
fit from activities that are open to fintechs but which banks are excluded from under
the current regulatory regime. Thus, rather than seeing fintechs as competitors, banks
can view them as opportunities for regulatory arbitrage, through which banks can bene-
fit from some of the economic rents that fintechs generate. In fact, this makes the no-
tions of interdependence, value cocreation, and relational rents, that this book focuses
on all the more relevant for banks.
In Chapter 2, the technological realities of the second machine age and the plat-
form economy were elaborated on. Banks have long ago responded through digital
transformation initiatives that digitalised their existing workflows. However, as Chap-
ter 2 discusses, the hypercompetitive pace of change and rapid innovations associated
with the second machine age, the new business models that the platform economy
enables, and evolving consumer behaviours of the digitally native generation mean
that banks now must digitally accelerate by exploiting digitalisation to explore new
business models. While many observers present banks as lumbering, legacy behe-
moths that will struggle to digitally accelerate vis-à-vis more tech-savvy new entrants,
this book recognises that historically banks have embraced new technologies to trans-
form the way they worked (e.g., BankAmericard, which later became the payments
giant Visa, SWIFT, automated teller machines, telephone banking, internet banking,
and mobile banking). There is no reason to doubt that banks will once again adapt to
the technologies of the second machine age and to the platform economy. As the em-
pirical study demonstrates in Chapters 6 and 7, many banks already are adapting
their strategies, with BBVA exemplifying the most radical, transformative approach.
The fintech revolution and the fintechs, bigtechs, and other players that brought it
about are undoubtedly effectuating lasting change in the banking and financial services
sector. Not least, as Chapter 3 expands on, in stimulating innovation in many of the op-
erations that banks have long dominated. However, as Chapters 3 and 4 discuss, banks
create new money when they lend, which nonbanks cannot. Hence, fintechs and big-
techs do not compete with banks in banks’ core business activity of money creation,
instead they compete with them in the intermediation of existing money. While many
fintechs and bigtechs have triggered tremendous innovation in banking and financial
services, there are signs that a lot of the hubris surrounding the fintech revolution has
already started to deflate with several high-profile examples such as the collapse of
Wirecard, Facebook’s failed Libra project, and the crackdown by the People’s Bank of
China on many of Ant Financial’s fintech activities. As Chapter 3 details, the relationship
between banks, fintechs, and bigtechs are likely more nuanced. For instance, while big-
techs have entered into financial services especially in the payments subsector, they
also supply banks with a lot of their critical technology infrastructures. Furthermore, as
Chapter 2 points out, the world is becoming more multipolar and the unfettered globali-
sation of the 1990s and 2000s is unlikely to continue unabated, which redefines the way
in which banks can compete or collaborate with bigtechs. This means that rather than
138 Chapter 8 Discussing Strategic Implications, Future Considerations

banks seeing fintechs as rivals, they can also see them as partners, complementors, or
potentially alternative technology suppliers. Fintechs can also potentially seek to com-
pete, collaborate, or coopetate with bigtechs to ameliorate partnerships, supplier rela-
tionships, or complementarities with banks.
This book therefore presents a more tempered, balanced treatment of many of the
important forces that banking leaders have faced since the GFC. It is also careful to
bring to the forefront the unique ability of banks to create new money while emphasis-
ing that nonbanks cannot create new money, thereby rectifying the basis on which
banks and nonbanks compete and/or collaborate. A potential implication of all of this
for banking leaders is to shift strategic thinking away from a defensive, reactive posture
as is often implied by many industry sources and grey literature, towards a more proac-
tive posture. Indeed, banks can capitalise on their strengths, especially their unique
ability to create money, to actively strategise for ways to exploit the opportunities pre-
sented by digital acceleration and by strategies of interdependence and value cocrea-
tion. To effectively exploit these opportunities, banking leaders, as was demonstrated
empirically in Chapters 6 and 7, are having to come to terms with new strategic consid-
erations in the platform economy age. The next section delineates these new strategic
considerations which will help banking leaders and senior managers to inform the ap-
proaches they take as they embark on their own digital acceleration journeys and as
they formulate strategies of interdependence and value cocreation.

8.2 New Strategic Considerations in the Platform Economy Age

Chapter 6 provided empirical validation for the modalities and submodalities of

banks’ strategies of interdependence and value cocreation. These empirically vali-
dated modalities and submodalities demonstrate that banks have had to develop new
resources and capabilities to help them navigate the new regulatory, technological,
and competitive forces of the platform economy age and to learn to cocreate value
with external stakeholders. Thus, they provide the basis for distilling the new strate-
gic considerations that banks must take into account (see Figure 8.1). This section elab-
orates on these new strategic considerations.

8.2.1 Ecosystemic Value Cocreation and Understanding How Network Effects

Drive Relational Rents as a Strategic Capability

The findings (see Chapters 6 and 7) demonstrate that the twenty banks recognise the
importance of aligning and coordinating with various external stakeholders to cocre-
ate value propositions that generated relational rents and which none could have cre-
ated in isolation. Moreover, for the twenty banks, network effects were an important
source of relational rents; banks were often able to sustain the generation of network
 8.2 New Strategic Considerations in the Platform Economy Age 139

New Strategic Resources & New Characteristics of New Considerations for

Capabilities in Platform Interdependence in Platform External Resources &
Economy Age Economy Age Capabilities

Value cocreation across Multi-sidedness

ecosystems and understanding
how network effects drive
relational rents as a strategic
capability
Network structure, conduct,
multi-sidedness as strategic
resources and their managemant
as a strategic capability
Ecosystem leadership and
ecosystem origination as
strategic capabilities
Coopetition as a strategic
capability
Knowing when to platformise
and understanding the risks
associated with interdependence
as strategic capabilities
Network size, characteristics
conduct
Value cocreation with diverse
ecosystem to generate network
externalities
Ecosystem leadership and
origination
Coopetition
Knowing when to platformise
Risks associated with
interdependence and value
cocreation
Technological modularity,
protocols, and standards
No longer restricted to dyadic or
multi-partner relationships based
on specific business initiatives
Expanded to platform
relationships with diverse
and changing partners
including competitors
and complementors,
where value cocreation with
external resources and
capabilities is integral to
overall business operations
Value cocreation is sustained

Technological modularity, Hypercompetition

protocols, and standards as
strategic resources and their
management as strategic
capabilities

For Focal Firm:

Ricardian Rents + Relational Rents + Network Externalities + (lnbound Spillover Rent - Outbound Spillover Rent)

Sustained Competitive Advantage (Including Temporary Competitive Advantage where Relevant)

Figure 8.1: New Strategic Considerations in the Platform Economy Age.

effects (and relational rents) through business models that bring together ecosystems
of stakeholders and which rely on platform-mediated networks.
All twenty banks collaborated with each other or other financial services incum-
bents, with bigtechs, or with fintechs to establish value propositions that would have
otherwise been impossible to establish unilaterally, including national payments plat-
forms (e.g., PayM in the UK, PayLib and Lyf Pay in France, and Payconiq in the Benelux),
trade finance blockchain platforms (e.g., we.trade, Marco Polo), interbank settlement
blockchain platforms (e.g., Fnality International, the Interbank Information Network),
commodities trading blockchain platforms (e.g., Komgo), and FX trading platforms (e.g.,
Deutsche Bank’s collaboration with fintech unicorn Symphony to allow its Chinese cor-
porate banking clients to process FX trades through Tencent’s WeChat application).
140 Chapter 8 Discussing Strategic Implications, Future Considerations

The banks also recognised complementor heterogeneity and the relative impor-
tance of certain influential complementors. For example, a significant proportion of
the twenty banks considered partnered with certain prominent fintechs including
fourteen of the banks that partnered with enterprise blockchain fintech R3, eight that
partnered with collaboration solutions provider Symphony, and fourteen that part-
nered with bond trading fintech Neptune Networks. All banks also adopted open inno-
vation initiatives to varying degrees as a mechanism through which they could either
a) refresh their internal resources and capabilities to make them more adept to value
cocreation with external stakeholders (e.g., through internal innovation labs, think
tanks, incubators, accelerators, innovation outposts), and b) directly facilitate value
cocreation with external stakeholders (e.g., through external or consortium innova-
tion labs, incubators, and/or accelerators, or through crowdsourcing platforms and
open-APIs).
As observed by Gawer & Cusumano (2002) focal firms cocreating value with
complementors and other stakeholders cannot only rely on established coordination
mechanisms like long-term contracts and equity stakes; they need to consider other
orchestration strategies as well. This is supported empirically through the different
mechanisms the twenty banks used to engage with complementors and other stake-
holders in their value cocreation initiatives such as, spinning-off fintech subsidiaries
(e.g., ING’s fintech spin-offs like Payconiq in 2015, and Cobase in 2017, with whom ING
subsequently maintained partnerships), lead investments in fintechs that involve men-
torship and support, establishing industry bodies (e.g., Innovate Finance), blockchain
consortia (e.g., Royal Bank of Scotland’s interbank payments blockchain platform Emer-
ald that the bank later open sourced), open innovation initiatives such as innovation
labs, incubators, and accelerators that are open to external fintechs either launched by
individual banks or consortia of banks, open IT infrastructures such as open-APIs, and
open innovation technological interfaces where bank can crowdsource ideas from em-
ployees, staff, and fintechs.
These examples provide empirical support for banks’ increased ecosystem thinking.
The managerial abilities of engaging with a diverse ecosystem of external stakeholders
has become increasingly a strategically important capability for banks. Underpinning
this is the recognition by bank management that technological innovation has led to the
evolution of many of their operations towards network-based business models, which if
properly harnessed allows the banks to generate and benefit from sustained relational
rents through network effects. Thus, an important component of ecosystem thinking is
the strategically important capability of understanding how ecosystems generate ongo-
ing network effects.
 8.2 New Strategic Considerations in the Platform Economy Age 141

8.2.2 Network Structure, Network Conduct, and Multisidedness as Strategic

Resources and their Management as a Strategic Capability

The twenty banks considered all collaborated with other banks and incumbents to es-
tablish fintech-related networks especially in the payments subsector (e.g., five of the
banks considered collaborated with other incumbents to launch the national pay-
ments system PayM in the UK in 2014, five of the banks considered collaborated with
other incumbents to launch the national payments system PayLib in France in 2013).
Network size and network overlap density were key reasons for several banks to di-
vest from or leave the German payments system Paydirekt, which was unable to gar-
ner a large enough network to compete with more established providers in Germany
such as PayPal.
Network size and characteristics were also key reasons for why all twenty banks
participated in the dominant payments networks established by bigtechs such as Apple
Pay, Google Pay, and Samsung Pay. For example, though Barclays – with its 27% mar-
ket share of the UK credit card market – was reluctant to partner with bigtechs, it
could not ignore the dominant network size of prominent bigtech payment solutions,
eventually partnering with Apple Pay in 2016 and Alipay in 2019. Standard Chartered,
which derives a substantial proportion of its revenues from the Asia Pacific and Chi-
nese markets, participated in the prominent Chinese bigtech-led fintech networks
that dominate the market such as Ant Financial’s (an Alibaba affiliate) payment net-
work Alipay. Standard Chartered joined the Alipay network in 2016 and developed a
nonopportunistic relationship and strong network ties with Ant Financial, which de-
veloped into a general agreement to collaborate in countries along China’s Belt and
Road Initiative in 2017, and later into collaboration on several blockchain-based remit-
tance networks in Hong Kong, the Philippines, Malaysia, and Pakistan in 2018. Recog-
nising the prominence of telecommunications companies in the payments subsector
in Sub-Saharan Africa through the provision of mobile money, Société Générale,
which has a wide network of subsidiaries in the region, was early to participate in
telecommunication company-led mobile money networks such as its partnership with
Telma (the largest telecommunications firm in Madagascar) to allow the Malagasy
population to transfer money using Telma Mobile phones.
All twenty banks participated in blockchain networks, which represent an excep-
tionally good example of true (see Section 5. 3.2) multisided networks since blockchain
networks reduce information asymmetry between participants, charge membership
or transaction costs, and limit the ability of participants to set prices bilaterally. Most
of the participation in blockchain networks were based on three dominant blockchain
technology networks (R3, Ethereum, and Hyperledger). Several individual blockchain
platforms also received wide backing from banks, such as we.trade and Marco Polo,
owing to their network size and structures.
These examples demonstrate empirically how network structure, such as net-
work size, network embeddedness, and especially multisidedness, were important
142 Chapter 8 Discussing Strategic Implications, Future Considerations

determinants of the value that banks ascribed to different networks. This was also true
of network behaviour, such as nonopportunism, as a determinant of resource value. In
a similar vein, these examples also demonstrate that an increasingly important strategic
capability is management’s ability to navigate the structural and behavioural attributes
of networks to ensure that they engage in networks in ways whereby they maximise
the generation, orchestration, and internalisation of the resultant network effects.

8.2.3 Ecosystem Leadership and Ecosystem Origination as a Strategic Capability

As well as adopting ecosystem thinking more, the findings provide empirical exam-
ples of how banks have assumed ecosystem leadership roles and originated de novo
ecosystems. This was especially manifested in the origination of blockchain consortia
and in standards-setting initiatives.
UBS originated two de novo blockchain networks and maintained a position as
ecosystem leader in both. In 2019, UBS launched Fnality International, an interna-
tional blockchain-based cross-border payments network it began working on in 2015.
In launching Fnality, UBS managed to align fourteen ecosystem partners including
five of the other nineteen banks considered in this study. In 2017, recognising the
changes that the impending Markets in Financial Instruments Directive (MiFID II)
would have on banks, UBS acted as a cognitive referent in its industry to reduce ambi-
guity for other banks contending with MiFID II by originating de novo the Massive
Autonomous Distributed Reconciliation (MADREC) platform to facilitate banks’ com-
pliance with the new directive. ING also originated de novo the commodities financing
blockchain platform Komgo in 2018. ING began by orchestrating a process of collective
discovery when it incubated the platform in its 2016 ING Innovation Bootcamp and by
subsequently conducting two proofs of concepts in 2017 and 2018 before finally launch-
ing the platform. ING also had to align ecosystem partners from diverse industries such
as banking, oil and gas, and commodities trading. BBVA originated several de novo
blockchain platforms, though unlike other blockchain de novo origination cases, BBVA
maintained comparatively tighter control of its platforms through a hybrid architecture
that involved the use of an internal private blockchain platform. HSBC took a stand-
ards-setting approach to platform leadership, for example, in 2019, the bank partnered
with SWIFT to define a common industry standard for open-APIs in Hong Kong.
As noted by McIntyre & Srinivasan (2017) and Gawer (2014), firms that can origi-
nate de novo ecosystems, or assume leadership positions in existing ones can influ-
ence the generation, distribution, and internalisation of network effects to their
benefit. As network-based business models and ecosystem thinking become increas-
ingly important in banking, the strategic importance of managerial capabilities re-
lated to leading and originating ecosystems will only continue to grow. Banks, like
UBS, HSBC, and ING, that adopted ecosystem leadership positions or that originated
de novo ecosystems demonstrated important strategic capabilities associated with
 8.2 New Strategic Considerations in the Platform Economy Age 143

aligning ecosystem partners including ones from diverse industries, setting ecosystem
standards, being a cognitive referent that shapes meaning and reduces ambiguity for
others, and orchestrating processes of collective discovery.

8.2.4 Coopetition as a Strategic Capability

Coopetition describes the “win-win” relationship that allows a firm to combine its re-
sources and capabilities with those of external firms to cocreate value that they
would not otherwise be able to generate independently and which both firms can
benefit from (Brandenburger & Nalebuff, 1996). Firms can engage in coopetative rela-
tionships at the dyadic, multifirm, or network level. Network coopetition is a rela-
tively recent phenomenon, which is often better suited for radical (rather than
incremental) innovation (Yami & Nemeh, 2014).
The collaboration between banks and bigtechs like Apple and Alibaba in the pay-
ments subsector through applications like Apple Pay and Alipay is an example of dyadic
coopetition as most banks have their own payment capabilities including prominent
ones like Barclays’ Barclaycard. Banks coopetated at the multifirm level to launch na-
tional payments network that benefit the participating banks but which none could
have launched unilaterally, these include PayM in the UK (backed by HSBC, Santander,
Barclays, Lloyds Banking Group, and the Royal Bank of Scotland), PayLib in France
(backed by BNP Paribas, Crédit Agricole, Crédit Mutuel, Groupe BPCE, and Société Gén-
érale), and Twint in Switzerland (backed by UBS and Credit Suisse). Banks also coope-
tated at the multifirm level to launch various open innovation initiatives (e.g., ING’s
Think Forward Initiative initiated by ING, Amazon Web Services, Deloitte, IBM, Dell
Technologies, and the Centre for Economic Policy Research). All twenty banks partici-
pated, and in some cases originated, blockchain consortia, which are good examples of
network coopetition.
Most banks established fintech subsidiaries composed of resources and capabilities
that differed from those of the parent firm (e.g., more agile, not committed to legacy
technological infrastructures); several banks relied on these fintech subsidiaries to en-
gage in coopetative initiatives with external stakeholders. For example, Société Génér-
ale coopetated with bigtechs like Google and Samsung on payments initiatives through
its fintech subsidiary Boursorama Banque, Groupe BPCE coopetated with several fin-
techs through its fintech subsidiaries including with Ripple through its fintech subsidi-
ary Fidor Bank and with CopSonic through its fintech subsidiary Natixis Payment
Solutions, and Crédit Mutuel partnered with bigtechs like Google and Samsung through
its fintech subsidiary Fortuneo Banque. A considerable proportion of the twenty banks
established crowdsourcing platforms through which they cooperated with external
stakeholders (e.g., ING’s ING Touchpoint Platform). In several cases, banks had to make
strategic decisions regarding the way in which they committed resources and capabili-
ties to coopetative initiatives, for example, BNP Paribas and Santander abandoned the
144 Chapter 8 Discussing Strategic Implications, Future Considerations

German national payments platform Paydirekt that they were coopetating with other
banks on when the platform did not generate the expected results, while UBS and
Credit Suisse preferred coopetating with each other and other financial services incum-
bents to launch the Swiss payments network Twint over coopetating with bigtechs on
competing payments solutions.
These examples demonstrate empirically that coopetition has become an increas-
ingly important strategic capability for banks, and that this capability is itself composed
of a unique set of managerial abilities, including understanding and managing the com-
peting forces inherent in coopetition, knowing when to create organisational separation
between the competitive and cooperative components of the overall strategy of coopeti-
tion, establishing appropriate governance structures, determining what resources and
capabilities are committed to coopetative strategies, and knowing how and when to en-
gage in network coopetition. For instance, banks engaged in dyadic coopetition in incre-
mental innovation initiatives such as those relating to payments but engaged in network
coopetition in radical innovation initiatives such as those relating to blockchain technol-
ogy. Banks – like ING, UBS, and Credit Suisse – that originated de novo blockchain plat-
forms are examples of firms adopting central positions in coopetative networks. Many
coopetative initiatives with external stakeholders were initiated through banks’ fintech
subsidiaries, which exemplify how banks used organisational separation and established
appropriate governance structures for coopetative activities. Banks also demonstrated
the managerial ability of assessing the potential value that can be generated from coope-
tative relationships (e.g., BNP Paribas and Santander abandoning Paydirekt), as well as
the ability to determine what resources and capabilities are committed to coopetative
strategies (e.g., UBS and Credit Suisse’s coopetition to launch Twint instead of coopetat-
ing with bigtechs).

8.2.5 The Strategic Capabilities of Knowing When to Platformise and

Understanding the Risks Associated with Interdependence

Interdependence and value cocreation also involve risks. Exposing a firm’s resources
and capabilities including intellectual property to others through platformisation
strategies involves risks, including the potential loss of competitive advantage and
outbound spillover rents. Gawer and Cusumano (2008) advise that a focal firm should
only adopt a platform strategy when the proposed platform performs a function that
is core (i.e., when the overall system cannot operate without it) to a wider ecosystem
while solving business problems for many firms and users in an industry. Alexy,
West, Klapper, and Reitzig (2018) observed that in some cases a firm can obtain com-
petitive advantage through strategic openness whereby it ceases ownership and con-
trol of a resource or capability but continues to benefit from it thereafter through
other means such as partnerships; moreover, its competitive advantage is increased if
rival firms adopt the newly opened resource widely substituting it for their own.
 8.2 New Strategic Considerations in the Platform Economy Age 145

The national payment platforms that the banks collaborated to launch (e.g.,
PayM, PayLib, Payconiq, Twint) are good examples of banks deciding to adopt plat-
form strategies since the resultant payment platforms perform a core function for a
wide ecosystem (banks, retailers, retail customers) while solving problems for many
firms (the need for better payments solutions). The numerous blockchain consortia
that banks participated in or originated are also good examples of banks deciding to
adopt platform strategies, for example, trade finance blockchain platforms like we.
trade and Marco Polo perform a core function for a wide ecosystem (banks, corpo-
rates) while solving problems for many firms (the onerous, lengthy, and often paper-
based traditional trade finance process that both banks and corporates struggle with).
In terms of strategic openness, ING was the only bank of the twenty considered to
consistently spin-off its fintech subsidiaries (e.g., Payconiq, Cobase, Yolt, Katana Labs)
with whom it subsequently maintained partnerships. The Royal Bank of Scotland’s
Northern Irish subsidiary Ulster Bank developed its Emerald blockchain platform for
inter-bank payments, which it later open-sourced. The Emerald platform was later
adopted by a consortium of Irish banks (including Ulster Bank) in their inter-bank
payment platform Project GreenPay.
However, banks were also aware of the risks of platformisation. For example,
BBVA ceased its participation in several blockchain consortia (e.g., Contour/Voltron,
Marco Polo) while originating a large number of pioneering de novo blockchain plat-
forms that had tighter participation from mostly nonbanking participants. UBS had a
comparatively limited participation in platforms, nevertheless it was the only bank of
the twenty considered to originate two de novo blockchain consortia (MADREC and
Fnality International), both of which fulfilled core functions for a wide ecosystem.
The managerial capability of knowing when and when not to platformise involves
the strategically important capability of understanding the risks associated with inter-
dependence and value cocreation and consequently being able to terminate nonper-
forming value cocreation initiatives in an agile way, especially as this avoids outbound
spillover rents. This book’s findings present empirical evidence for this capability. For
example, BNP Paribas and Santander were quick to divest from the Paydirekt payments
platform when it failed to garner the sufficient network size. BBVA wound down in an
agile way its internal fintech subsidiaries Denizen and Trust-u when these subsidiaries
failed to deliver the value the bank had originally intended. UBS was quick to sell its
robo-advisory fintech subsidiary to its fintech partner SigFig when it found limited po-
tential for the robo-advisor as a subsidiary.
These examples highlight that the managerial abilities of knowing when and when
not to platformise and knowing when and when not to open up resources and capabili-
ties, are strategically important capabilities when it comes to strategies of interdepen-
dence and value cocreation. Important facets of these managerial abilities include the
ability to determine whether an activity is core to a wide array of stakeholders, the abil-
ity to determine whether a firm that wants to open up a resource or capability has
superior proprietary complementarities that allow it to continue to benefit from the
146 Chapter 8 Discussing Strategic Implications, Future Considerations

newly opened resource or capability, and the ability to ascertain the extent to which
the firm that is platformising or opening up resources and capabilities risks uninten-
tionally disclosing sensitive material and intellectual property.

8.2.6 Technological Modularity, Standards, and Protocols as Strategic Resources,

and their Management as a Strategic Capability

Banks often adopted modular organisational architectures to drive value cocreation.

This often involved using fintech subsidiaries. The majority of the twenty banks estab-
lished fintech subsidiaries that were not dependent on or linked to the parent banks’
technology infrastructures and which enabled them to cocreate value by integrating
with the resources and capabilities of fintechs and bigtechs (e.g., Société Générale co-
operation with Google and Samsung via its fintech subsidiary Boursorama Banque,
Groupe BPCE cooperation with Ripple via its fintech subsidiary Fidor Bank). Some fin-
tech subsidiaries like Santander’s Santander Global Platform were mandated to pro-
vide payments and other financial service functions through a software-as-a-service
model which it extended to the Santander group of banks, customers, third parties,
and external developers.
From a technology architecture perspective, all banks participated in modular
blockchain consortia. Some banks adopted leadership roles in launching de novo
blockchain platforms through which they can have more control of these platforms’
standards and protocols (e.g., UBS’ Fnality International, the Royal Bank of Scotland’s
Emerald platform). Several banks also sought to control standards and protocols for
blockchain consortia, trade finance initiatives, and open-APIs. For instance, BBVA and
Santander participated in Alastria, the Spanish nonprofit launched in 2017 to promote
blockchain technology. Several banks, including UniCredit, Standard Chartered, and
Santander collaborated to launch the Global Payments Steering Group (GPSG) in 2016 to
oversee the creation and maintenance of Ripple payment transaction rules and formal-
ised standards for Ripple-related activities. A group of banks, including Crédit Agricole,
Deutsche Bank, HSBC, ING, Lloyds Banking Group, Rabobank, Standard Chartered, and
Groupe BPCE, collaborated in 2019 to launch the Trade Finance Distribution (TFD) Ini-
tiative to drive standardisation in trade finance through promoting common data stand-
ards and definitions. HSBC partnered with SWIFT in 2019 to define a common industry
standard for APIs in Hong Kong. Moreover, all banks established open-API portals, de-
veloper kits, and sandboxes, and while many only did this to the extent required by
PSD2 and Open Banking Standards regulations, many others embraced open banking
beyond regulatory requirements. For example, BBVA extended their open-APIs to the
US and Mexico, Santander extended theirs to Mexico, and Standard Chartered extended
theirs to Africa, the Americas, Europe, Asia, and the Middle East.
Modularity has become an increasingly important strategic firm resource since
it a) enables simultaneous but autonomous innovation required for value cocreation,
 8.2 New Strategic Considerations in the Platform Economy Age 147

b) reduces substitutability since complementors are likely to migrate to more flexible

modular platforms, and c) prevents asset erosion since by modularising legacy assets
they can be integrated with newer technologies thereby reducing their substitutability
and/or imitability. Furthermore, control over the technological standards and proto-
cols of a platform allows focal firms to fully exploit the possibilities presented by mod-
ular architectures and to better coordinate value (co)generation. This book’s findings
demonstrate empirically that banks’ managerial abilities to create, enforce, and de-
velop technological standards and protocols and their ability to modularise, are stra-
tegically important capabilities as they allow them to control and govern value
cocreation as well as the generation, distribution, and internalisation of network ef-
fects and to limit outbound spillover rents. The empirical evidence thus supports the
consideration of technological modularity, standards and protocols as strategic re-
sources, and the consideration of their management as a strategic capability.

8.2.7 Temporary Competitive Advantage as a Component of Overall Strategies

of Sustained Competitive Advantage

Almost all the banks considered established internal and external innovation labs,
think tanks, incubators, accelerators, and/or innovation outposts. Through these open
innovation initiatives, banks were able to experiment with innovative emerging tech-
nologies and better understand the value of new, emerging strategically important re-
sources and capabilities. They were also consequently able to renew some of their
existing resources and capabilities or – as Le Breton-Miller and Miller (2015) observed –
preserve their existing resources and capabilities by extending their life, guarding
against the erosion of their value, and discovering new contexts to sustain or enhance
their value.
Through these open innovation initiatives, banks were able to experiment with
new technologies and business models to generate temporary competitive advantage,
and by consequently upgrading and renewing their existing resources and capabili-
ties, also drove sustained competitive advantage. For example, ING launched several
fintechs at its ING Labs such as Yolt and Cobase creating temporary competitive ad-
vantage, then subsequently spun-off these initiatives thus creating sustained competi-
tive advantage through the bank’s ongoing partnership with these spun-off fintechs
and through the renewal of ING’s internal resources and capabilities that were revi-
talised in the process of creating the spin-offs. BBVA incubated several fintech initia-
tives at its BBVA New Digital Business innovation lab, incubator, and accelerator. It
later launched these fintech initiatives as fintech subsidiaries. Some like Azlo and
Covault were maintained and became sources of sustained competitive advantage.
Others, like Denizen and Trust-u, were wound-down within eighteen months provid-
ing BBVA temporary competitive advantage, while also contributing to sustained
148 Chapter 8 Discussing Strategic Implications, Future Considerations

competitive advantage by ameliorating BBVA’s managerial ability to assess the

value and scalability of fintech initiatives.
Banks’ participation in blockchain consortia also exemplifies how they sought tem-
porary competitive advantage as well as longer term strategies of sustained competitive
advantage. For example, most banks did not initially commit to a specific blockchain
technology and instead participated widely across technologies such as Ethereum, R3,
and Hyperledger Fabric. The banks also initially participated widely in blockchain con-
sortia including competing ones for the same use-cases. Many banks participated con-
currently in major trade finance-focused blockchain consortia such as we.trade, Marco
Polo, and Voltron (later renamed Contour), gaining temporary competitive advantage
by developing new capabilities in emerging technologies related to trade finance. Many
banks later abandoned participation in certain consortia in favour of others, for exam-
ple, Intesa Sanpaolo, the Royal Bank of Scotland, and BBVA terminated their participa-
tion in Voltron while BBVA and Barclays terminated their participation in Marco Polo.
Several banks concurrently participated in competing funds management blockchain
consortia Iznes and FundsDLT, though some banks later abandoned one over the other,
such as Groupe BPCE which abandoned Iznes in favour of FundsDLT.
Most banks partnered widely with fintechs, often taking equity stakes in them,
which allowed them to gain temporary competitive advantage by updating their resour-
ces and capabilities by exposing them to those of innovative fintechs. In some cases,
these partnerships developed into ones from which banks could derive sustained com-
petitive advantage (e.g., Deutsche Bank’s collaboration with and investment in fintech
Symphony Communication Services in 2014, which later allowed Deutsche Bank to offer
FX trading services to its Chinese corporate clients through WeChat), in other cases,
after providing banks with temporary competitive advantage partnerships were discon-
tinued (e.g., Santander invested in and partnered with mobile banking fintech Monitise
in 2014 which later failed). In some cases, the fintech subsidiaries that banks launched
and later discontinued also demonstrate how banks derived temporary competitive ad-
vantage before adapting their strategy toward sustained competitive advantage. For ex-
ample, in 2017 UBS launched robo-advisor fintech subsidiary SmartWealth, after finding
limited potential for it, it sold it to fintech SigFig in 2018 which UBS is invested in and
has a partnership with, however, in doing so UBS only sold the technology platform to
SigFig while keeping SmartWealth’s customers.
As D’Aveni (2010) observed, in hypercompetitive environments, factor markets
evolve rapidly through radical innovation and Schumpeterian creative destruction; as
such, the value, uniqueness, tradability, and imitability of resources and capabilities
are not always long lasting. In such an environment, firms can mobilise their resour-
ces and capabilities in ways to obtain temporary competitive advantage, while seek-
ing to replace them with more relevant ones should they become obsolete. Thus, as
the empirical results show, the ability for banks to mobilise resources and capabilities
towards temporary competitive advantage is a strategically important capability, and
banks should take temporary competitive advantage into account as part of their
 8.3 Configuring Different Approaches to Interdependence and Value Cocreation 149

overall strategies for sustained competitive advantage – especially in hypercompeti-

tive contexts.

8.3 Configuring Different Approaches to Interdependence

and Value Cocreation
The previous section derived new strategic considerations in the platform economy
age based on the modalities and submodalities of banks’ strategies of interdepen-
dence that were observed empirically (detailed in Chapter 6). However, as Chapter 7
demonstrates, these modalities and submodalities can be configured differently to
adopt several approaches to interdependence and value cocreation (Table 8.1).

Table 8.1: Different Approaches to Interdependence and Value Cocreation.

Transformational Open and Central Selective Generative

Interdependence Interdependence Interdependence Interdependence

Cases BBVA Barclays, BNP Crédit Agricole, Crédit Mutuel,

Paribas, HSBC, Credit Suisse, Groupe BPCE, ING,
Santander, Société Deutsche, Intesa, Royal Bank of
Générale, Standard Lloyds, Nordea, Scotland
Chartered Rabobank, UBS,
UniCredit

Business Value cocreation Extensive value Value cocreation Experimental value

Model Impact mobilised to cocreation mostly in mostly confined to cocreation in core
transform business core operations auxiliary operations and auxiliary
model operations

Acquisitions Selective Selective Limited High

Internal – Early to launch – Early to launch – Limited or no – Often launched

Investments corporate corporate corporate corporate
venture capital venture capital venture capital venture capital
arms with well- arms with well- arms and fintech arms with well-
funded fintech funded fintech funds funded fintech
funds funds – Lower number funds,
– Many fintech – Many fintech of lead comparatively
lead investments lead investments in later
– Several fintech investments fintechs – Moderate
subsidiaries and – Several fintech – Limited fintech fintech lead
the most fintech subsidiaries and subsidiaries and investments
initiatives initiatives fintech – Several fintech
– Agile in – Quite agile in initiatives subsidiaries and
terminating terminating initiatives
nonperforming nonperforming – Many fintech
initiatives initiatives spin-offs
150 Chapter 8 Discussing Strategic Implications, Future Considerations

Table 8.1 (continued)

Transformational Open and Central Selective Generative

Interdependence Interdependence Interdependence Interdependence

Partnerships – Extensive – Extensive – More limited – Moderate to

partnerships/ partnerships/ partnerships/ high
coopetition with coopetition with coopetition with partnerships/
bigtechs, bigtechs, bigtechs, coopetition with
fintechs, fintechs, fintechs, bigtechs,
incumbents incumbents incumbents fintechs,
– Cautious – Extensive – Limited incumbents
approach to participation in participation in – Moderate to
blockchain blockchain blockchain high
platforms; platforms networks participation in
preferred to – Quite agile in – Some originated blockchain
lead/ originate terminating de novo networks
them de novo in nonperforming blockchain – Some
way that partnerships networks but ecosystem/
maintained often in relation platform
tighter control to auxiliary leadership
– Agile in operations – De novo
terminating blockchain
nonperforming origination
partnerships – Partnerships
with spin-offs

Open – Earliest to launch – Early to launch – Established – Established

Innovation large network of internal and mostly internal internal and
Initiatives internal and external open and some external open
external open innovation external open innovation
innovation initiatives; innovation initiatives, but
initiatives; sometimes initiatives, but did not integrate
integrated them integrated them did not integrate them
with other with other them
capabilities to capabilities to
create innovation create
unit innovation units

Open IT – Embraced open- – Embraced open- – Only adopted – Sometimes

Infrastructure APIs early, APIs beyond open-APIs embraced open-
beyond min. min. regulatory within minimum APIs beyond
regulatory scope scope regulatory scope min. regulatory
– Early to create IT – Early to create IT – Moderate scope
interfaces to interfaces to establishment of – Early to create IT
crowdsource crowdsource IT interfaces to interfaces to
ideas ideas crowdsource crowdsource
– Standards setting – Standards setting ideas ideas
leadership leadership
 8.3 Configuring Different Approaches to Interdependence and Value Cocreation 151

As Table 8.1 summarises and Chapter 7 discusses in more detail, the twenty banks
considered took four broad approaches towards interdependence and value cocreation.
Some banks adopted a Transformational approach to interdependence, mobilising
value cocreation to transform their business models towards banking-as-a-platform.
They were early in realising that they needed to augment and evolve their strategic ca-
pabilities towards modes of value cocreation. To achieve this, they were early to launch
corporate venture capital arms, committed significant sums to fintech funds, and cre-
ated fintech subsidiaries that were unencumbered by the parent banks’ legacy technol-
ogies and ways of working. They were also early to invest in the creation of networks
of internal and external open innovation initiatives like innovation labs, incubators,
and accelerators, and quickly recognised the importance of integrating internal and ex-
ternal open innovation initiatives along with other capabilities like their corporate ven-
ture capital arms to form integrated innovation units that could amplify value cocreation.
These banks partnered and coopetated extensively with others like bigtechs and fintechs.
Given, that these banks embraced strategies of interdependence and value cocreation so
fundamentally, they needed to be more aware of the associated risks. For instance, they
were far more nimble in terminating internal initiatives or external partnerships that
failed to generate the intended outcomes. Another example of this enhanced risk aware-
ness is that, while embracing the possibilities presented by multisided blockchain plat-
forms and indeed originating de novo many cutting edge and world/European-first
blockchain platforms, they took a more cautious approach to participating in the plat-
forms of others, preferring to originate blockchain platforms through a unique architec-
ture of private and public blockchains that allowed them to exert tighter platform
control and avoid unnecessary outbound spillover rents. In a similar vein, they sought
to exert tighter network control by taking the lead in many standards setting initiatives.
From a technological perspective, they embraced open banking and launched their
open-API portals early, extended them beyond minimum regulatory requirements, as
well as creating crowdsourcing interfaces to promote co-innovation between staff and
external stakeholders.
A second group of banks took an Open and Central approach to interdependence.
They engaged in value cocreation extensively and often in their core operations. These
banks tended to be global giants with diverse business operations who typically man-
aged to navigate the GFC more or less adequately. As such they experienced the forces
described in Part 1 of this book across a broad array of fronts and could not therefore
realistically aim to own or control all the rapidly evolving resources and capabilities
needed to respond. Consequently, they had to embrace value cocreation with strategi-
cally important resources and capabilities owned or controlled by others. To facilitate
this, they had to enhance and develop their internal resources and capabilities towards
modes of value cocreation. They therefore made targeted acquisitions of innovative fin-
techs, were early to launch corporate venture capital arms with well-funded fintech
funds, created several fintech subsidiaries and initiatives, made many lead investments
in promising fintechs, and partnered widely with bigtechs, fintechs, and other external
152 Chapter 8 Discussing Strategic Implications, Future Considerations

stakeholders. They embraced multisided blockchain platforms but, overall, were mostly
satisfied with participating in them rather than leading and/or originating them. Given
that these banks often engaged in value cocreation in core operations, they were also
aware of the risks associated with strategies of interdependence; thus, they were quite
agile in terminating nonperforming internal initiatives or external partnerships and
some took the lead when it came to standards setting initiatives. This group of banks
embraced open innovation. They were early to launch both internal and external open
innovation initiatives; a few integrated them with other capabilities to create innovation
units but were generally late in doing so compared to banks in the Transformational
Interdependence taxon. Technologically, like the banks that took the Transformational In-
terdependence approach, these banks also embraced open-APIs beyond minimum regula-
tory requirements and established crowdsourcing interfaces to promote co-innovation.
A third group of banks took a Selective approach towards interdependence and
value cocreation. These banks tended to have one of three profiles: either they were
banks that were badly hit by the GFC and had to focus on redressing their situations,
or their operations were comparatively more regional in scope, or their operations
were comparatively much more specialised in certain banking and financial services
functions (e.g., private banking and wealth management). While these banks engaged
in value cocreation, they did so in a more confined, selective way, often restricting
their value cocreation initiatives to auxiliary operations. They made few and limited
fintech acquisitions, established few or limited fintech subsidiaries and initiatives,
had no or limited corporate venture capital arms and fintech funds, and made com-
paratively few lead investments in fintechs. These banks partnered less extensively
with bigtechs, fintechs, and other incumbents, and in usually more established use-
cases. From a technological perspective, these banks only adopted open-APIs to the
minimum extent required by regulations and had comparatively fewer crowdsourc-
ing interfaces for co-innovation. Several banks in this taxon were overrepresented in
the de novo origination and leadership of multisided blockchain platforms, usually
with use-cases that relate to auxiliary operations. This would suggest a propensity to-
wards exerting tighter control over networked value cocreation initiatives to guard
against losing outbound spillover rents. As for open innovation, these banks tended to
focus more on internal open innovation initiatives to help them come to terms with
forces described in Part 1 of this book and to reinforce their internal resources and
capabilities accordingly. They did establish some external open innovation initiatives,
though these were less expansive and were not integrated either with internal open
innovation initiatives or with other capabilities.
A fourth group of banks took a Generative approach to interdependence, seeing in
interdependence and value cocreation the potential to renew their capabilities and ex-
plore new sources of economic rents. These banks were either global, diversified giants
that were severely impacted by the GFC and saw reversals of their financial fortunes
that left them less globalised and less diversified, or comparative technological laggards.
For the banks that were especially negatively affected by the GFC the focus tended to be
 8.4 Implications for Different Stakeholders 153

more around exploiting strategies of interdependence and value cocreation to tap into
new revenue streams, while for the technological laggards the focus was more on re-
newing and updating their internal resources and capabilities. These banks made a
high number of fintech acquisitions – especially the technological laggards – and estab-
lished several fintech subsidiaries; often they would integrate acquisitions into their
subsidiaries. These segregated units that were not restrained by the parent bank’s leg-
acy technologies and ways of working were often the vehicle through which the banks
subsequently partnered with bigtechs, fintechs, and other external stakeholders to co-
create value. These banks established corporate venture capital arms and well-funded
fintech funds, though comparatively later than banks in the Transformational Interde-
pendence and Open and Central Interdependence taxa. These banks embraced experi-
mental, novel modes of value cocreation. For instance, banks in this taxon were the
only ones observed that systematically spun-off their fintech subsidiaries or initiatives
or which open-sourced them, subsequently maintaining a close partnership with them
in what appear to be Trojan Horse strategies of strategic openness (Alexy, West, Klap-
per, & Reitzig, 2018). Additionally, these banks established wide networks of both inter-
nal and external open innovation initiatives, were early to launch crowdsourcing
interfaces to facilitate co-innovation, and many of them embraced open-APIs beyond
minimum regulatory requirements. They also embraced multisided blockchain plat-
forms and several banks originated de novo and lead such platforms. In fact, many of
the fintech subsidiaries and initiatives that were subsequently spun-off and many of
the blockchain platforms that were originated were initially incubated and accelerated
through the open innovation initiatives that these banks launched.

8.4 Implications for Different Stakeholders

This book provides important managerial insights – new strategic considerations and
new strategic resources and capabilities in the platform economy age, modalities and
submodalities of strategies of interdependence and value cocreation, taxonomy of
banks’ strategies of interdependence and value cocreation, a more sober treatment of
the forces driving greater interdependence in banking – to diverse stakeholders.
These stakeholders include leaders, middle management, and divisional heads of
large European banks, small and mid-sized banks, non-European banks, fintech lead-
ers, bigtech leaders, and leaders at regulators. The following subsections elaborate on
the implications of these managerial insights on each stakeholder.

8.4.1 Implications for Leaders at Large European Banks

Since the GFC, leaders of large European banks have had to contend with the emer-
gence of numerous forces that have driven greater interdependence in the banking
154 Chapter 8 Discussing Strategic Implications, Future Considerations

industry. As Part 1 of this book discussed in more detail, these forces stem from more
stringent banking regulations at both the global and European levels, regulations at
the European level such as PSD2 and the Open Banking Standard that facilitate the
activities of nonbanking financial services providers, rapid technological changes and
the emergence of new platform-centred business models, the proliferation of new
competitors like fintechs and bigtechs, and the rapidly evolving consumer behaviours
of the digitally native generation. Recognising that these forces mean that increasingly
strategically important resources and capabilities fall outside the ownership and con-
trol of banks, leaders at large European banks have come to recognise the importance
of value cocreation with external stakeholders as part of banks’ overall strategies for
sustained competitive advantage. This is especially true in the European context since
European regulators have taken the lead vis-à-vis their global counterparts in enact-
ing open banking regulation, which has amplified the forces that drive interdepen-
dence. At the same time, European banking leaders are having to navigate these
forces while dealing with low profitability due to long-term near-zero interest rates,
lower consumer trust in the banking sector following the GFC, and legacy technology
estates and ways of working.
This book therefore makes several managerial contributions that directly address
these critical issues. Firstly, it provides leaders at large European banks with new
strategic considerations and new strategic resources and capabilities into the platform
economy age (see Section 8.2, Figure 8.1, and Chapter 6 for example) that consider
value cocreation with external stakeholders, and which they can use to formulate
their strategies for contending with the forces highlighted in Part 1. Moreover, these
new strategic considerations and resources and capabilities break down the mechan-
ics of value cocreation, allowing senior leaders to work with their middle manage-
ment and divisional leaders to cocreate value (e.g., with the Chief Information Officer
and/or the Chief Technology Officer regarding the technological aspects of value coc-
reation such as technological modularity, with divisional heads such as the Head of
Corporate Banking for the alignment aspects of value cocreation).
Secondly, this book provides these leaders with the taxonomy of banks’ strategies of
interdependence (see Chapter 7 and Section 8.3) to help them understand how their
peers strategised for interdependence in the twelve years after the GFC. This enables
these leaders to benchmark their banks and their strategies of interdependence against
those of peers. Moreover, this study breaks down strategies of interdependence – which
by itself can be an abstract notion – into the modalities and submodalities of banks’ strat-
egies of interdependence. Thus, this enables these leaders to better understand the com-
ponents and modalities of a specific taxon’s strategies of interdependence, and how this
differs practically from another taxon. In addition, the longitudinal dimension of this
book’s empirical study allows these leaders to observe how their peers’ strategies of in-
terdependence evolved over time. Consequently, this book’s combination of considering
the modalities and submodalities of strategies of interdependence, the longitudinal
 8.4 Implications for Different Stakeholders 155

dimension, and the fact that it considers multiple cases (twenty banks) facilitates the abil-
ity of leaders at large European banks to:
a) Simulate or analyse scenarios for evolving their bank’s strategies of interdependence
b) Put in place a roadmap for moving to a future state strategy of interdependence
c) Understand in detail how their strategy of interdependence is situated versus
their peers
d) Diagnose why the current state of their strategies of interdependence diverges
from the state that they had originally intended

Moreover, given that this book’s empirical study also studies (albeit separately) the
institutional context of the banks considered, the findings allow banking leaders to
take into account the institutional contexts that contribute to different strategies of
interdependence. This in turn, allows them to consider their own institutional context
and how this relates to their existing strategies of interdependence or how it impacts
any evolution of their strategies of interdependence that they are considering.
Thirdly, as elaborated on in Section 8.1 and generally throughout Part 1, this book
provides a more measured treatment of the regulatory, technological, and competitive
forces impacting banks. This more sober approach neither underestimates the impor-
tance of these forces, nor does it overstate them by giving in to the hype and hubris.
This therefore provides greater strategic clarity to banking leaders who may rethink
their strategic stances vis-à-vis these forces from being overly defensive towards
more assertive approaches to interdependence and value cocreation that recognises
the unique strengths and capabilities of banks.

8.4.2 Implications for Middle Management at Large European Banks

The managerial implications for banking leaders at large European banks are also
true for middle management and divisional heads, albeit at a more operational level.
However, beyond the inclusion of value cocreation with external stakeholders, the
new strategic considerations and new strategic resources and capabilities in the plat-
form economy age (Section 8.2, Figure 8.1, and Chapter 6) break down into separate
components the mechanics through which value is cocreated. These components can
provide valuable insights to middle management and divisional heads who need to
effectuate banking leaders’ strategies of interdependence.
For technology and operations leaders such as the Chief Information Officer, Chief
Technology Officer, Chief Operating Officer, and Chief Data Officer, this book’s contribu-
tions around the consideration of technological modularity, and technological standards
and protocols as strategic resources and their management as strategic capabilities, have
important implications on the technological and architectural decisions they make in
their strategies of interdependence. For strategy leaders such as the Chief Strategy Offi-
cer, Head of Innovation, and Head of Digital Transformation, this book’s contributions
156 Chapter 8 Discussing Strategic Implications, Future Considerations

around the consideration of coopetition, value cocreation with ecosystem partners in-
cluding complementors, and ecosystem leadership and/or origination as strategic capa-
bilities, have important implications on the alignment mechanisms they adopt in their
strategies of interdependence. This book’s contribution around the consideration of
knowing when to platformise and the risks of interdependence as strategic capabilities,
also has important implication for these strategy leaders from a risk assessment perspec-
tive; this is also important for risk leaders at banks such as the Chief Risk Officer and the
Chief Information Security Officer. For divisional heads like the Head of Corporate Bank-
ing, the Head of Retail Banking, and the Head of Private Banking and Wealth Manage-
ment, this book’s contributions around the consideration of the economic benefits of
interdependence such as the generation of network effects, their maximisation through
structural characteristics like multisidedness, as well as coopetition, ecosystem thinking,
and ecosystem leadership and/or origination as strategic capabilities, have important im-
plications on how they evaluate value cocreation opportunities and the alignment mech-
anisms they subsequently use to exploit them. These considerations as well as this
book’s broader insights on the technologies, consumer behaviours, and regulations driv-
ing strategies of interdependence also have important implications from a training and
development perspective. This is relevant for both middle management and divisional
heads as well as for Human Resource leaders who need to make sense of the capabilities
required for value cocreation activities as they consider their strategies for hiring new
talent and/or training and developing existing talent.
The taxonomy of banks’ strategies of interdependence coupled with the modali-
ties and submodalities of banks’ strategies of interdependence also provide valuable
insights for middle management and divisional heads regarding the ways in which
different banks practically undertake different strategies of interdependence. Just as
with top managers, middle managers and divisional heads can use this taxonomy and
the composite modalities and submodalities to benchmark their strategies of interde-
pendence versus peers, analyse scenarios for evolving their bank’s strategies of inter-
dependence, establish roadmaps for evolving their strategy of interdependence, and
diagnose any issues in their current strategies of interdependence. However, with
middle managers and divisional heads, this would be done at a more granular level,
for example, at the modality level.

8.4.3 Implications for Small and Mid-Sized Banks

While this study considers the top twenty banks in Europe, which includes global giants
like HSBC and BNP Paribas, it also includes banks that are more local or regional in
their geographic footprint like Lloyds Banking Group and Nordea and banks that are
more specialised in their business operations such as Standard Chartered and UBS. The
modalities and submodalities of banks’ strategies of interdependence are also applica-
ble to leaders of small and mid-sized banks, as are the new strategic considerations and
 8.4 Implications for Different Stakeholders 157

new strategic resources and capabilities in the platform economy age (see Section 8.2).
The difference for small and mid-sized banks is in the way they mobilise these consider-
ations. By considering the strategies of interdependence of the more specialised and less
international banks in this study and how these differ from the strategies of interdepen-
dence of the large, international, diversified banks (through the taxonomy of banks’
strategies of interdependence in Chapter 7 and Section 8.3), leaders at small and mid-
sized banks can derive valuable insights for their own strategies of interdependence.
Moreover, for leaders at small and mid-sized banks that have ambitions to chal-
lenge their larger counterparts, by understanding how leaders at the top twenty Euro-
pean banks have strategised for interdependence from 2008 to 2019, they can tweak
their competitive approach accordingly. For example, they can learn from the mis-
takes made by fintechs and bigtechs in their approach to the large banks. Or by better
understanding large banks’ strategic tendencies in response to the forces described in
Part 1, they can learn how best to combine their efforts with fintechs and bigtechs to
better compete against the larger banks.

8.4.4 Implications for Non-European Banks

This book focuses on the European context because European regulators have taken
the lead globally in enacting open banking regulation (e.g., the European Commis-
sion’s PSD2 and the UK Competition and Market Authority’s Open Banking Standard
that both came into effect in 2018) that have facilitated the activities of bigtechs and
fintechs and consequently promoted greater interdependence in the European bank-
ing sector. Interdependence in the European banking sector has also been amplified
by several public policy enablers in Europe that promote the advancement of digital-
isation such as GDPR which came into effect in 2018. However, open banking is likely
to become a regulatory reality for non-European banks in the future, for example in
Mexico and Australia (see Section 1.4).
Given the increasing promotion of open banking by regulators outside of Europe,
this book’s managerial insights will be also relevant for banking leaders, middle man-
agement, and divisional heads at banks outside of Europe. Just as in the European con-
text, these regulatory changes in non-European geographies are likely to increase the
forces that promote interdependence in banking by stimulating the activities of bigtechs
and fintechs, as well as their venture capital and innovation partners, and by forcing
banks to interact more with external stakeholders. Banking leaders in non-European
geographies will therefore need to strategise to navigate these forces of interdepen-
dence. In much the same way as presented in Sections 8.4.1–8.4.3, these banking leaders
outside Europe can benefit from this book’s insights including the taxonomy of banks’
strategies of interdependence, the modalities and submodalities of bank’ strategies of
interdependence, and the new strategic considerations and new strategic resources and
capabilities in the platform economy age. In particular, these banking leaders outside
158 Chapter 8 Discussing Strategic Implications, Future Considerations

Europe can learn from the experiences of their European peers, drawing for example
on the empirical study’s longitudinal dimension to examine the strategies of the top
twenty banks in Europe before 2015 when the European Parliament adopted PSD2, after
2015 when PSD2 was adopted, and after 2018 when PSD2 came into effect.

8.4.5 Implications for Fintechs, their Venture Capital Backers,

and Innovation Partners

Capitalising on rapid technological advances, the rise of platform business models,

changes in consumer behaviour, enabling regulatory reforms, and banks’ struggling
profitability, that emerged in the aftermath of the GFC, innovative fintechs rose to
challenge banks across different financial operations. The fintech boom that appeared
in the last decade, and especially in the second half of the 2010s, was extensively cov-
ered by the financial press, grey literature, industry periodicals, and by consultancy
and advisory firms. This coverage was often skewed towards overrepresenting the
disruptive capacity of fintechs. This book takes a more measured approach. While
this study acknowledges the potential of fintechs and their revitalising effect on the
banking industry, it does not overstate it; this study recognises the unique ability of
banks to originate new money, banks’ institutional legitimacy, and the relationships
and specialised skills that banks have developed over many decades, all of which are
lacking in fintechs.
The forces driving greater interdependence that this book considers are also a real-
ity for fintechs, however, they have a different implication for fintechs. While banks
need to strategise to react to these forces of interdependence, fintechs benefit from
these forces and are in fact part of what drives them. However, just as banking leaders
are coming to terms with the role of fintechs in their industry and are strategising for
value cocreation with them, fintech leaders are increasingly realising that they cannot
replace banks and instead will need to collaborate with them to cocreate value. Thus,
despite this book’s focus on the point of view banks, it also has important managerial
implications for fintech leaders as they seek to collaborate and coopetate with banks.
The combination of this book’s more sober approach and its consideration of
these phenomena from banks’ point of view presents fintech leaders with important
insights on banks’ strategies of interdependence. These insights can inform the strate-
gies that fintech leaders adopt as they begin to consider how they can cocreate value
with banks. For example, the empirical study’s longitudinal dimension allows fintech
leaders to understand how banks’ relationship with fintechs evolved over time. The
taxonomy of banks’ strategies of interdependence and the interplay between the dif-
ferent modalities and submodalities of strategies of interdependence, can help fintech
leaders understand the mechanics of their relationship with banks. For instance, are
banks with corporate venture capital arms more likely to invest in and partner with
fintechs? Are there some characteristics of banks that make them more likely to seek
 8.4 Implications for Different Stakeholders 159

controlling stakes in the fintechs with whom they partner? Are there some character-
istics of banks that make them more averse to collaborating with fintechs? Are banks
with open innovation initiatives that are open to external participants more likely to
partner with fintechs? Are banks that are more resistant to open IT infrastructures
less likely to seek collaborative/coopetative partnerships with fintechs?
This book also presents important managerial contributions for leaders at the ven-
ture capital firms and innovation partners that have funded and supported the growth
of fintech start-ups. Venture capital firms have played a critical role in the proliferation
of fintechs, and beyond the financial support they offer, venture capital provides impor-
tant advisory roles to the fintech founders often contributing to their boards. Thus, the
strategies that fintech leaders adopt are often influenced by their venture capital back-
ers. Consequently, this book’s managerial contributions to fintech leaders are also rele-
vant to venture capital leaders who play important roles in guiding fintechs’ strategies.
Through this study’s more measured treatment of the forces underpinning interdepen-
dence in the banking sector and through the taxonomy of banks’ strategies of interde-
pendence, venture capital leaders – who have a vested interest in the success of the
fintechs they back, not least in terms of their eventual exit strategies – can better advise
the fintechs they support towards successful strategies of value cocreation with banks,
and can better screen the fintechs they are considering funding in the future.
In a similar vein, this study has managerial implications for leaders of innovation
partners that have also been key supporters of fintechs. These innovation partners in-
clude innovation labs, incubators, and accelerators that are often launched by govern-
mental authorities, industry bodies, consulting firms, technology firms, and financial
services firms. This study’s insights on the way banks cocreate value with external
stakeholders like fintechs can inform the strategies leaders at innovation partners
adopt to support fintechs. For example, by recognizing that fintechs are better served
by collaborating or coopetating with banks, leaders of these innovation partners can
steer fintechs towards cocreating value with banks rather than seeking to compete
against them head-to-head.

8.4.6 Implications for Bigtechs

The last decade has also seen the increasing penetration of bigtechs like Apple, Google,
and Alibaba into financial services, especially through the proliferation of payments ap-
plications like Apple Pay, Google Pay and Alipay. Bigtech’s disruption of the banking
sector and the threat bigtechs pose to banks was also often overstated, especially by
sources that observed the dominance of Chinese bigtechs like Alibaba and Tencent on
the Chinese financial services sector, suggesting that this was a precursor to Western
bigtechs’ anticipated dominance of financial services in the West, and neglecting the
nuances of the Chinese context that are not necessarily replicable in the West, nuances
160 Chapter 8 Discussing Strategic Implications, Future Considerations

that came to the forefront in the People’s Bank of China recent crackdown on Chinese
technology giants’ monopolistic behaviour in financial services (see Section 3.3.1).
This book recognises the significant impact of bigtechs on the banking sector and on
the differences between bigtechs and fintechs, not least the size, institutional legitimacy,
leading technology expertise, and wide customer base that bigtechs possess, which fin-
techs do not. However, by accounting for the unique capabilities that banks have and
the fact that they are regulated entities, this study takes a more measured approach to-
wards the amplitude of the threat posed by bigtechs. Thus, just as banks and fintechs
need to evolve their strategies towards value cocreation as opposed to seeking to dis-
place one-another, so too should bigtechs and banks. This book’s insights can help big-
tech leaders understand how the propensity of banks to collaborate with bigtechs is
impacted by certain characteristics such as banks’ market share or dominance of a bank-
ing operation that the bigtech is challenging, banks’ institutional context (international
versus regional, specialised versus diversified), banks’ open innovation capabilities, and
the extent of banks’ adoption of open IT infrastructures.

8.4.7 Implications for Regulators

Regulators have played an instrumental role in stimulating the increasing forces of

interdependence in the banking sector. As discussed in Chapter 1, in the aftermath of
the GFC, regulators enacted regulations like Basel III and the Dodd–Frank Wall Street
Reform and Consumer Protection Act that increased the net regulatory burden on
banks. At the same regulators – particularly those in Europe – enacted new regula-
tions like PSD2 and the Open Banking Standard that facilitated the activities of fin-
techs and bigtechs, consequently increasing the forces of interdependence in banking.
This book’s longitudinal examination of the strategies that the top twenty banks in
Europe adopted in response to the growing forces of interdependence in their indus-
try gives leaders at European regulators a detailed systematic account of how these
banks responded to interdependence and specifically the different regulatory triggers
that occurred at different points in the twelve years after the GFC. This can enable
leaders at regulators to obtain a better understanding of the effects of the regulations
they enact on banks, including the identification of any unintended or unanticipated
consequences of their regulations.
The deeper understanding of banks’ strategies of interdependence that this book
provides to leaders at regulators can also raise several important questions for them.
For example, are there any risks associated with an overly platformised banking sector?
In a system where value cocreation leads to a too wide distribution of banking-related
activities, does the risk of dilution of the ownership of regulatory compliance rise to
imprudent levels? Thus, by better understanding how their regulations impact banks’
strategies of interdependence across different modalities, leaders at banking regulators
can ensure that they either tweak existing regulations or evolve new regulations in
 8.5 Avenues for Future Research 161

ways that ensure that the resultant forces of interdependence in banking promote sta-
bility and fair competition in the sector as well as ensuring that risks are maintained at
prudent levels and that consumers are adequately protected.
Moreover, this book can provide important managerial contributions to leaders
at regulators that have not yet embarked on their open banking journey. Such leaders
can draw on this study’s account of banks’ strategies of interdependence in the Euro-
pean context, particularly the detailed taxonomy, to draw parallels and comparisons
with their own regulatory contexts. By understanding how banks have strategised for
interdependence in the European regulatory landscape, they can draw lessons to
apply to their regulatory efforts as they embark upon open banking in their regions.

8.5 Avenues for Future Research

This book’s empirical contribution relies on a study of the top twenty banks in Europe.
Thus, it does not consider small and medium-sized banks, including those that have
deep specialisms in certain aspects of banking. Nor does it consider other stakeholders
within the financial services sector such as insurance companies, brokers, currency ex-
changes, and buy-side firms (e.g., pension funds, asset management firms). While these
firms would also benefit from this study’s insights, there will be aspects of interdepen-
dence and value cocreation that will be specific to them and that this book’s empirical
study would not have captured, indeed there are likely additional contributors to the
forces of interdependence that are specific to these firms (e.g., insurtech start-ups in the
insurance sector). Hence, future research should examine the forces promoting interde-
pendence among small and medium-sized banks, as well as other nonbank financial
services firms, and the strategies of interdependence and value cocreation that leaders
at these firms adopt to deal with them.
This book’s empirical study focused on the European context; this is mainly
driven by European regulators’ early promotion and enactment of regulatory re-
forms, like PSD2 and the Open Banking Standard, which have been key stimulants to
the forces that have driven interdependence in the banking industry. However, while
regulatory changes are important catalysts, they are not the only contributors to in-
creasing the forces that promote interdependence. Rapid technological advancements,
changing consumer behaviours, and the emergence of new platform-based business
models are all important contributors to the forces of interdependence, these are in
no way limited to the European context and in fact some may be more advanced in
other regional contexts (e.g., the contribution of rapid technological advancement to
the forces promoting greater interdependence is arguably more pronounced in the US
and in China where US and Chinese bigtechs have driven much of the technology in-
novation in the past decade). Thus, it will be important for future research to consider
the forces of interdependence in non-European contexts and how leaders at large,
162 Chapter 8 Discussing Strategic Implications, Future Considerations

medium-sized, and small banks, as well as at nonbank financial services firms in non-
European geographies strategise for interdependence and value cocreation.
Both the overall book and the empirical study consider the forces driving interde-
pendence in banking and strategies of interdependence and value cocreation from
the point of view of the incumbent (large banks) as opposed to new entrants, whether
start-ups (fintechs) or large competitors from other industries (bigtechs). In the case
of the banking and financial services sector, fintechs and bigtechs will strategise for
interdependence differently from the industry’s incumbents. It will be useful for fu-
ture studies to capture their points-of-view as well.
These proposed future studies would likely benefit from this book’s insights, its
modalities and submodalities of strategies of interdependence and value cocreation,
and the taxonomy of strategies of interdependence as foundations on which they can
build to develop their research. However, these further studies will undoubtedly re-
veal nuances about the forces driving interdependence and firm’s strategies of inter-
dependence and value cocreation that are specific to their contexts. These nuances
may include the revelation of new forces driving interdependence or new dimensions
to the forces that this book has identified. Similarly, these nuances may reveal new
modalities or submodalities of strategies of interdependence and value cocreation or
reveal new dimensions to the modalities and submodalities highlighted in this book.
Consequently, these new nuances will certainly enrich the insights contained in this
book making them applicable across wider contexts.
This book considered the question of the forces driving interdependence and firms’
strategies of interdependence and value cocreation from the point of view of the strate-
gic management discipline and specifically from the Resource Based View (RBV) of strat-
egy. The findings and insights are therefore informed by the themes that are focused on
in strategic management and in the RBV, such as firms’ search for sustained competitive
advantage. However, these questions can also be addressed through other lenses from
the strategic management discipline such as the positioning school, the configuration
school, the learning school, and business model research, as well as other disciplines
such as organisational theory, human resource management, entrepreneurship, and eco-
nomics. By considering these questions and phenomena through these diverse lenses,
future research can uncover additional considerations, thus further enriching the in-
sights and contributions presented in this book. Moreover, future studies can adopt dif-
ferent ontological, epistemological, and methodological approaches to the questions and
themes contained in this book (e.g., statistical studies, studies that rely on first hand in-
terviews with banking leaders), which will likely uncover new enriching insights and
considerations.
Finally, this book’s empirical study is a descriptive one. It systematically and metic-
ulously presents a description of the strategies of interdependence and value cocreation
that the top twenty banks in Europe adopted from 2008 to 2019. However, it does not
make any claims relating to causality, nor does it seek to explain the advantage of a
specific strategy of interdependence and value cocreation over another. As such, future
 8.5 Avenues for Future Research 163

research efforts should include explanatory studies that seek to tackle causality in the
context of strategies of interdependence and value cocreation. This should include ques-
tions relating to the conditions that cause a strategy of interdependence and value coc-
reation to be preferable to another, whether certain conditions have greater causal
implications relative to others, the interplay between these conditions and firms’ insti-
tutional contexts, the relative importance of specific considerations under different
causal conditions, and how the modalities and submodalities of banks strategies of in-
terdependence and value cocreation (as well as the new strategic considerations and
strategic resources and capabilities in the platform economy age) can be manipulated
and configured to help firms respond to different causal triggers through optimised
strategies of interdependence and value cocreation.
Appendix 1
Combined Summary of Content Analytic
Meta-matrices

https://doi.org/10.1515/9783110792454-009
Table A.1: Combined Summary of Content Analytic Meta-matrices: Modalities of Banks’ Strategies of Interdependence and Value Cocreation.
Case Investment & Acquisition
Modality
Barclays – 2 fintech acquisitions early on:
customer loyalty fintech in 2012,
payments fintech in 2014
– Early to establish payments
fintech subsidiaries: Pingit in
2012, bPay in 2015 (incorporated
into Pingit in 2019)
– Corporate venture capital arm,
Barclays UK Ventures (BUKV) in
2018
– 100 million GBP Barclays
Technology Fund in 2015
– From 2018 allocated 10 million
GBP/year to invest in each
annual cohort of 10 fintechs that
emerge from the bank’s external
accelerator
– Lead investor in 9 fintechs
(2017–2019), 2 relate to fintechs
providing loyalty schemes, 2
relate to SME lending fintechs
– No internal innovation labs,
incubators, and/or accelerators
Partnership
Modality
– 15 fintech partnerships
(2012–2019), 4 focused on
payments, 4 focused on risk
management
– Terminated partnership with
cryptocurrency exchange
Coinbase in 2019
– Reluctant to partner with
bigtechs in payments (Barclays
owns Barclaycard, the UK’s
largest credit card provider with
a market share of 27%); limited/
late bigtech partnerships
– 7 partnerships with other banks/
incumbents (2014–2019), 4 relate
to standards setting
– Participated in 9 blockchain
consortia (2015–2019), 2 focus on
trade finance, 2 focus on lending
166
Open Innovation Open IT Infrastructure
Modality Modality
– Early to launch innovation labs, – Open-API platform, developer
incubators, and/or accelerators toolkits & sandbox (2018)
that were open to external – 2 crowdsourcing interfaces:
fintechs Barclaycard Ring Community to
– Did so in extensive and crowdsource innovative ideas
coordinated way, launching focused on payments in 2012,
innovation labs that are linked to Launchpad App for customers,
well-funded accelerators staff, and third parties to
– Launched Rise, a fintech collaborate and cocreate
innovation lab with offices in innovative ideas in 2015
London, New York, Tel Aviv, and
Mumbai in 2015
– Partnered with Techstars to
launch Barclays Accelerator in
London, New York, and Tel Aviv
in 2014; separate accelerator in
Cairo & Female Innovation Lab in
New York in 2019
– Only participated in 2
Appendix 1 Combined Summary of Content Analytic Meta-matrices
consortium innovation labs/
incubators/ accelerators
BBVA – 5 acquisitions (2014–2017), 2
direct banking (Simple 2014,
Holvi 2017), payment (Openpay
2016), design firm (Spring Studio
2015)
– 6 fintech subsidiaries
(2014–2018), inc. 2 direct
banking (Wizzo 2014, Azlo 2018),
payments subsidiary Tuyyo in
2017
– 2 fintech subsidiaries
discontinued (Denizen in 2018,
lending subsidiary in 2017)
– Many internal innovation labs,
incubators, and/or accelerators
early: San Francisco 2011,
Alabama 2015, Texas 2016,
Madrid 2019, BBVA Next
Technologies 2018 which
employs 1,200 technology
experts in Mexico and Spain, and
BBVA New Digital Business NDB
(San Francisco, Madrid, &
London 2015)
– 10 fintech partnerships
(2014–2019)
– 3 fintech-related partnerships
with other banks/incumbents
(2015–2019), inc. payments
(Bizum, 2016), and the
International Association of
Trusted Blockchain Applications
(INATBA) in 2019
– 9 bigtech partnerships, 4 in
payments, 4 in personal banking
– Participated in 10 blockchain
consortia (2016–2019), 3 related
to payments, 3 related to
blockchain standards
– Terminated participation in 3
prominent blockchain consortia – Only participated in 1 consortium
after being part of the initial trial
– Early to establish innovation – One of only 3 banks of 20
labs, incubators, and/or considered to launch its open-
accelerators open to external API store, developer portal, and
fintechs sandbox in 2017 (1 year before
– Annual fintech competition PSD2), extended access beyond
(2009); BBVA Innovation Centre Europe to US and Mexico
in Spain, Mexico, the US in 2011, – 2 additional crowdsourcing
Colombia in 2013; incubator/ interfaces to foster collaboration
accelerator in London (2018) in between staff and external
partnership with Anthemis parties (2016 and 2018)
Group; BBVA Open Innovation
Acceleration Program (2019);
open innovation programme
(2009) which brings together
several of BBVA’s innovation
labs/incubators/accelerators
innovation lab, incubator, and/or
accelerator
(continued)
Appendix 1 Combined Summary of Content Analytic Meta-matrices
167
Table A.1 (continued)
168

Case Investment & Acquisition Partnership Open Innovation Open IT Infrastructure

Modality Modality Modality Modality

– Early to establish corporate

venture capital arm (BBVA
Ventures in 2013 in San
Francisco), in 2016 incorporated
into independent corporate
venture capital firm Propel
Venture Partners
– 100 million USD fintech fund in
2013, increased to 250 million
USD in 2016
– BBVA NDB has own corporate VC
arm
– Lead investor in 11 fintechs
(2013–2019), 2 payments,
2 personal finance, 2 direct
banking; inc. 39% in mobile only
bank Atom Bank (2015), German
digital banking-as-a-service
fintech SolarisBank (2018),
Appendix 1 Combined Summary of Content Analytic Meta-matrices

Brazilian direct bank Neon

(2018), and payments fintech
SumUp (2013)
– Most fintech initiatives of 20
banks (9 from 2016–2019): 3
chatbots (2012–207
 – Only bank of 20 considered to
launch internal blockchain
initiatives, inc. bond issuance
initiative (2019), world’s first
syndicated lending blockchain
initiative (2018), world’s first
corporate loan transaction on
blockchain (2018)
– BBVA originated these de novo
blockchain networks as fintech
initiatives built on internal
blockchain network

BNP – Direct banking acquisitions: DAB – 17 fintech partnerships (11 in – Fintech acceleration programme – Open-API platform, developer
Paribas in 2014, Compte Nickel in 2017 2017–2019), 3 in AWM, 3 in with Plug and Play (US 2016, toolkits & sandbox (2019)
– Direct banking fintech crowdfunding, 2 in blockchain Paris 2017) – 2 crowdsourcing interfaces: BNP
subsidiaries: Hello Bank! In 2013, – Late to partner with bigtech – L’Atelier BNP Paribas launched Paribas’ Startup Engagement Kit
Consorsbank – Partnered with Tencent to allow fintech acceleration programme (2017), OpenUp (2016) to
– 2 fintech initiatives, inc. personal Chinese corporate clients to Fintech Boost (Paris 2016, US facilitate collaboration between
banking chatbot in 2019 execute FX transactions through 2018) staff, customers, external parties
– Corporate VC: BNP Paribas WeChat
Capital Partners in 2014, Opera
Tech Ventures in 2018 which
specialises in fintechs

(continued)
Appendix 1 Combined Summary of Content Analytic Meta-matrices
169
Table A.1 (continued)
Case Investment & Acquisition
Modality
– 5 lead investments 2016–2019,
inc. unicorn Symphony
(collaboration services), 10% in
Caple BV (SME lending)
– One of only 3 banks to have an
internal think tank, L’Atelier BNP
Paribas launched in 1978 (Paris,
San Francisco, Shanghai)
– Internal labs: Cash Management
Fintech Lab (Europe 2017, Asia
Pac 2019), BNP Paribas Design
Factory Asia focused on wealth
management (Singapore 2017)
Crédit – 1 acquisition of personal finance – 10 fintech partnerships
Agricole fintech WeSave in 2019
– 2 fintech subsidiaries (direct
banks BforBank in 2010, Findio in
2015)
– No corporate venture capital
subsidiary
– Small fintech fund (50m EUR)
administered by external VC firm
– 4 lead investments (2016–2019),
2 in crowdfunding, 2 in in
payments
Partnership
Modality
– Partnered with Tencent to allow
Chinese corporate clients to
execute FX transactions through
WeChat
– Partnered with other banks/
incumbents, mostly in payments
(PayLib 2013, LyfPay 2017, BLIK
2015, Payconiq 2018)
– Participated in 17 blockchain
consortia (2015–2019), 4 related
to trade finance
– Le Village by CA in 2014, network – Early to embrace open IT
(2014–2019), 3 in payments
– 6 partnerships with other banks/
incumbents, 3 in payments
including own initiative Kwixo in
2011 which was abandoned in
favour of consortium initiative
PayLib in 2014, and the – Launched fintech start-up studio,
blockchain standards setting
initiative French Digital Asset
Association (FD2A)
Open Innovation
Modality
– 60 “We Are Innovation” (WAI)
centres across France, 1
dedicated to fintech in 2016
– Participated in consortium
innovation labs/ incubators/
accelerators globally
of 33 incubators/ accelerators in
France, Italy, and Luxembourg,
covering fintechs and other
industries, with innovation
outposts in London, New York,
Shanghai, and Tokyo
La Fabrique by CA in 2018
170
Open IT Infrastructure
Modality
– Open-API platform, developer
toolkits & sandbox (2019)
– 2 crowdsourcing interfaces: BNP
Paribas’ Startup Engagement Kit
(2017), OpenUp (2016) to
facilitate collaboration between
staff, customers, external parties
platforms
– Launched CA Store in 2012 for
staff, customers, and start-ups to
cocreate innovative solutions,
Appendix 1 Combined Summary of Content Analytic Meta-matrices
later expanded to include open-
API store, developer portal, and
sandbox
 – Only bank to have its own
internal university (IFCAM)
– 2 internal innovation labs
launched in 2017 and 2018
Crédit – Many acquisitions: 9 from
Mutuel 2009–2019
– 3 acquisitions of payments
fintechs (Monext in 2009,
Mangopay in 2015, and Pumpkin
in 2017); 3 acquisitions of direct/
online banking fintechs
(including 50% stake in Banque
Casino in 2011), and 2
crowdfunding fintechs (Leetchi
in 2015, HelloAsso in 2017)
– 9 fintech subsidiaries, 4
crowdfunding subsidiaries
(2015–2018), 3 direct/online
banking (inc. Fortuneo Banque
in 2009, and Arkéa Banking
Services, a banking-as-a-platform
service launched in 2010 by
Arkéa)
– 2 venture capital subsidiaries inc.
NewAlpha Asset Management in
2015
– Late to partner with bigtech, – Participated in only 1 consortium
limited partnerships innovation lab, incubator/
– Participated in 11 blockchain accelerator
consortia, 3 focused on a shared
know your customer (KYC) utility,
2 on fund management
– 9 fintech partnerships – Comparatively late in – Launched open-API platform,
(2014–2019): 3 crowdfunding, 3 establishing innovation labs, developer toolkits & sandbox
AWM, 2 in personal finance incubators, and/or accelerators – No other open IT infrastructure
– Significant nonlead investment open to external fintechs: 3 initiatives
(30% of Linxo in 2017, 28% in between 2016–2018
Vivienne Investissement in 2016, – Only participated in 2
30% in Masuccession.fr) consortium innovation labs,
– Several bigtech partnerships, incubators, and/or accelerators
many through fintech – Confined to France and often
subsidiaries regional initiatives
– 5 partnerships with banks
(2013–2018), 4 payments, inc. Lyf
Pay (merger of BNP Paribas’ Wa!
and Credit Mutuel’s Fivory
wallets in 2016), and Monético
International in 2013 in
partnership with Mouvement
Desjardins
Appendix 1 Combined Summary of Content Analytic Meta-matrices
(continued)
171
Table A.1 (continued)
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Case Investment & Acquisition Partnership Open Innovation Open IT Infrastructure

Modality Modality Modality Modality

– NewAlpha Fintech fund (closed – Only participated in 1 blockchain

in 2017) consortium in 2017 (the least of
– Limited lead investments in the 20 banks considered)
fintechs: 5 between 2011–2019, 2 – Arkéa again overrepresented in
of which relate to payments partnerships (compared to rest
– 3 internal innovation labs/ of group): 7/9 fintech
incubators launched between partnerships, 5/5 bigtech
2016–2018 partnerships, 1/1 blockchain
– Arkéa overrepresented consortia
compared to other 4 regional
groups in acquisition and
investment modality: 5/9 fintech
acquisitions, 7/9 fintech
subsidiaries, 2/5 lead
investments, 1/3 internal
innovation labs/incubators
Appendix 1 Combined Summary of Content Analytic Meta-matrices
Credit – 1 acquisition in 2017
Suisse – 1 fintech subsidiary (direct bank)
in 2019
– 1 fintech initiative (AI chatbot)
– One of 3 banks considered to
have think tank (Credit Suisse
Research Institute) in 2008
– 2 internal innovation labs/
incubators/ accelerators: CS Labs
(London, San Francisco,
New York in 2015); Singapore lab
in 2014
– New-York-based corporate VC
arm, Credit Suisse NEXT
Investors in 2013
– 404 million USD fintech fund in
2014
– Second fund launched in 2018
with 261 million USD raised in
mostly outside funding
– Separate corporate VC arm
launched in 2010 with 30 million
CHF in fund for fintech
– Only 5 lead investments in
fintechs (2010–2016), 2 related to
risk management
– 8 fintech partnerships – Only launched 1 innovation lab, – Launched open-API platform,
(2014–2019), 3 AWM, 2 risk incubator, and accelerator open developer toolkits & sandbox in
management to external fintechs in 2014 2018
– 2 partnerships with other banks/ – Participated in 3 consortium – No other open IT infrastructure
incumbents fintech innovation labs, initiatives
– Late to partner with bigtechs in incubators, and/or accelerators
payments (2019) (2010–2017), all of which were in
– Partnered with Apple and Asia
Tencent in 2018 in AWM use-
cases in Hong Kong and
Singapore
– Participated in 9 blockchain
consortia (2016–2019) mostly in
securities trading, capital
markets
– One of few banks considered to
have originated de novo a
blockchain platform (syndicated
lending initiative in 2016)
(continued)
Appendix 1 Combined Summary of Content Analytic Meta-matrices
173
Table A.1 (continued)
Case Investment & Acquisition
Modality
Deutsche – 1 acquisition in 2018 of open
Bank banking fintech Quantiguous
– 2 fintech subsidiaries including
stand-alone fintech start-up
factory Breaking Wave (2019)
– 2 fintech initiatives (mobile
payment solution in 2017,
chatbot in 2018)
– No corporate venture capital
arm
– Deutsche Bank Digi-Ventures
Fund launched in 2017
– 4 lead investments in fintechs
(2016–2019)
– 2 internal innovation labs
(Frankfurt in 2016, Shanghai in
2019)
174
Partnership Open Innovation Open IT Infrastructure
Modality Modality Modality
– 7 fintech partnerships – External innovation lab Deutsche – Launched open-API store,
(2011–2019) with well-established Bank Innovation Network developer portal, and sandbox
fintechs (London & Berlin 2015, Palo Alto – Deutsche Bank Pitch Portal in
– 7 partnerships with other 2016, New York 2017, and 2017 for fintechs to pitch ideas to
incumbents (2015–2019) mostly Singapore in 2018) different departments at
in payments; 16.67% stake in – Participated in 6 consortium Deutsche Bank
German payment platform innovation labs, incubators, and/
Paydirekt or accelerators (2010–2019)
– Late to partner with bigtech,
limited partnerships
– Leveraged lead investment in
payment fintech Modo to offer
Deutsche Bank customers access
to Alipay, WeChat Pay, PayPal, &
M-Pesa through Modo in 2018
– Used partnership with fintech
Symphony to offer Chinese
corporate clients FX trading via
WeChat in 2019
Appendix 1 Combined Summary of Content Analytic Meta-matrices
– Participated in only 7 blockchain
consortia (2016–2019), 2
payments, 2 shared-KYC
Groupe – High number of acquisitions
BPCE – 8 acquisitions (2015–2019), inc.
German digital-only bank Fidor
(2016), 50.1% stake in digital-only
bank Oney Bank (2019), 4
payments fintechs (2016–2017), 1
crowdfunding fintech (2015), 1
customer-loyalty fintech (2018)
– Key fintech subsidiaries: Natixis
Payments (20%+ market share of
payments in France), S-Money in
2011, and 3 crowdfunding
subsidiaries
– 4 payments fintechs acquired
then integrated into S-Money
and Natixis Payments
– No corporate venture capital
arm
– No fintech fund
– Only 3 lead investments
(2017–2019)
– Internal innovation programme
in 2015 (the Spark Program) later
expanded into internal
innovation lab/incubator in Paris
(the BIG Factory) in 2017
– Later divested from Fidor Bank
due to alignment problems
– 12 fintech partnerships
(2015–2019), 4 related to
payments (inc. first major
European bank to partner with
TransferWise in 2019), 2 related
to crowdfunding
– Limited but targeted
partnerships with bigtech
especially in payments e.g., S-
Money partnership with Twitter
to enable customers to pay via
Twitter, first bank in France to
offer Samsung Pay in 2018
– 5 fintech-related partnerships
with other incumbents, 3 related
to payments
– Participated in 12 blockchain
consortia (2015–2019), 4 in
lending, 3 relate to shared-KYC;
participated through Natixis in
10/12 cases
– Innovation lab, incubator, and
accelerator, 89C3, focused on
both developing internal
capabilities & partnering with
external fintechs; 89C3 aims to
mobilise 1,000 Groupe BPCE
employees and open several
acceleration centres in France
and overseas
– Caisse D’Epargne launched 2
regional incubators/accelerators
in France in 2016
– Only participated in 2
consortium innovation labs,
incubators, and/or accelerators
– Through 89C3, embraced open
data & open-API approach
beyond what was called for by
PSD2
– Early to launch open-API portal,
developer toolkits, and sandbox
in 2017; supplemented with user
experience (UX) charter &
podcasts for developers
– Includes Start-Up PASS to
facilitate the way the bank works
with start-ups, including an
interface to digitalise many
processes
Appendix 1 Combined Summary of Content Analytic Meta-matrices
(continued)
175
Table A.1 (continued)
Case Investment & Acquisition
Modality
HSBC – No acquisitions
– No internal innovation labs,
think tanks, incubators, or
accelerators (one of only 3
banks)
– 2014: corporate venture capital
arm in London + corporate
venture capital coverage group
in San Francisco in 2017
– 2014: 200 million USD fintech
fund
– Direct banking subsidiaries: First
Direct (1989), HSBCdirect (US),
Kinetic (2019)
– Payments subsidiary: PayME
(2017, Hong Kong)
– Fintech initiatives: 6 chatbots
(2018–2019) & digital social
network (2017)
– 7 lead investments (6 between
2017–2019)
176
Partnership Open Innovation Open IT Infrastructure
Modality Modality Modality
– 10 fintech partnerships – 4 external innovation labs (trade – Open-API platform, developer
(6 between 2017–2019) finance Singapore 2015, toolkits & sandbox (2019)
– Early partnerships with Western Hong Kong 2016, data London & – Partnership with SWIFT to define
bigtechs (2015–2018) Toronto 2019) open-API industry standards in
– Extensive partnerships with – Participated in several Hong Kong
Chinese bigtechs (2018–19) consortium innovation labs/
including beyond payments (e.g., incubators/ accelerators
fintech alliance with Tencent)
– Standards setting: Innovate
Finance 2014, FCA sandbox 2016,
Fintech Collaboration Toolkit
2018, Hong Kong open-APIs 2019
– Participation in 11 blockchain
consortia, esp. in trade finance
– Early blockchain leadership:
landmark initiatives (Project Ubin
2015, Project Jasper 2016)
Appendix 1 Combined Summary of Content Analytic Meta-matrices
ING – 3 fintech acquisitions
(2015–2018), customer loyalty,
payments, and SME lending
– 1 fintech subsidiary, ING Direct,
direct bank launched in 1997 and
then digitalised
– Corporate VC arm ING Ventures
in 2017
– 300 million EUR fintech fund in
2017; 25 million EUR/year
internal fintech fund in 2013
– Think Forward Initiative in 2017
(with Deloitte, IBM, AWS, and
Center for Economic Policy
Research), includes: TFI Research
Hub, TFI Accelerator, and TFI
Community Hub which promotes
activities of the other 2 hubs
– Internal incubator, ING
Innovation Bootcamp since 2015;
internal accelerator, PACE
Accelerator since 2018
– 13 fintech partnerships
(2014–2019): 4 crowdfunding, 2
payments, 2 blockchain,
2 personal finance; strategic
partnership with fintech unicorn
Kabbage
– Bigtech partnerships: late in core
geographies, early in noncore
– Through acquisition of fintech
Payvision able to partner with
Chinese bigtechs
– 6 partnerships with incumbents
inc. 3 in payments, 1 standards
setting (Dutch Blockchain
Coalition in 2017)
– Prominent in launching
innovation labs, incubators, and
accelerators that are open to
external participation
– Launched ING Labs in 2017 in
Amsterdam, Brussels (initially
launched in 2015), London, and
Singapore
– Launched series of incubators,
ING Innovation Centers, in
Germany, Turkey, and Poland in
2018
– Launched Fintech for Impact
incubator in the Philippines in
2019
– Open-API platform, developer
toolkits & sandbox 2018
– Several crowdsourcing
platforms: France in 2013, Turkey
in 2014, Orange Sharing in 2015,
and ING Touchpoint Platform in
2017
– One of few banks considered to
widely apply own innovation
methodology, PACE in 2016, later
extended to entire group
through ING one Way of
Working (WoW) in 2017
(continued)
Appendix 1 Combined Summary of Content Analytic Meta-matrices
177
Table A.1 (continued)
178

Case Investment & Acquisition Partnership Open Innovation Open IT Infrastructure

Modality Modality Modality Modality

– Overrepresented in fintech spin- – Participated in 12 blockchain – Participated in 4 consortium

offs; most developed at ING
internal incubators/ accelerators;
4 in payments inc. Payconiq,
corporate banking fintech
Cobase in 2016, personal
banking fintech Yolt in 2016, and
AI-based bond trading solution
Katana Labs in 2019
– 9 fintech lead investments
(2015–2019), 2 payments, 4
lending (inc. unicorn WeLab)
consortia (2017–2019): 4 related innovation labs, incubators, and/
to commodities, 2 related to or accelerators
lending, 2 related to trade
finance
– Originated de novo blockchain
network (commodities financing
platform Komgo in 2018,
incubated at Innovation
Bootcamp in 2016)

Intesa – No fintech related acquisitions
Sanpaolo – No internal innovation labs/
incubators/ accelerators
– 5 fintech subsidiaries
(2011–2018), 3 in payments
– 2 corporate venture capital arms,
– 6 fintech partnerships
(2015–2018)
– 1 fintech related partnership
with other banks/incumbents
– Participated in 5 blockchain
consortia (2017–2019), 2 related
– Launched the Intesa Sanpaolo – Launched open-API platform,
Innovation Center in Turin in developer toolkits & sandbox in
2015, an innovation lab, 2019
incubator, and accelerator open – No other open IT infrastructure
to external fintechs, expanded to initiatives
London in 2016, with 2 additional
Appendix 1 Combined Summary of Content Analytic Meta-matrices

including Neva Finaventures in
2016 which is linked to the Intesa
Sanpaolo Innovation Center
– 30 million EUR fintech fund in
2016
to payments, and the Spunta labs in 2018 (one focusing on the
Banca Project in 2018, an circular economy, and one on AI
interbank settlement blockchain & neuroscience)
network headed by the
Associazione Bancaria Italiana
(ABI)
 – 3 fintech lead investments late
(2018–2019), acquired large
stakes (16.09% in payments
fintech MatiPay in 2019, 16.7% in
crowdfunding fintech
Backtowork in 2019, 37.9% in
personal finance fintech Oval
Money in 2018)
Lloyds – No fintech acquisitions
Banking – No fintech initiatives
Group – 1 fintech subsidiary (direct bank
converted to an online only bank
in 2005)
– No corporate venture capital
arm
– No fintech fund
– Only 1 lead investment in fintech
(10% stake in banking
infrastructure fintech Thought
Machine in 2018)
– 2 internal innovation labs
(Scottish Widows lab 2016,
Digital Tech Hub 2018)
– Comparatively late to partner
with bigtechs in payments
(2018–2019)
– Only 4 fintech partnerships
(2015–2019), 2 related to
payments
– Only 2 bigtech partnerships
– 5 partnerships with other banks/ – Only participated in 3
incumbents (3 related to
standards setting)
– Late to participate in blockchain
consortia (2018–2019) and only
participated in 4 consortia, 3 of
which related to interbank
payments
– Participated in 4 consortium
innovation labs, incubators, and/
or accelerators (2014–2018)
– Only established 1 innovation lab – Launched open-API platform,
open to external fintechs, the developer toolkits & sandbox
LBG Innovation Lab launched in – Launched Lloyds Banking Group
2015 Fintech Mentoring Scheme in
2016 (platform for fintech start-
consortium innovation labs, ups to seek mentoring from the
incubators, and/or accelerators bank’s staff)
(continued)
Appendix 1 Combined Summary of Content Analytic Meta-matrices
179
Table A.1 (continued)
Case Investment & Acquisition
Modality
Nordea – 1 acquisition in 2019, online-only
bank Gjensidige Bank
– No fintech subsidiaries
– 3 fintech initiatives (2017–2018),
payment solution, AI-powered
personal assistant, AI-powered
robo-advisor; terminated a 4th
fintech initiative (crowdfunding)
in 2018
– 2 internal innovation labs,
incubators, accelerators: LC&Ix in
2019, intrapreneurship
programme (Nordea Runway) in
2018
– Corporate venture capital arm,
Nordea Ventures, in 2017, along
with a fintech fund
– 4 lead investments in fintechs
(2016–2019)
Partnership
Modality
– 10 fintech partnerships
(2017–2019)
– 7 partnerships with incumbents
(2012–2019), 5 payments (Swish
2012; Vipps 2017; Siirto 2016; P27
2017 exploring pan-Nordic
payment infrastructure). In 2013,
co-launched Swipp to compete
with Danske Bank’s MobilePay;
Swipp failed, Nordea joined
MobilePay in 2016.
– 6 bigtech partnerships
(2017–2018), 5 in payments
– Joined 3 blockchain consortia
(2016–2018)
Open Innovation
Modality
– Only established 1 innovation
labs, incubators, and/or
accelerators open to external
fintechs for 2 years: Nordea
Startup Accelerator in Helsinki &
Stockholm (run for 2 years
between 2015–2016 before being
terminated)
– Participate in 6 consortium
innovation labs, incubators, and/
or accelerators (2010–2019)
180
Open IT Infrastructure
Modality
– Early to launch open-API store,
developer portal and sandbox in
2017
– Launched crowdsourcing
interface Nordea Next for
customers to participate in idea-
evaluation experiments in 2014
Appendix 1 Combined Summary of Content Analytic Meta-matrices
Rabobank – 1 acquisition in 2012 of payment
fintech MyOrder, sold in 2018
– Several divestments, fintech
subsidiaries/initiative
terminations (terminating
payment solution in 2015 &
cryptocurrency wallet in 2019)
– 5 fintech subsidiaries, inc.
digitalisation of direct bank
RaboDirect, SME lending
platform in 2011, payment
subsidiary in 2017
– 8 fintech initiatives (2015–2019),
2 in payments, 2 in lending, inc.
treasury & risk management
initiative TreasurUp in 2015
(accelerated at Moonshot
accelerator), crowdfunding Rabo
& Crowd 2018
– 2 internal innovation labs/
incubators/ accelerators:
Rabobank Moonshot Campaign
in 2015; Blockchain Acceleration
Lab in 2016
– Late to establish corporate
venture capital arm, Rabo
Frontier Ventures in 2018
– 11 fintech partnerships – No innovation labs, incubators, – Launched open-API store,
(2013–2019), 6 related to and/or accelerators open to developer portal & sandbox in
crowdfunding external fintechs; only bank of 20 2018
– Early to partner with considered to have none – Crowdsourcing interface:
crowdfunding fintechs, – Participate in 8 consortium Rabobank Innovate With Your
partnering with 2 as early as innovation labs, incubators, and/ Bank, launched in 2014 to
2013 or accelerators (joint most out of facilitate collaboration between
– 5 fintech-related partnerships 20 banks considered) customers and staff to cocreate
with banks/incumbents new products/services
– Few bigtech partnerships; late to
partner with bigtechs
– Participated in 9 blockchain
consortia (2016–2019), 3 related
to payments, 2 related to trade
finance, 2 related to
commodities (inc. as primary
banking partner in commodities
trading blockchain platform
Repo:NOW)
Appendix 1 Combined Summary of Content Analytic Meta-matrices
(continued)
181
Table A.1 (continued)
182

Case Investment & Acquisition Partnership Open Innovation Open IT Infrastructure

Modality Modality Modality Modality

– 60 million EUR fintech

investment fund in 2018,
expanded to 150 million EUR in
2019
– Only 1 fintech lead investment in
2019

Royal – Several divestments inc.
Bank of payment processor Worldpay
Scotland Group in 2013
– 2 small acquisitions relatively
late
– No corporate VC arm or fintech
fund
– Only 2 fintech lead investments
inc. payments unicorn
Transferwise in 2018
– 5 fintech subsidiaries
(2016–2019), inc. digital only
– 11 fintech partnerships
(2015–2019), 6 related to lending
– 5 fintech related partnerships
with other banks/incumbents
(2014–2018), 3 related to
standards setting
– Limited bigtech partnerships
– Participated in 5 blockchain
consortia (2016–2019), 3 in
lending
– Launched 2 innovation labs,
incubators, and accelerators
open to external fintechs in 2016
and 2018
– Participated in only 2 consortium
fintech innovation labs,
incubators, and/or accelerators
(2010–2018)
– Launched open-API platform,
developer toolkits & sandbox in
2018
– Launched 2 crowdsourcing
interfaces relatively on, including
an online portal to crowdsource
ideas in 2013
Appendix 1 Combined Summary of Content Analytic Meta-matrices

banks Bó & Mettle in 2019,

payment service Tyl by Natwest
in 2019, and unsecured lending
platform Esme Loans in 2016
– 4 fintech initiatives (2016–2019),
inc. AI chatbot in 2018, invoice
lending solution in 2019
 – 1 spin-off, Emerald, a blockchain- – One of few banks considered to
based Clearing and Settlement
Mechanism (CSM) in 2016 later
progressed as open-source
initiative
– Several internal innovation labs,
incubators, accelerators (2 in
London in 2015 and 2018,
Edinburgh in 2016, Dublin in
2018)
– Innovation outpost in San
Francisco 2014
originate de novo a blockchain
platform, Emerald, later spun-off
and open-sourced, subsequently
becoming the technology
underpinning Project GreenPay,
an inter-bank payments network
in Ireland launched in 2017 by a
consortium of Irish banks

Santander – 4 acquisitions (2016–2019),
2 payments fintechs in Brazil
(Superdigital, Getnet), UK SME
banking fintech Ebury in 2019
– Several divestments
– Corporate VC arm Santander
InnoVentures in 2014 in London
– 200 million EUR fintech fund
(100m EUR 2014, 100m EUR 2016)
– Prolific in lead investments (15%
of all lead investments by the 20
banks)
– 14 lead investments (2013–2019),
4 in lending, 3 in payments
– 13 fintech partnerships
(2014–2019), 3 in lending, 2 in
payments, 2 in blockchain
– Several partnership cessations
– Early to partner with bigtech
(2015–2018), including a few
nonpayments initiatives
– 10 partnerships with other
banks/incumbents, 4 in
payments, 3 in standards setting
(inc. Enterprise Ethereum
Alliance, Alastria)
– Only 1 external accelerator in
Brazil in 2017
– Participated in 6 consortium
innovation labs, incubators/
accelerators
– Launched open-API store,
developer portal, and sandbox in
2018; extended it beyond Europe
(e.g., Mexico)
– Idea crowdsourcing platform in
2014 for customers & staff to
collaborate & cocreate innovative
solutions
Appendix 1 Combined Summary of Content Analytic Meta-matrices

(continued)
183
Table A.1 (continued)
184

Case Investment & Acquisition Partnership Open Innovation Open IT Infrastructure

Modality Modality Modality Modality

– Several fintech subsidiaries, – Participated in 11 blockchain

2 direct banking subsidiaries, consortia (2016–2019), 3 focused
2 payments subsidiaries on payments, 3 on trade finance,
(PagoFX, One Pay FX) and 2 related to blockchain
– Several internal innovation labs/ standards. All based on
incubators/accelerators: Hyperledger Fabric or Ethereum
Santander Centres of Digital (Left R3 in 2016)
Expertise in London (2018),
Digital Investment Unit (2018),
blockchain lab (2016)
– In 2019, Santander announced 4-
year, 20 billion EUR digital
transformation strategy, inc.
establishing dedicated fintech
unit (Santander Global Platform)
to build and scale fintech
solutions that it then provides to
the Santander Group, customers,
external parties on a banking-as-
Appendix 1 Combined Summary of Content Analytic Meta-matrices

a-service basis. The unit includes

Santander’s Banking-as-a-
platform technology subsidiary
Open Digital Services,
Santander’s fintech subsidiaries,
and innovation labs
Société – 3 acquisitions in 2018: Treezor
Générale (payments), Fiduceo (personal
finance), Lumo (crowdfunding)
– Boursorama Banque key fintech
subsidiary (originally online
brokerage launched in 1995)
– Internal Start-Up call led to 3
fintech subsidiaries: Prismea
(direct bank 2019), Forge (capital
markets 2018), Kwiper (wealth
management, spun-off 2018)
– Fintech initiatives: YUP in 2017,
agency banking model across
bank’s network in Sub-Saharan
Africa; extended to unbanked via
partnership with fintech TagPay
– Corporate VC arm SG Ventures in
2018
– 150 million EUR innovation fund
in 2019
– 2 lead investments (inc. TagPay
in 2016)
– No internal fintech innovation
labs, incubators, accelerators
(however, vehicle leasing
subsidiary ALD Automotive
launched innovation lab in 2016)
– 16 fintech partnerships
(2010–2019), 4 securities trading,
2 risk management,
2 crowdfunding, 2 SME banking,
2 payments
– Late in bigtech partnerships, but
quickly expanded beyond
payments
– Most fintech partnerships via
Boursorama Banque
– Boursorama Banque, first bank
in France to offer customers
voice-command operated
banking via Google Assistant
– One of few banks to partner
extensively with
telecommunications firms esp. in
Africa
– Few partnerships with
incumbents
– Participated in 15 blockchain
consortia (2015–2019), 3 lending,
3 shared-KYC
– Prolific in establishing external
innovation labs, incubators, and/
or accelerators
– 9 innovation labs/incubators
(2 in Paris in 2016 & 2018, 1 in
London in 2018, 1 in Luxembourg
in 2018, 1 in Tunisia in 2017, 1 in
Germany in 2017, 1 in Senegal in
2016, 1 in Casablanca, and 1 in
the Czech Republic)
– Accelerator launched in 2015 in
India & Romania
– Participated in 3 consortium
innovation labs, incubators, and/
or accelerators
– Launched open-API store,
developer portal, and sandbox
– Intrapreneurship programme
launched in 2017 (internal Start
Up Call)
– Crowdsourcing interface to
facilitate collaboration with
external fintechs
– Internal platform (Startup Radar)
for bank’s employees to identify
experimental initiatives &
recommend start-ups to
collaborate with
Appendix 1 Combined Summary of Content Analytic Meta-matrices
(continued)
185
Table A.1 (continued)
Case Investment & Acquisition
Modality
Standard – No acquisitions made
Chartered – In 2018, launched innovation
unit (SC Ventures) in Singapore,
composed of 4 units:
a) eXellerator innovation lab
(initially launched as
separate unt in 2016)
b) corporate venture capital
arm (SC Ventures
Innovation Investment) with
100 million USD fintech fund
c) unit for internal fintechs (SC
Ventures Internal Ventures)
d) unit seeking partnerships
with external fintechs (SC
Ventures Fintech Bridge,
added in 2019)
Partnership
Modality
– 6 fintech partnerships
(2016–2019), 2 relate to direct
banking
– 5 fintech-related partnerships
with incumbents (2016–2019),
2 in trade finance, 2 in standards
setting
– Participated in substantial
number of blockchain consortia
(15 between 2015–2019), 9
related to trade finance, 3
related to payments inc.
Monetary Authority of
Singapore’s pioneering
interbank initiative (Project Ubin)
in 2016, and the only bank of the
20 considered to participate in
consortium built on Tencent’s
FISCO-BCOS blockchain
technology
Open Innovation
Modality
– No innovation labs, incubators,
and/or accelerators open to
external fintechs, until SC
Ventures Fintech Bridge in 2019
to create links between external
fintechs and Standard
Chartered’s innovation unit SC
Ventures; SC Ventures Fintech
Bridge present in Singapore,
Hong Kong, UK, San Francisco,
Shanghai, & Kenya
– Participated in 3 consortium
innovation labs, incubators, and/
or accelerators (2010–2017)
186
Open IT Infrastructure
Modality
– Late to launch its open-API store,
developer portal, and sandbox in
2019, but when it did, it
extended access beyond Europe
to Asia, the Americas, Africa, &
the Middle East
– Launched open community
(aXess Labs) to experiment with
cutting edge technologies in
2019
– In 2018, SC Ventures created PoC
sandbox for fintech partners
Appendix 1 Combined Summary of Content Analytic Meta-matrices
– One of the few banks to
incorporate external lab, internal
lab, fintech fund, and corporate
venture capital arm into one unit
– Several other eXellerator
innovation labs (Hong Kong &
UK in 2018, 2 in Shanghai, 1 in
Kenya in 2019)
– Innovation outpost (SC Studios)
in San Francisco in 2010
– In 2019 launched aXess Academy
to upskill bank’s developers in
open banking skills
– 4 fintech subsidiaries, 1 fintech
initiative (late, 2018–2019), inc.
digital-only bank in several
African countries (2018) and in
Hong Kong (2019), SME lending
(2019), banking-as-a-service
(2019); 3/4 of fintech subsidiaries
incubated at SC Ventures
– 5 lead investments in fintechs
(2015–2019), 2 of which relate to
lending, inc. unicorn Symphony
Communication Services (2019) &
Chinese lending fintech unicorn
Dianrong (2019)
– Early to partner with bigtech, – SC Ventures created several
especially Chinese bigtechs, other crowdsourcing platforms
broad partnerships; in 2017, to help staff and customers
signed general agreement with collaborate to cocreate
Alibaba’s Ant Financial Group; in innovative solutions (e.g., the
2018–2019, partnered with Client Engagement & Co-
Alibaba on blockchain based Creation platform)
cross-border remittance solution
in Hong Kong, the Philippines,
Pakistan, and Malaysia; in 2017
partnered with Tencent on
e-commerce solution for
corporate clients in China; in
2018, collaborated with Huawei
on IoT-based payments solution
– One of few banks to partner with
telecommunications firms
(Indonesia 2015, Uganda 2017,
Tanzania 2016, Pakistan 2015,
Ghana 2015, Vietnam 2015,
Bangladesh 2015, Philippines
2014, Nigeria 2014, Thailand
2014, Kenya 2013 – all in
payments)
Appendix 1 Combined Summary of Content Analytic Meta-matrices
(continued)
187
Table A.1 (continued)
Case Investment & Acquisition
Modality
UBS – No fintech related acquisitions
– No fintech subsidiaries (1 robo-
advisory fintech launched in 2017
sold off to fintech with whom it
has a partnership, SigFig, less
than a year later)
– No corporate venture capital
subsidiary
– No fintech fund
– No lead investments in any
fintechs
– 1 fintech initiative
– Only one of 3 banks considered
to have set up internal Think
Tank, UBS Y, in 2014
Partnership
Modality
– 10 fintech partnerships
(2014–2018): 3 in AWM, 2
payments, inc. 2 Chinese fintechs
(e.g., Lufax, China’s largest
internet finance company), and
SigFig (wide-ranging
relationship)
– 3 partnerships with other
incumbents (2014–2015), inc.
Swiss payment solution Twint in
2014
– No partnerships with major
bigtech (3 partnerships with
wearables bigtechs for payments
through wearable devices)
– Participated in 7 blockchain
consortia, 2 for payments
188
Open Innovation Open IT Infrastructure
Modality Modality
– Less expansive network of – Launched open-API platform,
innovation labs, incubators, and/ developer toolkits & sandbox in
or accelerators that are open to 2019
external fintechs: blockchain lab – No other open IT infrastructure
in London in 2015, digital hub in initiatives
Hong Kong in 2017, and UBS
Future of Finance Challenge in
2014
– Only participated in 3
consortium innovation labs,
incubators, and/or accelerators
(2010–2015)
Appendix 1 Combined Summary of Content Analytic Meta-matrices
 – 5 internal innovation labs
relatively early focused on key
businesses (AWM & investment
banking), including: Zurich in
2014 with 2 innovation outposts
in Tel Aviv and San Francisco,
Singapore in 2015, Zurich in
2018, San Francisco in 2016 in
partnership with SigFig
– Only bank of 20 considered to
originate de novo 2 blockchain
consortia: Fnality launched in
2015, and the Massive
Autonomous Distributed
Reconciliation platform
(MADREC) in 2017

UniCredit – No fintech related acquisitions
– 1 fintech subsidiary, mobile-only
bank Buddybank in 2018
– No fintech initiatives
– Corporate venture capital arm,
UniCredit EVO in 2016
– 200 million EUR fintech fund in
2016
– 3 lead investments in fintechs
(2018–2019)
– 1 internal innovation labs/
incubator/ accelerators (by
German subsidiary
HypoVereinsbank in 2016)
– 4 fintech-related divestments
– 6 fintech partnerships
(2015–2017): 2 related to
payments, 2 related to open
banking
– 1 partnership with other banks/
incumbents
– Participated in only 5 blockchain
consortia between 2016–2018
– Extensive partnerships with
bigtechs, including wide-ranging
partnerships with Alibaba
– Only 1 innovation lab, incubator, – Launched open-API platform,
and/or accelerator open to developer toolkits & sandbox in
external fintechs in Milan in 2014 2019
– Only participated in 2 – No other open IT infrastructure
consortium innovation labs, initiatives
incubators, and/or accelerators
relatively late (2018–2019)
Appendix 1 Combined Summary of Content Analytic Meta-matrices
189
Appendix 2
Detailed Taxonomy of Banks’ Strategies
of Interdependence and Value Cocreation

https://doi.org/10.1515/9783110792454-010
 ING
RBS
UBS
HSBC
BBVA

Lloyds

Nordea
Barclays
Santander

UniCredit
Rabobank
BNP Paribas

Credit Suisse

Crédit M utuel
Groupe BPCE
Deutsche Bank
Crédit Agricole

Intesa Sanpaolo
Société Générale
Standard Chartered

Integrated Internal Innovation

Lab/Incubator/Accelerator (early) & External
Innovation Lab/Incubator/Accelerator (early) &
Corporate Venture Capital Arm (early) & Large
Fintech Fund (early)
Integrated Internal Innovation
Lab/Incubator/Accelerator (late) & External
Innovation Lab/Incubator/Accelerator (late) &
Corporate Venture Capital Arm (late) & Large
Fintech Fund (late)
Integrated Innovation Unit (Internal Innovation
Lab & Fintech Subsidiaries)
Corporate Venture Capital Arm & Fintech Fund
(GREEN=yes, RED=no)
Internal Innovation Lab/Incubator/Accelerator
External Innovation Lab/Incubator/Accelerator
Participation in Consortium Innovation
Labs/Incubators/Accelerators
Lead Investments in Fintechs
Fintech Subsidiaries
Fintech Initiatives
Embraced Open-APIs Beyond Requirements of
PSD2 & Open Banking (GREEN)
Adopted Open-APIs to Meet PSD2 & Open
Banking Requirements (YELLOW)
Open Innovation Technological Interfaces
Fintech Acquisitions
Fintech Related Partnerships with Other
Banks/Incumbents
Bigtech Partnerships
Table A.2: Final Iteration of Clustering Process: Detailed Taxonomy of Bank’s Strategies of Interdependence and Value Cocreation.

Partnerships or Non-Lead Investments in

Fintechs
Partnership Cessations/Divestments
Participation in Blockchain Consortia
Originated Internal Only de novo Blockchain

Grey=N/A; Red=None; Orange=Low; Yellow=Moderate; Green=High; (unless otherwise stated in column heading)
Platform
Originated de novo Blockchain Platform
Fintech Spin-Offs
Appendix 2 Detailed Taxonomy of Banks’ Strategies of Interdependence 192
Appendix 3
Supplemental Contextual Study – Summary
of Results

https://doi.org/10.1515/9783110792454-011
194 Appendix 3 Supplemental Contextual Study – Summary of Results

Transformational Interdependence Taxon

BBVA

BBVA was less negatively affected by the GFC than most of its peers (The Wall Street
Journal, 2009). BBVA gradually grew its total revenue, net interest income, and inter-
est income over the period considered, featuring in the top quartile of the twenty
banks considered for six out of the twelve years considered. BBVA maintained one of
the best annualised net interest incomes, return on assets (ROA) ratios, efficiency ra-
tios, return on equity (ROE) ratios, and return on tangible equity (ROTE) ratios, featur-
ing in the top quartile for eleven, nine, ten, five, and five out of the twelve years
considered, respectively. BBVA has consistently relied on retail banking for most of its
revenues. In 2008 BBVA derived 55% of its total revenue from Spain and 45% from the
rest of the world especially Latin America and the USA. These two geographies’ contri-
butions to BBVA’s total revenue progressed consistently in opposite trajectories in the
period considered so that by 2019, only 18% of BBVA’s total revenue derived from
Spain, while the rest of the world accounted for 82%, meaning that BBVA had trans-
formed into a more global and less regional bank by the end of the period considered
with a considerable presence in the Americas (BBVA, 2018 (2)).

Open and Central Interdependence Taxon

HSBC

While its North American business took a hit during the GFC, overall HSBC was better
positioned compared to most of its peers (Financial Times, 2009 (2)). HSBC managed to
keep its total revenue, net interest income, noninterest income, and net income com-
paratively steady over the period considered. Out of the twenty banks considered,
HSBC was in the top quartile for its efficiency ratio, pre-tax margin, annualised net
interest margins, and return on assets (for five, eight, nine, and seven years, respec-
tively, in the period considered). HSBC remains a global giant, however, it has relied
more on Asia for its revenue (from 31% of total revenue in 2009 to 56% in 2019) and
less and less on Europe (from 47% of total revenue in 2009 to 32% in 2019). HSBC’s
total revenue from Latin America also declined significantly (from 14% in 2009 to 5%
in 2019) reflecting its exit from several Latin American operations including the sale
of its Brazilian operations to Banco Bradesco in 2016. The bank also exited several
other markets including Turkey and South Korea. HSBC maintained a well-diversified
operation from a business segmentation perspective though it did wind-down many
of its international retail banking operations. Thus, while HSBC remained a global,
integrated bank with an ever-growing presence in Asia (especially in China) by 2015
 Open and Central Interdependence Taxon 195

the bank had moved away from its famous brand of the “world’s local bank” becom-
ing a “simpler and smaller” international player (Financial Times, 2015).

Barclays

Like HSBC, Barclays managed to navigate the GFC without recourse to UK government
bailouts preferring to raise capital privately, however, unlike HSBC which pivoted away
from the US towards Asia Pacific, Barclays delved deeper into investment banking and
into the US by acquiring part of Lehman Brothers (Financial Times, 2009 (2)). However,
over the period considered, Barclays struggled with its financial performance. Barclays’
total revenue continuously declined (bottom quartile for five years), as did its net in-
come (bottom quartile for five years), interest income (eight years of declines), net inter-
est income (bottom quartile for six years), noninterest income, return on assets (bottom
quartile for five years and negative for three years), and return on equity (bottom quar-
tile for six years and negative for four years). Barclays’ UK operations have been the
largest contributor to total revenue consistently accounting for around 50–55% of total
revenue. With the acquisition of part of Lehman Brothers in 2008 (The New York Times,
2008), Barclays’ North American operations grew from accounting less than 1% of total
revenue in 2008 to 33% by 2019. On the other hand, Barclays decreased its presence in
Europe, for example selling most of its Spanish business to CaixaBank in 2014, which
meant that the contribution of its European operations to total revenue declined from
19% in 2008 to 8% in 2019. The bank also exited its African operations in 2016; Barclays’
Middle East and Africa segment accounted for 15–18% until 2013, thereafter it only ac-
counted for less than 3%. In terms of product segmentation, this remained stable during
the period considered, with a third of total revenue attributed to retail banking and the
remaining two thirds to corporate banking, investment banking, asset and wealth man-
agement, and payments. Thus, in the period considered, Barclays remained a diversified
bank but became less international.

Standard Chartered

Standard Chartered was comparatively insulated from the impact of the GFC (The
Wall Street Journal, 2010). Over the period considered, the bank had a relatively
steady performance. It gradually grew its total income and interest income (top quar-
tile for five and seven years, respectively) while maintaining steady noninterest in-
come. However, after 2013–2014, the bank began seeing declines in its efficiency ratio
and return on assets. Standard Chartered has long been an Asia Pacific focused bank,
consistently deriving around 70% of its revenues from this region, though the propor-
tion derived from Greater China, Hong Kong and North Asia has steadily increased
(32% in 2009 to 42% in 2019), while the proportion derived from ASEAN and South
196 Appendix 3 Supplemental Contextual Study – Summary of Results

Asia has steadily decreased (37% in 2009 to 25% in 2019). As for the rest of Standard
Chartered’s revenue, around 16–19% has consistently come from the Middle East and
Africa, with the remaining 10–15% from Europe and the Americas. Standard Char-
tered has traditionally focused on corporate, commercial, and institutional banking,
maintaining this business segment’s contribution to total revenue at around 55–65%.
However, Standard Chartered’s retail banking operations contributed a steadily de-
clining proportion of total revenue (from 41% in 2009 to 33% in 2019). Thus, although
a British bank, Standard Chartered can be more accurately categorised as an Asia-
Pacific focused regional bank that has become somewhat less diversified and more
focused on its core operations.

BNP Paribas

BNP Paribas, with its risk-averse approach and focus on retail banking, also came out of
the GFC relatively unscathed (Fortune, 2008). The bank has maintained one of the best
return on equity ratios (six years in the top quartile) and a relatively flat net interest
income, noninterest income, and net income over the period considered. While BNP Par-
ibas has a global presence, Europe has consistently contributed to around 75% of its
total revenues in the period considered. BNP Paribas has long had a presence in the US
with North America contributing 10–15% of total revenue. Like several of its peers BNP
Paribas has also sought to expand its modest presence in Asia Pacific with the region’s
contribution to total revenue growing from 4% in 2009 to 7% in 2019. BNP Paribas has
long had strong retail banking operations through its extensive international retail
banking network; retail banking’s contribution to total revenue has continuously grown
from 47% in 2009 to 70% in 2019, while the contribution of corporate and institutional
banking has continuously declined from 51% in 2009 to 28% in 2019. Thus, BNP Paribas
remained relatively stable during the period considered, though it seems to have dou-
bled down on its retail banking focus while reducing its exposure to corporate and insti-
tutional banking.

Société Générale

Despite large, toxic derivatives exposure to American International Group in 2008 and
a 4.9 billion EUR loss inflicted upon it by rogue trader Jérôme Kerviel, Société Générale
managed to navigate the GFC without incurring severe ramifications (The New York
Times, 2011). Société Générale’s total revenue, net interest income, and noninterest in-
come remained relatively flat over the period considered. In terms of geographic seg-
mentation, Société Générale has maintained roughly the same split across the period
considered with around 45–50% of total revenue deriving from France, a third from the
rest of Europe, and the remaining 15–20% from the rest of the world. The same is true
 Selective Interdependence Taxon 197

from a business product segmentation, with Société Générale’s total revenues consis-
tently split between retail banking (around two thirds of total revenue) and corporate
and investment banking (around a third of total revenue). Thus, over the period consid-
ered, Société Générale maintained a relatively flat performance without any major
changes to either geographic or business segment focus.

Santander

Santander also largely avoided any negative ramifications from the GFC and was one of
the few banks considered to grow its total revenue (Financial Times, 2009). Santander
gradually grew its net interest income, its operating income (eight years of growth),
maintained one of the best efficiency ratios (top quartile for nine years), and main-
tained one of the best annualised net interest margins (top quartile for ten years). This
translated into a comparatively healthy return on asset ratio (top quartile for eight
years) and return on equity ratio (top quartile for five years). Having first entered the
UK market through the acquisition of Abbey National in 2004, Santander expanded its
presence in the UK in the aftermath of the GFC by acquiring Alliance & Leicester and
Bradford & Bingley in 2008 leading to the UK constituting between 11–17% of the bank’s
total revenue in the period considered. Santander’s European (excluding the UK) busi-
ness consistently contributed around a third of total revenue, while the bank expanded
its presence in the US from 7% of total revenue in 2010 to 12% in 2019, especially
through its acquisition of Sovereign Bancorp in 2008 and through its acquisition of
HSBC’s US car loans business in 2020. Most of Santander’s total revenue is derived from
Latin America; this declined from 50% in 2010 to 40% in 2016, however, after it an-
nounced a concerted push into Latin America in 2018, the bank’s total revenues from
Latin America rose again to around 45% by 2019. From a business product perspective,
Santander’s focus has been on retail banking which has consistently provided the bank
with around 80–87% of its total revenue.

Selective Interdependence Taxon

Deutsche Bank

Deutsche Bank, which was intimately involved in subprime US mortgages, was nega-
tively affected by the GFC and several other high-profile scandals (e.g., money launder-
ing in Russia, interest rate manipulation, US-Iran embargo violations) (DW, 2020). In
the period considered. Deutsche Bank saw steady declines in total revenue and net rev-
enue, relatively flat net interest income and noninterest income, and had one of the
worst efficiency ratios of the banks considered (ten years in the bottom quartile). Its
return on assets ratio was negative for four years and figured in the bottom quartile
198 Appendix 3 Supplemental Contextual Study – Summary of Results

for eight years, its pre-tax margin was negative for three years and figured in the bot-
tom quartile for seven years, and its return on equity ratio was negative for five years
and figured in the bottom quartile for six years. In the period considered, the propor-
tion of total revenue Deutsche Bank derived from Germany gradually increased (from
25% in 2009 to 41% in 2019) while the total revenue derived from the rest of EMEA
gradually declined (from 39% in 2009 to 26% in 2019). The total revenue the bank de-
rived from the Americas and Asia Pacific remained relatively constant. The total reve-
nue the bank derived from corporate and investment banking declined from 67% in
2009 to 53% in 2019, while private banking and wealth management grew from 29% of
total revenue in 2009 to 45% in 2019 reflecting Deutsche Bank’s increased focus on pri-
vate banking. Thus, while Deutsche Bank remained an international, diversified bank
throughout the period considered, it became a little less international, depending more
on its local market, while inverting its focus from corporate and investment banking to
private banking and wealth management.

UniCredit

In the aftermath of the GFC, UniCredit required government bailouts and struggled
with some of the highest levels of bad loans in Europe. The bank saw eight fiscal
years of total income decline (from 65 billion EUR in 2008 to 25 billion EUR in 2018),
and like the Royal Bank of Scotland was one of the worst performing banks of the
twenty banks for the period considered. UniCredit saw seven years of negative net
revenue growth (bottom quartile for net revenue for six years), its net interest in-
come having declined for eight years (bottom quartile for net interest income for
six years), leading to seven years of declining operating income including four
years of operating losses (bottom quartile for operating income for seven years),
and four years of negative pre-tax margins (bottom quartile for seven years). Uni-
Credit has also had a consistently bad loans-to-assets ratio (nine years in the bottom
quartile), and a consistently bad Tier 1 capital adequacy ratio (ten years in the bot-
tom quartile). Throughout the period considered, UniCredit remained a regional
bank, focused on Italy (with a gradually increasing contribution to total revenue
from 37% in 2010 to 47% in 2019), Germany (maintained at 18–21% of total revenue),
Austria (maintained at around 10% of total revenue), and Central and Eastern Eu-
rope, while reducing its exposure to the remainder of Western Europe. During this
time UniCredit exited several businesses, including its stake in Polish lender Bank
Pekao in 2016, and its card processing services in Italy, Germany, and Austria in
2016. UniCredit did not greatly change the composition or weighting of its business
segmentation throughout the period considered.
 Selective Interdependence Taxon 199

Lloyds Banking Group

Lloyds Banking Group required a UK government bailout which was precipitated by

its acquisition of troubled lender HBOS in 2008; however, by 2017 the bank went back
to full private ownership. While it was in the bottom quartile for total income growth
and loans-to-assets for six and ten years respectively, it managed to steadily grow its
net interest income with seven years of net interest income growth (five times in the
top quartile) which translated to eight years of operating income growth (four times
in the top quartile). Lloyds had negative return on equity and return on assets ratios
from 2010 to 2013 and was in the bottom quartile for pre-tax margin from 2010 to
2014, however, it managed to turn around its performance after 2014, with steady
rises in return on equity, return on assets, and pre-tax margin. Lloyds Banking Group
has always been a UK-focused bank with over 90% of revenues consistently derived
from the UK. It has also continuously maintained its focus on retail banking, corpo-
rate banking, and wealth management having never significantly ventured into full-
fledged investment banking activities.

Crédit Agricole

Crédit Agricole incurred severe write-downs linked to the collapse of subprime mort-
gages in the US and the European Debt Crisis. Crédit Agricole maintained a relatively
flat total income over the period considered, while managing to gradually grow its
noninterest income. However, Crédit Agricole consistently had one of the worst an-
nualised net interest income ratios (bottom quartile for nine years) and Tier 1 capital
adequacy ratios (bottom quartile for six years). It maintained low or negative return
on assets and return on equity (bottom quartile for four years for both ratios); how-
ever, after 2013 these began recovering. The geographic breakdown of Crédit Agri-
cole’s total revenue remained steady during the period considered, with 48–53%
deriving from France, 39–46% from Europe (excluding France), and around 7–10%
from the rest of the world. The proportion of Crédit Agricole’s total revenues from
corporate banking declined over the period considered (from 18% in 2008 to 12% in
2019), as did the proportion derived from retail banking (from 44% in 2008 to 30% in
2019), while wholesale banking’s contribution grew (from 4.6% in 2008 and 18% in
2009 to 29% in 2019) and asset management and insurance’s contribution remained
flat at around a third of total revenue. This reflects the bank’s 2014 medium term plan
to focus on organic European growth. Overall, the bank remained a well-diversified
European bank throughout the period considered.
200 Appendix 3 Supplemental Contextual Study – Summary of Results

UBS

UBS avoided collapse after being particularly badly hit in the early days of the GFC
(incurring a 50 billion CHF write-off of its toxic subprime mortgage securities between
2007–09) and was able to turnaround its financial performance from 2010 onwards.
In the period considered UBS had six years of net revenue growth (top quartile for
net revenue four times), steadily growing its noninterest income while maintaining
relatively stable net interest income. While it has struggled with its efficiency ratio
(bottom quartile for ten years), UBS has consistently had one of the best Tier 1 capital
adequacy ratio and loans-to-assets ratio (top quartile all years considered for both ra-
tios). Over the period considered, UBS became somewhat more international, gradu-
ally reducing the proportion of the total revenue it generates from Switzerland and
Europe, the Middle East, and Africa (e.g., from 52% in 2012 to 43% in 2019) while in-
creasing its exposure to the US and Asia Pacific (e.g., from 48% in 2012 to 54% in 2019).
In the period considered, UBS has also doubled-down on its specialism – private bank-
ing and wealth management – which grew from 51% to total revenue in 2012 to 57%
in 2019, while reducing some of its investment banking operations (e.g., fixed income)
whose contribution to total revenue declined from 28% in 2012 to 25% in 2019. Thus,
during the period considered, UBS became a little less diversified, but slightly more
international bank.

Credit Suisse

Credit Suisse managed to navigate the GFC comparatively well. It increased its net inter-
est income for seven years, and continuously maintained a healthy Tier 1 capital ade-
quacy ratio and loans-to-assets ratio (top quartile for ten and eight years, respectively).
On the other hand, Credit Suisse’s noninterest income has steadily declined over time
(seven years of decline) as did its net income (five years of declines) and the bank strug-
gled with its efficiency ratio figuring in the bottom quartile for every year considered.
Credit Suisse maintained the proportion of the total revenue that it derives from Switzer-
land and from the Americas relatively constant over the period considered, however,
like UBS, Credit Suisse grew the proportion of total revenues derived from Asia Pacific
(from 7% in 2009 to 13% in 2019) while reducing the proportion of total revenue derived
from EMEA (from 20% in 2009 to 9% in 2019). Moreover, like UBS, Credit Suisse also
scaled back its investment banking operations – which went from contributing 62% of
total revenue in 2009 to contributing 36% in 2019 – while increasing its focus on its core
business of private banking and wealth management which increased from 35% of total
revenue in 2009 to 53% in 2019, while also growing its corporate and institutional bank-
ing business (from 5% of total revenue in 2009 to 12% in 2019). Thus, like UBS, Credit
Suisse became a less diversified, and slightly more international bank during the period
considered.
 Selective Interdependence Taxon 201

Rabobank

Rabobank, a conservatively run cooperative bank that focuses on the food and agri-
cultural sector was the only major Dutch bank not to require a state bailout. Rabo-
bank maintained a relatively flat total revenue, net revenue, and net interest income,
and a steadily growing noninterest income and operating income. Rabobank has tra-
ditionally relied on the Netherlands for around two thirds of its total revenue, while
the contribution of its US and Asia Pacific businesses to total revenue have both
grown in the period considered (from 8% in 2008 to 15% in 2019, and from 5% in 2008
to 8% in 2019, respectively). On the other hand, the contribution of the European (ex-
cluding the Netherlands) segment to total revenue has declined (from 15% in 2008 to
10% in 2019) with Rabobank exiting some European countries like Poland. Rabobank
derives most of its total revenue from domestic retail banking, which has grown
somewhat in the period considered (from 57% of total revenue in 2008 to 62% of total
revenue in 2019), while its wholesale and rural banking segment grew significantly
(from 12% of total revenue in 2008 to 29% in 2019) reflecting Rabobank’s rural and
agricultural business especially in the US. Rabobank exited its asset management op-
erations through its sale of its asset management arms Robeco in 2013 and Bouwfonds
Investment Management in 2018 reducing the contribution of asset management to
total revenue from 15% in 2008 to zero from 2013 onward. Thus, in the period consid-
ered, Rabobank became a more international bank (though it still derives most of its
revenues from the Netherlands), while become less diversified and more focused on
its core business operations.

Intesa Sanpaolo

Intesa Sanpaolo, which was formed by the 2007 merger of Banca Intesa and Sanpaolo
IMI, performed comparatively better than its Italian competitor UniCredit. Intesa San-
paolo maintained a relatively steady total income over the period considered, grew its
net income (despite large losses in 2011 and 2013 which coincide with the European
sovereign debt crisis), steadily improved its loans-to-assets ratio, consistently im-
proved its efficiency ratio (eventually figuring in the top quartile for six years be-
tween 2012 and 2018), and consistently grew its noninterest income (top quartile for
three years). On the other hand, Intesa Sanpaolo saw gradual declines in its net inter-
est income (bottom quartile for four years), net interest (bottom quartile for four
years), and annualised net interest margin (from being in the top quartile between
2008 and 2014 to being in the bottom quartile in 2017 and 2018). Intesa Sanpaolo has
maintained a relatively steady segmentation of its geographic operations in the period
considered with around 77–82% of total revenues deriving from Italy, 16–19% from
Europe (excluding Italy), and 2–6% from the rest of the world. While retail and com-
mercial banking remained the largest contributor to the bank’s total revenues, its
202 Appendix 3 Supplemental Contextual Study – Summary of Results

proportion has steadily declined over time (from 67% in 2008 to 47% in 2019), on the
other hand Intesa Sanpaolo has grown its asset management, insurance, and private
banking operations whose combined contribution to total revenue grew from 6% in
2008 to 22% in 2019 reflecting the bank’s ambitions to grow these business segments.

Nordea

Nordea, with most of its activities centred on the Nordic region was relatively unaf-
fected by the GFC. Nordea maintained a stable net income, operating income, noninter-
est income, and net interest income. Nordea consistently maintained one of the best
efficiency ratios and pre-tax margins (top quartile for all years considered for both),
maintained a healthy Tier 1 capital adequacy ratio as well as posting strong return on
assets and return on equity ratios (top quartile for eight and nine years, respectively).
Nordea predominantly relied on the Nordics (Sweden, Finland, Norway, Denmark) seg-
ment for most of its total revenue with this segment’s contribution to total revenue
consistently above 90%. Since 2014, Nordea began scaling back its presence in Russia
and the Baltic region as part of a de-risking strategy meaning that Nordea became an
even more Nordic-focused bank during the period considered (by 2019, the Nordics ac-
counted for 94% of the bank’s total revenue). Nordea grew its personal and business
banking segment in the period considered (from 51% of total revenue in 2014 to 67% in
2019), while its corporate and institutional banking operations declined (from 24% of
total revenue in 2014 to 16% in 2019), the bank has also been reducing its exposure to
shipping, oil, and offshore services since 2010 as part of its de-risking strategy. Thus, in
the period considered, Nordea became a less international and less diversified bank,
preferring to focus on its core geographic market and grow its retail and business
banking segment.

Generative Interdependence Taxon

Royal Bank of Scotland

The Royal Bank of Scotland (RBS) – now known as NatWest Group – was arguably the
worst performing bank out of the twenty banks for the period considered. In 2007
RBS led a consortium to acquire ABN Amro for 49 billion GBP in what was the largest
ever banking takeover in Europe at the time. In 2009 RBS had to be bailed out by the
UK government, which owned 84% of the bank by the end of 2009 and announced the
largest annual loss in British corporate history (24.1 billion GBP in 2008). RBS was in
the bottom quartile for total income growth for nine years in the period considered,
with seven annual declines in net interest income (figuring five times in the bottom
quartile), and seven annual declines in nonincome interest income (figuring seven
 Generative Interdependence Taxon 203

times in the bottom quartile), which translated into eight years of operating losses
(five years of declining operating income, and five times in the bottom quartile for
operating income/loss) and poor overall net income growth. As such, RBS’s return on
assets was negative for nine years (ten years in the bottom quartile), its pre-tax margin
was negative for eight years (nine years in the bottom quartile), and its return on com-
mon equity was negative for nine years (bottom quartile for all years considered). In
the aftermath of the GFC, RBS became a significantly more British, and less global
bank. While it derived around a third of its revenue from the US, Europe, and the rest
of the world until around 2012, from 2016 onward RBS relied on the UK for over 90%
of its revenue. In terms of product segmentation, RBS’s international banking opera-
tions dwindled from around 15–20% of total revenue between 2008 and 2011 to less
than 5% from 2012 onward, reflecting RBS’s divestiture from many of its international
operations including selling its stake in Bank of China in 2009, its US based commodi-
ties trading arm Sempra Commodities in 2010, its stake in WorldPay in 2013, its inter-
national private banking and wealth management operations in 2015, and divesting
from its US operations through its IPO of Citizens Financial in 2013 (the largest IPO of a
commercial bank at the time). RBS derived 33% of its revenue from its insurance oper-
ations in 2008, however, after selling its insurance arm in 2013–2014 (which later be-
came Direct Line), revenue from insurance declined to almost zero. RBS also shrunk
its investment banking operations in the aftermath of the GFC, dwindling from 54% of
revenue in 2009 to less than 12% from 2016 onward. RBS entered the GFC as an interna-
tional, diversified bank, and for a brief period of time in 2009 was the world’s largest
bank; by the end of the GFC it was transformed into a British bank that was focused on
retail and commercial banking.

ING

ING received a 10 billion EUR bailout from the Dutch government and as a result had
to divest from many of its operations including its insurance business – which at the
time ranked sixth in the world – and many of its international businesses including
its US direct banking arm ING Direct in 2013, its Canadian direct banking arm in 2012,
and its UK direct banking operations in 2013. ING saw dramatic declines in its total
revenue with ten consecutive years of total revenue decline (from 152 billion EUR in
2008 to 33 billion EUR in 2018), however, it has managed to steadily improve its finan-
cial performance albeit as a smaller financial institution. It has managed to gradually
grow its net income, while having to contend with massive drops in noninterest in-
come from 55 billion EUR in 2008 to the 4 to 9 billion EUR range thereafter, and in
interest income from 97 billion EUR in 2008 declining every year until 2017 when it
was only 25 billion EUR (though it managed to slowly grow its net interest income).
Despite this, ING has managed to gradually improve its efficiency ratio (from being in
the bottom quartile in 2008–2010 to being in the top quartile in 2015–2018), its pre-tax
204 Appendix 3 Supplemental Contextual Study – Summary of Results

margin (from being the bottom quartile in 2008–2009 to being in the top quartile for
eight of the nine following years), and its return on equity (from being negative in 2008
and 2009 to being in the top quartile for six out of the following nine years). ING de-
rives around half of its revenue from the Netherlands and Belgium, which did not
greatly change during the period under consideration. ING reduced its exposure to the
Americas given the divestitures of its direct banking operations in the US and Canada
and its Latin American insurance operations, while growing its presence in Germany
(from 10% of total revenue in 2013 to 15% in 2019) and its “challenger” geographies –
Australia, Austria, Czech Republic, France, Italy, and Spain – (from 6% in 2013 to 11% in
2019). In terms of business segmentation, after divesting from its insurance businesses,
ING managed to maintain the split between retail banking, and corporate banking at
around two-thirds and one-third of total revenue, respectively. Thus, like RBS, ING en-
tered the GFC as an international, diversified bank and ended up a less diversified and
less international bank by the end of 2019 (thought it remained significantly more inter-
national than RBS).

Groupe BPCE

Groupe BPCE was formed in 2009 by the merger of Caisse d’Epargne and Banque
Populaire in response to the severe losses incurred by Natixis (the investment bank
created and co-owned by Caisse d’Epargne and Banque Populaire), which led to Ban-
que Populaire’s first loss since World War II, and Caisse d’Epargne first loss in its 200-
year history. From 2009 onward, Groupe BPCE maintained relatively flat total revenue
and net revenue, however, its interest income steadily declined (eight years of de-
cline), as did its net interest income (six years of decline including figuring in the bot-
tom quartile for four years). Groupe BPCE struggled with its Tier 1 capital adequacy
ratio (bottom quartile for four years) although this improved noticeably form 2016 on-
ward. On the positive side, Groupe BPCE managed to steadily grow its noninterest in-
come (eight years of growth) growing by 71% between 2009 and 2018. Groupe BPCE
has always derived the overwhelming majority of its total revenue from France, al-
though France’s contribution to Groupe BPCE’s total revenue has been gradually de-
clining (from 85% in 2010 to 76% in 2019) reflecting an increased internationalisation
of the bank’s activities especially given Natixis’ expansion in the US (the US contribu-
tion grew from 6% of total revenue in 2010 to 11% in 2019), Groupe BPCE’s acquisition
of leading German fintech Fidor in 2016 (Europe’s (excluding France) contribution
grew from 5% of total revenue in 2010 to 8% in 2019), and Natixis’ expansion in Latin
America and Asia Pacific (growth of the contribution of the rest of the world to total
revenue from 3% in 2010 to 5% in 2019). In terms of business product segmentation,
most of Groupe BPCE’s total revenue has historically derived from retail banking and
insurance, although this has consistently declined (from 79% in 2009 to 67% in 2019),
while corporate and investment banking’s contribution has grown (from 8% in 2009
 Generative Interdependence Taxon 205

to 13% in 2019) as has asset and wealth management’s contribution (from 9% in 2009
to 16% in 2019). Thus, over the period considered, Group BPCE has become more inter-
national (though still predominantly French) and more diversified (though still pre-
dominantly retail banking and insurance focused).

Crédit Mutuel

Crédit Mutuel was comparatively insulated from the effects of the GFC, and in fact
expanded its operations through the acquisition of Citigroup’s retail operations in
Germany (renaming it Targobank) in 2008, the acquisition of Citigroup’s retail opera-
tions in Belgium in 2011, a wide-ranging joint venture with Banco Popular in 2010,
and the acquisition of General Electric’s equipment finance and receivables finance
operations in France and Germany in 2016. Crédit Mutuel was in the top quartile for
total income growth for six years (though it experienced a large decline in 2018). The
bank grew its net revenue for eight years, maintained a relatively flat net interest in-
come, steadily grew its noninterest income for nine years, a steadily growing opera-
tional income, and a comparatively strong Tier 1 capital adequacy ratio (top quartile
for six years). Crédit Mutuel derived most of its total revenues from France, though
the proportion has been steadily declining (from 89% in 2009 to 81% in 2019) given
the banks’ expansion in Germany, Belgium, and Spain, as such the contribution of its
European operations to total revenue has risen (from 11% in 2009 to 17% in 2019). In
terms of business product segmentation, the contribution of retail banking to total
revenue has declined slightly (from 77% in 2009 to 73% in 2019), while the contribu-
tion of insurance grew slightly (from 12% in 2009 to 14% in 2019), and the contribution
of corporate banking declined (from 12% in 2009 to 5% in 2019). Thus, during the pe-
riod considered, Crédit Mutuel became more European (though still predominantly
French) and remained focused on retail banking.
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List of Figures
Figure 3.1 Taxonomy of Fintech Landscape 39
Figure 5.1 Relational Rents in the Platform Economy Age 67
Figure 6.1 Temporal Dimension of Strategies of Interdependence and Value
Cocreation – Exploration, Experimentation, and Exploitation Phases 110
Figure 7.1 Taxonomy Banks’ Strategies of Interdependence and Value Cocreation 112
Figure 8.1 New Strategic Considerations in the Platform Economy Age 139

https://doi.org/10.1515/9783110792454-013
List of Tables
Table 6.1 Data Point Sources for the Twenty Cases 94
Table 8.1 Different Approaches to Interdependence and Value Cocreation 149
Table A.1 Combined Summary of Content Analytic Meta-matrices: Modalities of Banks’
Strategies of Interdependence and Value Cocreation 166
Table A.2 Final Iteration of Clustering Process: Detailed Taxonomy of Bank’s Strategies of
Interdependence and Value Cocreation 192

https://doi.org/10.1515/9783110792454-014
About the Author
Giorgio Bou-Daher has worked at the intersection of banking and technology
in various roles at Gartner, IBM, Thomson Reuters, and Bloomberg, where he
advised banks, regulators, fintechs, and other financial services providers on
their digital transformation strategies.
He holds an Executive PhD from Université Paris Dauphine (Paris Sciences
et Lettres), an MSc in Technology Ventures and Entrepreneurship from
University College London, and a BEng (Hons) in Civil Engineering from the
University of Nottingham.
His doctoral research focused on the different strategies that banks
adopted in response to the evolving technological, regulatory, and competitive forces that characterise
the platform economy. He has presented his research at various conferences, including at the European
Academy of Management, the British Academy of Management, and the Association Internationale de
Management Stratégique.
Giorgio is a visiting lecturer at EM Normandie Business School and is fintech mentor at Barclays Rise
and at Level39 (Canary Wharf Group). He is a Freeman of the Worshipful Company of International
Bankers, and a member of the Center for Engaged Management Research (CEMR) Dauphine, the Hong
Kong Business Network, and the Hong Kong Society.

https://doi.org/10.1515/9783110792454-015
About the Series Editor
Moorad Choudhry is an independent non-executive director at Recognise
Bank Limited, a non-executive director at the Loughborough Building Society
and a non-executive director at the Wandle Housing Association. He is
Honorary Professor at University of Kent Business School. He was latterly
Treasurer, Corporate Banking Division at The Royal Bank of Scotland.
Moorad is a Fellow of the Chartered Institute for Securities & Investment,
a Fellow of the London Institute of Banking and Finance, a Fellow of the Global
Association of Risk Professionals, a Fellow of the Institute of Directors and a
Freeman of The Worshipful Company of International Bankers. He is author of The Principles of Banking
(John Wiley & Sons 2012, 2022).
Moorad was educated at Claremont Fan Court school, University of Westminster and University of
Reading. He obtained his MBA from Henley Business School and his PhD from Birkbeck, University of
London. He was born in Bangladesh and lives in Surrey, England.

https://doi.org/10.1515/9783110792454-016
Index
5G 21, 34 Barry Nalebuff 72
Basel III 8–9
Absorptive capacity 83, 131 BBVA 97, 113, 142
Accelerated Strategic Computing Initiative (ASCI Bear Stearns 6
Red) 18 Ben Bernanke 50
Accelerator 40, 85, 87, 102–103, 119, 159 Big Bang 5, 136
Account Information Service Providers (AISPs) 11 Big data 30
Acquisitions 83–84, 97, 130 Bigtechs 10, 12, 40, 63, 104–105, 117, 120, 136–137,
Adam Brandenburger 72 141, 159
Agile 33 Blackrock 28
Alan Turing 25 Blackrock Aladdin 28
Alfred Marshall 48 Blockchain 23, 25, 81, 86, 106, 117, 141–142
Alibaba 28, 30, 41, 43, 105, 117, 126 BNP Paribas 115, 117–119
Alibaba Cloud 32
Alipay 41, 104–105, 141 California Consumer Privacy Act (CCPA) 14
Allen Newell 26 Canadian Consumer Privacy Protection Act
Alternative Remedies Package 40 (CPPA) 14
Amazon 21, 28 Capital Markets Union (CMU) 13
Amazon Alexa 28 Capital Requirements Directive (CRD) 8
Amazon Web Services (AWS) 30–31 Capital Requirements Regulation (CRR) 8
American International Group 6 Central bank digital currency (CBDC) 25
Anglo Irish Bank 7 Central Bank of Nigeria 25
Ant Financial 41 Central Bank of the Bahamas 25
API Exchange 11 Chase National Bank 16
Apple 18, 28, 40 Chester Arthur Phillips 48
Apple Pay 40, 104 Citicorp-Travelers merger 16
Apple Siri 28 Citigroup 15
Application programming interfaces (APIs) 22, 81 City of London 4, 136
ARPANET 31 Claude Shannon 26
Arthur Samuel 26 Client Money Rules 54
Artificial intelligence 25, 27–30 Cloud computing 30–34
ASEAN Bankers Association 11 Collateralised debt obligations (CDO) 6
Australian Government 11 Combinatorial capacity 19
Automated reasoning 26 Committee on Payments and Market
Autorité des Marchés Financiers (AMF) 12 Infrastructures (CPMI) 14
Common Secure Communications (CSC) 11
Banco de México 11 Compatible Time-Sharing System (CTSS) 31
Bank branches 35, 97 Competition and Market Authority 10
Bank Holding Company Act of 1956 4, 8, 136 Complementors 70, 75–76, 140
Bank of America 33 Comprehensive Capital Analysis and Review
Bank of Canada 25, 106–107 (CCAR) 8
Bank of England 33, 51 Computational logic 26
Bank Recovery and Resolution Directive (BRRD) 8 Consumer Data Right (CDR) 11
BankAmericard 35 Consumer Financial Protection Bureau 7
Bankia 7 Consumer Financial Services Action Plan 13
Banking Act of 1962 4 Container orchestration 32
Barclays 106, 115, 118, 121 Container technology 32

https://doi.org/10.1515/9783110792454-017
232 Index

Contour 117 Edith Penrose 20, 60

Cooperative banks 97, 129 Edward Shaw 49
Coopetition 72–73, 138, 143, 159 electronic Identification, Authentication and Trust
CordaKYC 24 Services (eIDAS) 13
Core banking systems 34 Electronic Money Directive (EMD) 13
Corporate venture capital 100, 120 Estonian E-Health Foundation 23
Cost of compliance 10 Ethereum 25, 106
CP/CMS 31 eTradeConnect 117
CRD IV 8 EU Blockchain Observatory and Forum 13
Crédit Agricole 122–124, 126 EU FinTech Laboratory 13
Credit creation theory of banking 46, 48, 50–51, 55 Eurodollar 4, 136
Credit default swaps (CDS) 6 European Banking Authority 8, 34
Crédit Mutuel 97, 127, 129–131 European Banking Union 8
Credit Suisse 122–124, 126 European Blockchain Partnership (EBP) 23
Cross-framework arbitrage 16 European Blockchain Services Infrastructure
Cross-jurisdiction arbitrage 16 (EBSI) 23
Crowdfunding 97, 124, 126 European Commission 14
Crowdsourcing 87, 108 European Deposit Insurance Scheme (EDIS) 8
Cryptocurrencies 57 European Digital Identity Wallet 14
European Digital Single Market Strategy 13
DARPA Grand Challenge 28 European Self-Sovereign Identity Framework
Dartmouth College 26 (ESSIF) 23
Data residency 34 European sovereign debt crisis 6
De novo ecosystem origination 76–77, 106–107, Everledger 23
115, 122, 127–129, 142 Expert systems 27–28
Dean Edmonds 26
Decentralised finance (DeFi) 25, 57 Facebook Libra (Diem) 43
DeepMind 30 Fannie Mae 6
DENDRAL 27 Federal Act on Data Protection (FADP) 14
Depository Institutions Deregulation and Monetary Federal Deposit Insurance Corporation 4, 6
Control Act 4 Fidor 98
Deutsche Bank 98, 122, 124, 126 Finance-as-a-Service API Playbook 11
DevOps 33 Financial Conduct Authority (FCA) 12
Dexia 7 Financial intermediation theory of banking 46,
Digital acceleration 35–36, 137 48–50, 56
Digital Equipment Corporation (DEC) 27 Financial Market Supervisory Authority (FINMA) 12
Digital transformation 35 FinCEN Artificial Intelligence System (FAIS) 28
Disruptive innovation 22 FinTech Action Plan 13
Docker 32 Fintech spin-offs 100, 128, 130
Dodd-Frank Burden Tracker 9 Fintech subsidiary 85, 120, 143
Dodd–Frank Wall Street Reform and Consumer Fintechs 10, 12, 37–38, 40, 42–43, 63, 99, 104, 121,
Protection Act 7, 9 130, 136–137, 158
Douglas Diamond 49 First National City Bank of New York 16
Dovev Lavie 65 Fnality International 24, 107, 123, 142
Dropbox 32 Focal firm 75
Fortis 7
Eastern Caribbean Central Bank 25 Fractional reserve theory of banking 46, 48
Ecosystem 74–77, 138, 140 Franklin Allen 49
Edge computing 34 Freddie Mac 6
 Index 233

Friedrich August Lutz 48 Industrial Organisation 59, 66

Fusion teams 35 Industrial Revolution 17
ING 100, 108, 127–128, 142
G7 Fundamental Elements for Effective Assessment Innovation labs 40, 85, 87, 101, 103, 118, 159
of Cybersecurity in the Financial Sector Interbank Information Network (Liink) 24
(G7FEA) 14 Interdependence 62, 82, 112, 138, 154–155
G7 Fundamental Elements of Cybersecurity for the International Organization of Securities
Financial Sector (G7FE) 14 Commissions (IOSCO) 14
Gaia-X 34 Internet of Things (IoT) 21
Gary Gorton 49 Intesa Sanpaolo 122–125
General Data Protection Regulation (GDPR) 13 iPhone 18
General Problem Solver (GPS) 26
General Purpose Technologies (GTPs) 19 Jack Ma 30, 43
Generative interdependence 127, 152 James Moore 74
Geopolitics 36 James Tobin 49
Github 32 Jay Barney 58
Glass-Steagall Act 3, 136 Jeffrey Dyer 64
Global Financial Crisis 6–7, 132–133, 136 Jiebei 44
Global Financial Innovation Network (GFIN) 12 John Eatwell 50
Global systemically important banks 9 John Gurley 49
Google 18, 27, 40 John Maynard Keynes 47–48
Google AlphaGo 27 John McCarthy 26
Google Cloud 30 John Reed 15
Google Pay 104 Joseph Schumpeter 20, 47
Gordon Moore 18 Joseph Stiglitz 48
Gramm–Leach–Bliley Act 5, 136 JP Morgan 24
Great Depression 4, 47 Jumpstart Our Business Startups (JOBS) Act 12
Groupe BPCE 97, 127, 129–131
Guidance on Cyber Resilience for Financial Markets Kenya 41
Infrastructure 14 Klarna 38
Knut Wicksell 47
Harbir Singh 64 Komgo 107–108, 128, 142
Hartley Withers 46 Kubernetes 32
Henry Chesbrough 22, 73
Henry Dunning Macleod 46 L. Albert Hahn 47
Henry Mintzberg 58 Lead investment 85, 100
Herbert Simon 20, 26, 80 Lehman Brothers 6
Hong Kong Monetary Authority 11 Ley para Regular Instituciones de Tecnolgía
HSBC 105–107, 115, 117, 121, 142 Finaciera 11
Huabei 44 Linux 32
Huawei 36 Lloyds Banking Group 7, 122–124
Hybrid cloud 32 Logic Theorist (LT) 26
Hypercompetition 18, 137, 148 Loi Bancaire de 1984 5
London International Financial Futures and
IBM 23, 26, 31 Options Exchange (LIFFE) 5
IBM Deep Blue 27
IBM Watson 27 Macmillan Committee 47
IFRS 9 9 Maersk 23
Incubator 40, 85, 87, 102–103, 159 Marché à Terme International de France (MATIF) 5
234 Index

Marco Polo 107, 117, 141 Office of Financial Research 7

Mark Granovetter 70 Office of the Comptroller of the Currency (OCC) 13
Markets in Financial Instruments Directive Open and central interdependence 115, 151
(MiFID II) 9–10, 108, 142 Open Banking Standard 10, 108
Marvin Minsky 26 Open innovation 22, 73, 79, 86, 101–103, 116,
Mashups 81 129, 147
Massive Autonomous Distributed Reconciliation Open IT infrastructure 86–87, 108
(MADREC) 107, 123, 142 Open source technology 79
Microservices 32, 81 Open-APIs 11, 81, 87, 106, 108, 119
Microsoft Azure 30 OpenStack 32
Modalities of Strategies of Interdependence and OpenStack Foundation (Open Infrastructure
Value Cocreation 83–85, 87–88, 109, 154, 156 Foundation) 32
Modularity 32, 80–81, 146 Over-the-counter (OTC) derivatives 6–7
Monetary Authority of Singapore 11, 24–25,
106–107 Partnerships 86, 103–105
Moore’s Law 18 Paul Samuelson 48
Mortgage-backed securities (MBS) 6 Paydirekt 98, 126, 141
M-Pesa 41, 118 Payment Initiation Service Providers (PISPs) 11
Multi-clouds 32 Payment Services Directive 2 (PSD2) 8, 10, 108
Multipolarity 36 PayPal 38, 141
Multi-sidedness 69–70, 141 People’s Bank of China 25, 44
MYCIN 27 Personal Financial Planning System (PFPS) 28
Personal Information Protection Law (PIPL) 14
Nathaniel Rochester 26 Plan d’Action pour la Croissance et la
Natural language processing 26 Transformation des Entreprises (PACTE) 12
Near-zero interest rates 9 Platform economy 21, 137
Net regulatory burden 4 Platformisation 79, 114, 144–145
Netflix 19 Platforms 78, 80
Netherlands’ De Nederlandsche Bank (DNB) 12 Private cloud 32
Network behaviour 69, 71 Probabilistic reasoning 26
Network centrality 70 Project Jasper 25, 106–107
Network effects 66–67, 139, 142 Project MAC 31
Network embeddedness 69–70, 141 Project Ubin 25, 106–107
Network exclusivity 71 Protection of Personal Information Act (POPIA) 14
Network holes 71 Prudential Regulation Authority (PRA) 12
Network multi-homing 71
Network overlap density 71, 141 Quantitative easing 9, 50
Network size 69, 141 Quantum computing 22
Network structure 69–70, 141
Network tie strength 70 R1 27
Networks 66, 69 R3 24, 106
New Bank Start-up Unit (NBSU) 12 Rabobank 122–124, 126
New business models 66, 74, 139 Rackspace Hosting 32
Non-geosynchronous-orbit (NGSO) satellites 34 Raghuram Rajan 50
Non-rivalrous resources 19 Ray Solomonoff 26
Nordea 122–124 Real-time gross settlement (RTGS) 25
Northern Rock 6 Regulation on Markets in Crypto Assets (MiCA) 13
 Index 235

Regulation Q 4 Strategic Management 58

Regulatory arbitrage 15, 86, 137 Strategic openness 79–80, 130, 144
Regulatory sandbox 12, 106 Strategy 58, 82, 138, 153, 155
Regulatory Technical Standards (RTS) 11 Strong Customer Authentication (SCA) 11
Relational rent 64–65, 67, 71, 139 Subprime mortgage crisis 6
Resource Based View 20, 59 Sustained competitive advantage 59, 148
Retail CBDC 25, 57
Revolut 38 Taxonomy creation 95
Richard Werner 45, 50–51, 53–54 Techfin 41
Riegle-Neal Interstate Banking and Branching Tencent 105, 117
Efficiency Act 4 Total Turing Test 26
Robinhood 38 Trade finance 25, 106–107, 117
Robo-advisors 29 TradeLens 23
Ron Adner 74 Transformational interdependence 113, 151
Royal Bank of Scotland 6, 39, 127, 129–130 Transmission Control Protocol/Internet Protocol
(TCP/IP) 31
Safaricom 41 Travelers Group 15
Sandy Weill 15 TrustChain 23
Santander 33, 97, 99–100, 115–116 Turing Test 25
Second Banking Directive 5
Second machine age 17–18, 137 UBS 7, 24, 98, 107, 122–123, 125, 142
Seigniorage 55 Unicorns 42
Selective interdependence 122, 152 UniCredit 122–125
Self-Sovereign Identity (SSI) 23 Utility Settlement Coin 24, 107, 122
Shared-Know Your Customer (KYC) utility 24
Sharing economy 21 Value cocreation 62, 82, 103, 112, 138, 154–155
Singapore 14 Vendor lock-in 34
Singapore National Digital Identity (NDI) 14 Venture capital 38–39, 159
Single Resolution Mechanism (SRM) 8 Visa 35
Single Rulebook 8 Vodafone 41
Single Supervisory Mechanism (SSM) 8 Volcker Rule 8
SingPass 14, 24
Société Générale 117–120, 141 Wall Street Crash of 1929 47
Society for Worldwide Interbank Financial Walter Wriston 15
Telecommunication (SWIFT) 35, 106, 142 Washington Mutual 6
Software-as-a-service providers (SaaS) 32 Waymo 18
Sony PlayStation 3 18 we.trade 24, 107, 117, 141
Special Purpose National Bank Charters for Fintech WeChat Pay 105
Companies 13 Wholesale CBDC 25
Special Purpose National Banks (SPNBs) 13 Wirecard 43
Spillover rent 65, 115, 121, 123, 144–145 World Wide Web 31
Stablecoins 12
Standard Chartered 105, 115, 117, 121, 141 Yu’e Bao 44
Standards and protocols 80, 82, 146–147
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