07.12.2023 06:31 PM

Creating new Verticals: A Practical Guide for the Creation of New Growth

In an era of banking transformation, the call for vertical banking solutions has become a clarion for innovation. As incumbent banks cast their sight towards a future sculpted by meticulous user experience (UX), they find themselves at the start of a financial renaissance. This evolution is underscored by the need to craft banking experiences that not only serve but delight—a user-centric design that is no longer a luxury but an imperative. New verticals are just not only a channel anymore, banks must see them as unique products with major business opportunities. If it is just seen as a digital channel, verticals are treated as “features” or an afterthought. To counteract this view, this article creates a holistic approach of how to build verticals and how to launch them to cater to new consumer needs!

At the heart of this transformation lies the principle of user-centric design. It’s a philosophy that places the user’s needs, behaviors, and experiences at the very core of product development. In vertical banking, this concept is elevated, transforming the conventional ‘one-size-fits-all’ approach into a symphony of personalized services that resonate with the individual’s lifestyle and aspirations. The beauty of this approach lies in its empathetic core—it listens, understands, and acts to enhance the financial journey of each customer segment.

This brings us to the paradigm shift from transactional to experiential banking—a shift where interactions are no longer mere exchanges but are part of a larger, more engaging customer journey –  where banking becomes an integral thread in the fabric of daily life, seamlessly blending with the customer’s personal narrative. In this new world, banks are not mere custodians of wealth; they become allies, advisors, and enablers of dreams and ambitions. They pivot from being financial centers to becoming centers of financial empowerment.

Incumbent banks are thus poised to reinvent themselves, pivoting from traditional to transformative, from universal to unique. As they adopt this vertical strategy, they will not just offer services but curate experiences, not just process transactions but foster relationships, not just manage accounts but enrich lives.

Designing New Verticals: A Step-by-Step Guide for Traditional Banks

Embarking on the creation of new verticals is an endeavor that demands a fusion of foresight, precision, and adaptability. This next section of our vertical banking article serves as a guideline for traditional banks ready to navigate the intricate journey of vertical development. It unfolds a meticulous, step-by-step guide that equips legacy institutions with the strategies and tools necessary to curate specialized services that not only meet but anticipate the distinct needs of their diverse clientele. We are completely aware that every bank and every business case is different! However, there are standardized steps that these legacy institutions can take to create verticals that drive growth and value, while putting the consumer on the center stage.

Understanding the Vertical Banking Landscape and Setting Objectives

Delving into the vertical banking landscape reveals a wealth of opportunities. For instance, banks could capitalize on the burgeoning gig economy by providing flexible banking solutions to freelancers. There’s also the unexplored potential in offering bespoke financial products to digital natives, a group that values innovation and digital fluency in their banking experience. Catering to these unique niche target audiences has become a significant value driver, especially for digital-only banks.

Conversely, the threats are just as tangible. The rise of fintechs, which specialize in rapid, customer-centric solutions, poses a significant challenge to traditional banks. Compliance with ever-evolving regulatory frameworks specific to niche markets also demands attention. Furthermore, data security concerns escalate as banking becomes more integrated with customers’ digital lives. Banks must navigate these threats while leveraging their strengths to seize the latent opportunities within the vertical banking space.

To venture into vertical banking without clear objectives is to navigate without a goal at the end of the travel. Goals cannot only focus on shorter-term financial gain by offering vertical solutions, they must be measured by customer engagement and customer satisfaction. Defining success involves sculpting the customer journey to be as rewarding as the destination itself, ensuring each touchpoint is a testament to the bank’s commitment to its clientele. The benefits of most vertical solutions are that the touchpoints start mostly online. This makes data analytics among the customer journey way easier. 

Conducting In-Depth Market Research

In the reconnaissance phase of identifying niche client segments, in-depth market research is pivotal. Employing a mix of qualitative tools like focus groups and interviews, alongside quantitative techniques such as surveys and data analytics, banks can distill insights into consumer behavior and preferences. Advanced analytics and AI can parse vast datasets, revealing patterns that might elude the human eye. Social listening tools can tap into the pulse of potential markets through social media trends. These methodologies converge to construct a comprehensive picture of the marketplace, highlighting fertile ground for vertical expansion.

Pinpointing to Unmet Needs: The Gap Analysis

Gap analysis stands as the cornerstone of strategic planning, bridging the divide between current services and untapped market needs. It involves dissecting customer feedback, competitor offerings, and industry benchmarks to identify service voids. Banks need to probe into areas where customer dissatisfaction lies or where competitors haven’t ventured. This assessment helps in recognizing areas for innovation—be it in personalized digital banking experiences for tech-savvy consumers or tailored wealth management for the affluent elderly. Recognizing these gaps equips banks with the knowledge to craft targeted offerings that address specific customer challenges.

Gap analysis stands as the cornerstone of strategic planning, bridging the divide between current services and untapped market needs

Based on conducting a gap analysis, traditional banks can define an action plan and a roadmap for the important characteristics that need to be implemented in the new vertical to satisfy consumer needs.

In conducting market research for new verticals, it’s paramount for banks to not only identify gaps but also to introspectively assess their strengths. This additional step involves aligning the findings from the gap analysis with the bank’s core competencies and strategic capabilities. Understanding what the bank excels at and how these strengths can be leveraged in new markets is crucial. Before proceeding to create the vertical solutions and bringing them to the market, banks should evaluate whether their expertise and resources align with the identified opportunities. This approach ensures a strategic fit, enhancing the chances of success in new ventures and optimizing resource allocation.

Building Consumer Personas as a Way to Deep Dive into Your Target Audience

Talking about the consumer already! Creating consumer personas is akin to painting detailed portraits of potential customers. This involves a layered understanding of demographic data, lifestyle preferences, financial behaviors, and psychographic patterns. Banks should craft these personas using real data and insights from market research, painting vivid pictures of who their customers are, what drives their decisions, and how they interact with financial services. These personas serve as archetypes, guiding the development of customized products and marketing strategies. They help in visualizing the customer journey, ensuring the services designed are resonant and relevant to each unique segment.

Crafting Unique Banking Solutions Tailored to Verticals

As incumbent banks seek to carve out new niches within the competitive financial ecosystem, the creation of unique banking solutions becomes critical. This section now delves into how cutting-edge technologies and collaborative strategies can be harnessed to tailor offerings that resonate with specific verticals, ensuring that banks not only remain relevant but also become pivotal in shaping the financial landscape.

Integrating Advanced Tech: AI, ML, Blockchain, and Beyond

Banks can leverage AI to deliver hyper-personalized financial advice, dynamically adjusting to changes in a customer’s life stage or economic situation. ML algorithms can detect fraudulent activities in real-time, offering a robust shield for niche sectors prone to specific types of financial crimes. Blockchain technology can be particularly revolutionary in creating verticals that demand enhanced trust and transparency, such as in the case of sustainable banking, where it can track the environmental impact of investments. Incorporating these advanced technologies can lead to the creation of smart contracts, enhance risk assessment, and offer secure, instantaneous transactions, setting the stage for innovative verticals that align with contemporary demands. Based on the following roadmap for a specific target persona, you can get a better understanding how AI can help to satisfy consumer needs and help new verticals to be successful: 


Banks can leverage AI to deliver hyper-personalized financial advice, dynamically adjusting to changes in a customer's life stage or economic situation

Prototyping and Testing: Ensuring Product-Market Fit

To perfect product-market fit, banks must commit to a cycle of prototyping and testing, the basis of Design Thinking. For instance, they might deploy ML-driven predictive analytics in a prototype to anticipate customer spending patterns in a youth banking vertical. They can test distributed ledger protocols in small-scale remittance services to ensure seamless international transactions for migrant worker segments. Continuous UX testing provides a feedback loop, refining customer interaction touchpoints. This rigorous process helps banks to evolve beyond traditional offerings, creating tailored solutions for verticals such as retirement planning for an aging population, or financing platforms for renewable energy projects, ensuring each solution is a hand-in-glove fit for its intended audience.

Building a Business Case

In addition to prototyping unique banking solutions, it’s essential to construct a robust business case. This involves a thorough analysis of potential costs, including technology development, marketing, staffing, and operational expenses. Alongside, there should be a realistic estimation of revenue generation, considering factors like market size, customer adoption rates, and pricing strategies. This financial evaluation is crucial to ascertain the viability of the new vertical. It provides a clear picture of whether the anticipated returns justify the investment, ensuring that the venture is not only innovative and customer-centric but also financially sustainable.

Build, Buy, Partner: Navigating Implementation Choices and Challenges

In the strategic journey of vertical expansion, traditional banks face a crucial decision: whether to build, buy, or partner for implementing new solutions. This choice is pivotal, especially for legacy banks grappling with the agility of modern banking demands.

Building in-house offers complete control and alignment with the bank’s unique processes and culture but may be hindered by time-consuming development and rigid legacy IT systems. This approach allows for custom-tailored solutions but requires significant investment in resources and time for maintenance and upgrades.

On the other hand, buying solutions can accelerate the market entry process. It provides access to ready-made, tested technologies, reducing development time and resource allocation significantly. However, this might lead to compromises in terms of integration with existing systems and the level of customization possible, potentially leading to a solution that doesn’t entirely align with the bank’s vision or customer needs.

Partnering with fintech companies presents a balanced approach, combining the agility, innovation, and technological advancement of fintechs with the robust infrastructure and customer base of traditional banks. This collaboration allows for rapid deployment of new technologies and facilitates adaptation to evolving market demands. Partnering can also spread out risks and costs, making it a more viable financial option, especially when venturing into untested markets or developing cutting-edge solutions.

The decision-making process should involve a comprehensive assessment of the bank’s strategic long-term goals, the urgency of market entry, available resources, and how well each option aligns with customer expectations and market trends. This decision will significantly influence the bank’s ability to effectively and efficiently roll out new verticals, ensuring they meet the evolving needs of their target market while staying ahead in the competitive financial landscape.

Financial Planning and Risk Management for New Verticals

In the quest to architect new verticals within the banking sector, financial planning and risk management become the twin pillars upon which sustainable growth is built. Through meticulous budgeting and forecasting, banks can chart financial blueprints that align with strategic objectives. This involves determining the costs associated with technology integration, market entry, and ongoing operations, while also forecasting potential revenue streams. Especially since the time and money that needs to be invested for Know-your-Customer tasks are getting more expensive for traditional banks.

But besides financial planning, the regulatory landscape for banks isn’t getting easier to traverse! Banks must proactively address these challenges, staying informed about regulatory changes and understanding the compliance intricacies of each new vertical. This proactive stance enables banks to navigate the complexities of compliance without stifling innovation, ensuring that new offerings are not only pioneering but also fully compliant.

Next to managing regulatory risks and challenges come the normal banking risks that still need to be assessed. This means conducting thorough risk assessments for each vertical, evaluating market risks, operational risks, credit risks, and beyond. By preempting these risks and developing strategies to mitigate them, banks can safeguard their ventures, ensuring the stability and integrity of their vertical expansions.

Branding, Marketing, and Positioning to new Vertical

In the vibrant landscape of vertical banking, branding, marketing, and positioning form the cornerstone of a bank’s journey into new and specialized market segments. This expanded section delves into the intricacies of these three critical components, vital for the successful launch and sustenance of a banking vertical.

Establishing a Strong Brand Identity: Distinct and Memorable

A powerful brand identity is not merely about visual aesthetics; it’s about creating an emotional resonance with the target audience. It should encapsulate the core promise of the vertical, its ethos, and its unique value proposition. This identity must be consistent across all platforms, from digital to print, ensuring that the vertical is instantly recognizable. It’s about forging a connection that goes beyond transactional relationships to create a sense of belonging and trust. The identity should reflect not just what the bank offers but also what it stands for, making it a symbol of the specific aspirations and values of its target audience.

Crafting a Marketing Strategy: Reaching the Target Audience Effectively

An effective marketing strategy in vertical banking is akin to a well-orchestrated symphony. It must harmonize various elements – from digital marketing techniques like SEO, content and social media campaigns to traditional methods such as community engagement and print advertising. This strategy should tell a compelling story, one that weaves the offerings of the vertical into the daily lives of its target audience. It should leverage data analytics to understand customer preferences and behaviors, allowing for personalized and targeted marketing efforts.

Positioning in the Competitive Landscape: Differentiating the Offering

Positioning the new vertical in a crowded market demands a strategic approach. It involves identifying and articulating a unique selling proposition (USP) that sets the vertical apart. This USP could be an innovative product feature, exceptional customer service, or a commitment to certain values like sustainability or inclusivity. The positioning should be clear and compelling, highlighting the benefits and value that the vertical brings to its customers. It’s about creating a narrative that not only differentiates but also elevates the vertical in the eyes of the target audience.

Positioning the new vertical involves identifying and articulating a unique selling proposition (USP) that sets the vertical apart

In summary, establishing a robust brand identity, crafting a resonant marketing strategy, and effectively positioning the new vertical in the competitive landscape are crucial steps for banks venturing into specialized market segments.

Great Ideas need Great People too

In the dynamic process of branding, marketing, and positioning new verticals, the selection of the right leadership and team is crucial. The success of any innovative venture largely hinges on the people behind it. It’s imperative to identify leaders and team members who not only understand the vision and objectives of the new vertical but also possess the drive, expertise, and adaptability to navigate its unique challenges. This team should embody a blend of strategic insight, creative thinking, and operational excellence, ensuring that the new vertical not only launches successfully but also thrives in the competitive banking landscape.

Launching, Monitoring, and Developing the new Vertical

As banks embark on the launch of new verticals, meticulous planning, vigilant monitoring, and continuous iteration form the crux of this strategic process.

Pre-launch Preparations: Ensuring a Smooth Roll-out

Pre-launch preparations are crucial. This phase involves comprehensive testing, staff training, and ensuring all systems are integrated and functional. Communication strategies to introduce the new vertical to the market should be planned and ready to deploy. This stage is pivotal in addressing potential issues before they impact the customer, ensuring a seamless introduction of the new vertical to the market.

Iterative Improvement: Continuous Evolution Based on Data and Feedback

Based on analytics and feedback, banks should embrace an iterative approach, continuously refining and enhancing the offering. This could involve tweaking features, adjusting marketing strategies, or even introducing new services to better meet customer needs. The goal is to create a dynamic vertical that evolves in response to market trends and customer preferences.

What about Banking-as-a-Service?

You might have already heard about Banking-as-a-Service (BaaS) over the past few years. In the rapidly evolving banking landscape, BaaS emerges as a pivotal concept, reshaping how financial services are structured and delivered. But how can BaaS help traditional banks to build new vertical solutions?

What is BaaS?

BaaS is an end-to-end model that enables digital banks and other third-party providers to connect with traditional banks’ systems via APIs. This connection allows them to build banking offerings on top of the providers’ regulated infrastructure. BaaS platforms serve as the foundation upon which companies can develop and offer their financial products, without the need to establish a full-scale, regulated banking entity.

BaaS is an end-to-end model that enables digital banks and other third-party providers to connect with traditional banks' systems via APIs

Leveraging BaaS to Create New Verticals

Companies can leverage BaaS to rapidly deploy new banking verticals without the complexities and costs associated with traditional banking frameworks. By utilizing BaaS platforms, businesses can focus on creating tailored financial products for niche markets, such as specialized lending services, unique payment solutions, or personalized investment platforms. This approach offers the agility to innovate and adapt quickly to market needs, providing a competitive edge in creating bespoke financial solutions for targeted customer segments. BaaS thus becomes a catalyst for companies looking to explore and establish new verticals in the financial sector.

Our Recommendations for Legacy Banks

Over the last two articles, we now have learned a lot about vertical banking, what it is, what the impact of verticals can be and how to build them! As traditional banks navigate the shifting sands of the financial industry, adopting a forward-looking stance is key.

While venturing into verticals, it’s crucial for banks to maintain a balance. This means integrating new, specialized services without neglecting core traditional offerings. The challenge lies in harmonizing the innovative with the conventional, ensuring a seamless experience for all customers. By striking this balance, banks can cater to a diverse clientele, reinforcing their position as comprehensive financial service providers in an evolving market.

In addressing the unique challenges faced by legacy banks, particularly in terms of budget constraints for innovation, a nuanced and balanced approach is key. Identifying niche segments and adopting lean development methodologies can lead to quicker monetization in vertical banking, offering immediate returns on investment. Simultaneously, there should be a strategic focus on developing versatile product APIs that can be repurposed across various verticals. This dual approach ensures a balance between immediate market responsiveness and long-term strategic planning. By adopting this strategy, banks can effectively manage their innovation budget, maintaining agility and future readiness. This approach also allows banks to build a diverse and robust portfolio of banking services tailored to specific market needs while ensuring that resources are optimized and innovation is sustained. It’s about creating a synergy between short-term gains and long-term vision, ensuring that each step taken towards innovation also lays the foundation for future growth and adaptability.