How FinTechs Are Eating Banking for Breakfast
The term “platform” is generally used as a technology construct; however, the term can also be used as a business model. Platform business models are dominating the banking industry. Hardly a recent phenomenon, platform strategy can be described as a “Plug-and-play business model that allows multiple providers and consumers to connect, interact, and create and exchange value.” In order to successfully be a platform, a company must do three things. The first is to attract the proper providers, those with the most attractive products or services, and their suitable customer base. The second is to create a mechanism for matching those clients to their providers and supplying a way for providers to reach out to their customers. Thirdly, a platform should provide a toolkit which can enable the providers to plug into the platform and to assimilate with the client base.
There are, at a minimum, five kinds of digital platforms currently dominating the banking industry. The first of these digital platforms is an API Toolkit. Scores of Megabanks have a developer hub, exchange, or portal that gives third-party access to apps in order for those apps to integrate or extract data about the client base. For instance, One South American megabank has four API kits for various banking activities, from ID verification, money movement, account origination, to debit card management. This bank, however, concentrates too much on the technology side and can’t really be considered a true platform. The second is marketing platforms which can do a number of different things like integrating data from various sources, provide demand generation, decisioning, origination, servicing and liquidity management, among others. The next are analytics platforms which generally come in two types; use-case specific or generic. An example of use-case specific is X-sight which is a cloud-base crime risk analysis platform, which enables financial institutions to manage and use data from multiple sources. A good generic analytics platform example is a CU Analytics Platform which creates a community of data scientists, users, and app developers. The fourth is business banking platforms. An example of this platform is some of these platforms are cloud-based API platforms which leverage APIs to permit the banks to provide a wider set of banking products and services to their clients. Lastly there’s core integration platforms which permit banking institutions to integrate their auxiliary systems more closely with their core systems.
Some of the implications of the dominance of banking are that platforms and openness are not synonymous, that platforms will change the relationship between banks and the way they gain and use technology, and the downside of over-personalization. The latter being the most dangerous as it is partnered with data sharing which can have some negative side-effects, and further tip the balance of power away from the clientele. Even considering the negative side-effects, we must accept that platforms are the way of the future for banking and can offer a vast array of services and are solidifying a permanent place in how we interact with our financial institutions.