The Shift to Digital Ecosystems

The COVID-19 pandemic has accelerated digital transformation initiatives by financial institutions and retailers, bringing the need for a robust digital ecosystem to the forefront. In a study we recently conducted with over 500 banking and retail executives, we have seen that though many realize a digital transformation is essential, there is still some confusion as to what exactly constitutes a digital ecosystem and how it can help brands deliver on unmet customer needs. If ever there was a time for innovation, the time is now, and digital ecosystems can open doors for those willing to explore the possibilities. 

From back-of-house efficiencies to the removal of customer friction points, TechTarget explains that “a digital ecosystem is a group of interconnected information technology resources that can function as a unit.” Digital ecosystems can be made up of suppliers, customers, trading partners and third-party data service providers, for example. Ultimately it has similar roots to a Keiretsu, a Japanese term for a system of organized alliances. However, today’s digital ecosystem is much more sophisticated and consists of a complex network of stakeholders that connect online and interact digitally in ways that create value for all.

According to a recent study conducted by BCG, a robust digital ecosystem is one that has more than 40 partnerships (Amazon has close to 70 partners). The study also noted that 83 percent of digital ecosystems involve partners from more than three industries, and 90 percent involve participants from more than five countries. 

You could argue that Apple first pioneered a digital ecosystem concept with the launch of its App Store, which now supports its iPhone and Apple Watch IOS platforms. However, an entire digital ecosystem goes well beyond the development of apps by bringing third-party expertise and resources well beyond applications. As such, if we viewed Apple through the lens of its App Store, it would fall into what is defined as a digital platform as opposed to a digital ecosystem.

Uber, on the other hand, is an excellent example of a digital ecosystem that not only integrates its ride-sharing app with Apple and Android platforms but also provides a convenient payment system as well as partnerships with restaurants and businesses for package deliveries. It also partners with Alexa and Google Maps to track both passengers and packages, providing a holistic one-click solution for consumers.

For banks, a typical digital ecosystem consists of a wide range of apps that integrate all of its banking applications into one place, including mobile wallet, digital passbook, net banking, expense manager and now the ability to set in-branch appointments. The arrival of a super app in the west will disrupt the banking industry, and so banks must begin to think now about how to create value for consumers through their digital ecosystem. Alternatively, banks could take a nod from Russian financial institution Tinkoff and develop their own super app. 

Ping An Insurance, ranked 7th on Forbes’ 2019 Global 2000 and the largest insurer in China, was one of the first companies to leverage a digital ecosystem. Ping An Good Doctor, their mobile platform that utilizes “Internet + AI + 1000 in-house physicians,” offers features such as online consultation services, referrals and health management, and medicine delivery. In September of 2019, Ping An Good Doctor became the first online healthcare platform with more than 300 million registered users, and numbers are sure to increase due to COVID-19. This demonstrates that digital ecosystems are capable of disrupting traditional services – even ones that have entrenched behaviors.  

There is a risk that many companies will miss the potential opportunities a well-developed digital ecosystem could provide. A critical factor in this risk is in overlooking the importance that various channels play in meeting customers’ unmet needs. While digital has become essential, Amazon and many other online-only brands have demonstrated that there is still a need to complete their digital ecosystem with a bricks-and-mortar channel.

As companies explore how they might create a truly omni-channel experience that marries not only their own products and services, but related products and services through partnerships, they should consider every channel through a future-focused perspective. COVID-19 is here now and could last for as long as two more years. But there are other disruptive factors that will emerge during the next ten years that also must be considered. Data privacy, the increased use of predictive analytics, robotics and the political climate will help determine how these Keiretsu inspired systems are received by the public.