The development of the Finnish banking industry from a partnership perspective

Abstract The focal study initially describes the development of the banking industry in Finland, then analyses the development of banking partnerships, and concludes by applying the findings about partnership development to the banking industry in order to increase our understanding of the industry development, especially of the development of the nature and structure of a typical banking firm. In this study, banking partnerships and co-operation is the perspective from which industry development is studied. The study constructs a framework of reasons for entering partnerships from three theoretical views. The partnership-specific view explains the reasons based on the benefits that a partnership may produce for a bank. Industry-specific view explains the reasons based on the banking industry paradigm, i.e. what are the general banking logic features that could explain the change in partnership entering reasons and how those features have developed. The external view explains the reasons from the environmental level, specifically environmental attribute and changes that can stimulate partnership entry. Examining partnership entry reasons through these three-levels and the different emphasis of each view improves both the theoretical understanding of the reasons banks enter partnerships as well as our understanding of the development of banking industry. The development of the vertically integrated banking model towards a more core-competence specialised one describes the development of banking logic. In the continuum of the logic in Finland, the focus of customer service on core competences places the customer service at the centre of the integration of business functions and disciplines. On the other hand, the growing need for economies of scale does not allow a domestic or regional bank to maintain a great deal of the existing proprietary manufacturing. This means that an entire service can and has to be manufactured outside the bank's own hierarchy. The production of banking services are transforming from the traditional proprietary manufacturing model to a three-levelled model. A great part of the existing production will be outsourced because of the increasing need for scale of economies. In other words, economies of scale will be purchased instead of proprietary manufacturing. The second level is formed by such banking services that have certain needs for the economies of scale, but in addition, qualities like flexibility are important factors in the production. The need of scale forces domestic and regional banks to move the manufacturing outside of the focal bank, but the need of qualities highlights partnership-like needs in the selection of the producer. The third level is the "manufacturing" of tacit personal services, in which the economies of scale is absent. For Finnish banks, this layer forms the core of their proprietary operation