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The first part of Banking 2.0 focused on possible chances to improve the bank operation efficiency, customer loyalty, and, as a result, increase the profit by means of cooperation with another finance institution. Use of innovative technologies based on the concept of Open Finances allows distributing all participants’ functions beneficially within sales and financial services, as well as operational and crediting risks within such cooperation. Today we are going to discuss the issue of minimizing risks that arise from joining efforts with partners who are potential competitors of the bank.

The “nightmare” of any banker who considers using Banking 2.0 looks as follows. The part one implies everybody is happy: the bank lets a partner’s loan product into the bank’s sales network, in particular, its subsidiaries; this is when the work starts, the customers have an additional product which could not be offered by the bank before in the same “window”, so everyone is happy. The part two is terrible: a partner starts drawing bank’s customers over and selling them not only agreed credit products, but also, for example, mortgage products, and even more – picking the best customers to offer them credit cards, deposits, payment transactions, slowly bringing them into its service network, etc. And here is the nightmare turning-point: the customer base of the inviting bank is melting, and the partner’s base is growing by the same reason.

How can we avoid this cannibalistic scenario? There are two options.

Option one. When concluding the partner agreement, the scope of authority should be clearly defined for each partner, namely, the product producer and the distributor. Consequently, a clear responsibility for violation of these terms should be stipulated. This option is effective only if the bank who invites a partner to its network has an infrastructure adequate to the partner’s level; the perfect situation is non-overlapping of the partners’ segments, customer bases, product ranges, and moreover, strong analytical marketing and legal services are required. The first service should attentively monitor the partner’s activity within the bank’s network in terms of unauthorized steps. The second one should have a strict and prompt reaction to the signals of inadequate partner’s activity. It’s clear that violation of the agreement terms must imply serious pecuniary sanctions serving as a ground for termination of the partner agreement. This is an example of how the inviting bank and the invited partner should establish their partnership.

Put it otherwise, the first option is only effective if the key business sectors (products, customers, technologies) don’t overlap, or provided that the agreement stipulates all problematic situations and their settlement options, and the inviting bank is ready to fight firmly for own hand. However, frankly speaking, it’s very difficult to protect own interests and monitor partner activity if the credit has been accommodated, and the customer monthly attends the partner’s bank, which has provided it, to repay the loan.

Certainly, the perfect option is when the invited partner has initially focused its efforts on rigorous performance of the agreement. Unfortunately, business is business, and partners can forget about agreements if there are attractive development promises within the hailing distance at the expense of the bank which invited a partner to its network.

Option two offers choosing a partner unable fall outside the agreed authority even if it wanted to. For the bank inviting a partner to its network, the perfect candidate is a finance institution with a strictly limited license. For example, this definition covers asset management, insurance, and financial companies. With regard to the whole variety, they have a common feature: it’s basically clear what operations they will run and what activities principally fall out of the scope due to the license limitations. For instance, the financial company (e.g. the lending institution with the exclusive activity) will not be able, despite its efforts, provide credit cards, offer customers clearing and settlement operations, currency exchange, accept deposits from physical persons, etc. Thus, migration of the customer base across the key banking products and services is basically impossible – it’s eliminated at the system level. Moreover, a loan provided within the bank network by the financial company implies a pretty long time when the bank will earn commission charges (ordinary credit repayment in the bank’s cash department). The opposite situation is when, for example, the partner bank B provides a loan within the network of the partner bank A which is paid the commission charge just once, and then all profits arising from the credit repayment will be channeled only to bank В which issued the credit. And we don’t mention the customer base migration we talked about before…