Digital banking and ecosystem approach to banking and supply chain transformation

The evolution of banking

Banking developments in the world have undergone significant changes over many years. The initial form of banking included physical branches that customers went to for services such as deposits, deposits, withdrawals, and loans. This traditional banking model relied heavily on manual processes and bureaucracy to get things done.

The advent of computers and the Internet revolutionized the banking industry. Banks started using technology to automate processes, improve efficiency, and provide online banking services. This change allowed customers to access their accounts without time and place restrictions, make transactions, and manage their finances easily from their home or office. The advent of mobile phones and smartphones made this more widespread, which resulted in digital banking and service usage without any restrictions. By sharing customer data between banks and financial service providers, open banking allows customers to access a wider range of financial products and services from multiple providers through a single platform with a pleasant, easy user experience. Therefore, open banking increases the competition for innovation and improving user experiences.

The rise of fintechs has disrupted the landscape of traditional banking. Fintech startups have introduced innovative solutions such as peer-to-peer lending, digital wallets, and smart assistants to target a new generation of customers, challenging traditional banks to adapt and offer similar services. Fintechs often use technology to provide more efficient and popular financial services to customers.

The emergence of blockchain technology and cryptocurrencies such as Bitcoin has the potential to revolutionize banking. Blockchain provides secure and transparent transaction records and reduces the need for intermediaries. Additionally, cryptocurrencies provide an alternative form of currency that can be used for transactions and investments. On the other hand, DeFi, or decentralized financial systems, promises a new and different perspective from previous banking trends.

Governments and regulatory bodies have implemented various reforms to ensure the stability and security of the banking industry, including stricter regulations on investment, risk management, and end customer protection. Regulatory changes are made to prevent a financial crisis in the economy and maintain confidence in the banking system.

Banking, like other industries in the digital age, will move beyond its borders. To maintain their role in the economy, banks are moving towards building ecosystems and moving beyond classic services to financing business chains. The evolution of banking in the world has seen the introduction of technology, the emergence of digital banking, developments caused by the emergence of fintech, the development of open banking, the emergence of blockchain and digital currencies, regulatory changes, and the development of activities beyond the specific boundaries of the banking industry.

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A look at digital banking

Digital banking refers to the provision of banking services and products through digital channels such as websites, mobile applications, and other online platforms. It is a modern approach to banking that uses technology to provide convenient, accessible, and efficient financial services to various categories of business and retail customers. Digital banking allows customers to access their bank accounts and the services available to them online and manage their daily and business payments. Mobile applications with a user-friendly interface provide retail banking services to customers, and business platforms and open banking APIs provide banking services to business customers. Digital wallets provide both financial services to retail customers and their commercial versions, exchanges between businesses. and manage related transactions on the platforms.

The main form of digital banking for small customers is the use of advanced applications on mobile phones and ancillary services such as personal financial management wealth management, etc. However, this section only refers to special services for retail customers, and digital banking will differ at the business level. Banks will assume a different role due to their business model and have a new approach to providing service to their business customers.

In this case, banks take on the role of a platform and try to create an integrated ecosystem of active customers in a supply chain to provide the environment for the development of customer services and business development.

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Definition of ecosystem

In the context of business, the concept of ecosystem refers to an interconnected network or system of organizations, people, and resources that cooperate and interact with each other to create value and provide products or services to customers. It is a broader perspective that goes beyond the boundaries of a single organization and encompasses the entire business environment in which it operates. Like a natural ecosystem, a business ecosystem consists of interdependencies between different entities. Companies within an ecosystem rely on each other for resources, capabilities, and expertise. For example, a manufacturer relies on other companies to supply raw materials, receive logistics and transportation services, and a distribution network, all of which together form an ecosystem.

Cooperation is a fundamental aspect of ecosystems. Companies within an ecosystem often collaborate and form partnerships to leverage each other's strengths and create mutual value. This cooperation can have different forms and they are formed to create value for customers; Such as joint ventures, strategic alliances, supplier networks, or knowledge-sharing associations that occur through innovation, efficient processes, quality products, and superior customer experiences.

Companies within a business ecosystem often specialize in specific areas or functions. Each entity focuses on its core competencies and expertise that enable greater efficiency and effectiveness. This expertise enables companies to collaborate and complement each other's capabilities, thereby providing a more comprehensive and competitive offering to customers. In fact, by being placed together and playing a complementary role, they form a single and purposeful chain to create and provide value.

While collaboration is a key aspect of the business ecosystem, there is also competition. Companies within an ecosystem may compete for market share, customers, and resources. However, competition is often balanced by cooperation, as companies recognize the benefits of cooperation and the value of a thriving ecosystem.

Business ecosystems are dynamic and constantly evolving. Innovation and adaptability are essential for companies to maintain their competitiveness and remain connected to the ecosystem. Companies must continuously innovate, develop new products or services, and adapt to changing market conditions and customer preferences. Also, ecosystems include various stakeholders including customers, suppliers, employees, investors, regulators, etc. Effective stakeholder management is critical to the success of the ecosystem, and companies must understand the needs and expectations of various stakeholders, address them, and maintain trust.

In today's digital age, business ecosystems are increasingly influenced by technology and digital platforms. Digital transformation enables companies to communicate, collaborate, and exchange information more efficiently. Digital platforms also facilitate the integration of different entities into the ecosystem, enabling new business models and value propositions. To develop their services and communicate better with customers, banks should create an ecosystem among their customers or discover their role properly among the existing ecosystems. Understanding the ecosystem concept is important for banks to provide their services and discover their place in a complex and interconnected business environment. By actively participating in the business ecosystem, banks can use the strengths of other institutions, be present in the value chain of their business customers with the B2B2C model, and access new opportunities to achieve sustainable growth.

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Ecosystem approach in banking

The ecosystem approach in banking refers to a strategy in which banks collaborate with various external stakeholders to create a comprehensive and interconnected financial ecosystem. This approach is formed because, in today's dynamic and complex environment, banks cannot operate in isolation. They must collaborate with other financial industry actors and stakeholders, such as fintech companies, regulators, customers, and other institutions, to provide comprehensive and innovative financial services. This approach allows banks to expand their services beyond traditional banking products and offer a wider range of solutions to meet customer needs.

Banks open their APIs to third-party developers, allowing them to access and integrate banking services into their applications. This enables the integration of various financial services and promotes interoperability in the ecosystem. Therefore, they put customers at the center of the business by providing personalized and tailored financial solutions and offering a wider range of services such as budgeting tools, investment platforms, or insurance products.

Banks work closely with regulators to ensure compliance with financial regulations and standards. This collaboration will help create a secure and transparent ecosystem to protect customer data and maintain the integrity of financial transactions. The ecosystem approach fosters innovation by encouraging the testing and adoption of new technologies, and banks can quickly adapt to changing customer preferences and market dynamics by leveraging the expertise of their ecosystem partners.

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The role of the bank in the transformation of the supply chain

After the financial crises caused by the defaults of tehsils and the risk aversion of banks in allocating credit to businesses, companies that faced a lack of liquidity tried to compensate for this issue through new tools and methods. including increasing the settlement time of their commercial payments with suppliers or reducing the settlement deadline of their customers. The challenge of lack of liquidity and credits as a driver led to the development of solutions for managing working capital between businesses. Among these, one of the most important approaches is supply chain financing, which aims to optimize financial flows at the level between businesses through solutions implemented by financial institutions or technology providers. Chain financing consists of a wide range of solutions and approaches, but they all have one thing in common: supply chain indicators, such as the quality of relationships between supply chain actors and financial institutions, have a great impact on the adoption and success of chain financing solutions. The best case is the formation of a reliable and stable supply chain and its creation and management in the heart of ecosystems.

The final goal of using SCF statements can be stated as follows:

·????? Aligning financial flows (FSC) with product flows (PSC) across supply chain components

·????? Assist in supply chain management to improve cash flow throughout the supply chain

·????? Ease and speed up the flow of information in the supply chain

Digital banking, using technology and digital solutions to play its correct role in ecosystems and simplify and optimize financial processes in the supply chain, plays an important role in the transformation of the supply chain and the stability and survival of ecosystems. This enables seamless and secure electronic payment and reduces dependence on traditional paper-based transactions. Also, digital banking platforms offer financing options such as supply chain financing, factoring, etc., which help improve cash flow and working capital management for supply chain businesses.

Digital banking solutions provide transparency in financial transactions and supply chain cash flows, helping businesses track payments, identify bottlenecks, and optimize cash management. With access to accurate and timely financial data, businesses can make informed decisions and reduce risks associated with the supply chain. It also facilitates business by providing commercial financing solutions such as letters of credit, guarantees, and commercial insurance to help reduce financial risks associated with international trade and digitize commercial documents, reduce the use of paper, and improve efficiency in financial processes.

In general, the changing trend of the banking industry has changed its traditional role, and banks in the digital economy can play a role as a platform or the main player of the economic ecosystem. In this approach, the bank does not act as a service provider, but beyond that acts as a business partner and facilitator for its business customers. The concept of a bank as a platform is compatible with digital banking approaches. One of the main roles of banks in financial and business ecosystems is the financial management of the supply chain by the bank. Digital banking plays an important role in changing the supply chain by simplifying financial processes, improving visibility, reducing risks, facilitating collaboration, and providing valuable insights. It helps businesses optimize cash flow, reduce costs, and increase efficiency in the supply chain ecosystem. This new approach in banks will increase their income, partnership in customers' business, and increase their loyalty and adherence to the bank. Of course, the correct creation of this mechanism is not an easy matter and requires a different and strategic view of bank leaders along with suitable digital platforms for implementing strategies. With this approach, Iran's banking industry can be seen at the beginning of a path where efforts are underway to build a dynamic economic ecosystem based on chain financing, and success in this path requires innovation in the way of looking at the banking business in the digital economy and the cooperation of the regulator. To reduce legal barriers.