From Adoption to Interaction to Feedback – Cracking the Platform Code

Jeff Bezos founded Amazon in the year 1995, when the Internet was still in its dial-up days. The company is the largest ecommerce giant today.
Following a serendipitous series of developments including toying with the idea of Amazon infrastructure and storage, AWS came into being in the year 2006. It is today one of the top cloud vendors and the largest public cloud services provider in the world. Every day the company adds server capacity equivalent to what it had at the end of 2005, when Amazon (not AWS) was nearly 5% its current size.
Amazon Cash for deposits, and Amazon Lending for short-term business loans are already part of Amazon’s value proposition for sellers on its platform. The retail giant is now officially looking to encroach on banks’ turf with services like checking account.
An industry struggling to keep profits afloat clearly needs to prepare and reinvent itself to take on players such as Amazon. And Amazon is not the only giant eyeing the space. Tech giants Google and Facebook have already forayed into the financial services space. Both the companies have launched their digital payment service in the Indian market taking advantage of the country’s instant real-time payment system UPI. Facebook, with its chat service Whatsapp has a ready user base of more than 250 million. Google’s payment service Google Tez is a convenient payment option while searching the Internet using the Google search engine. Users can send money over Whatsapp’s chat interface while chatting with friends, or search, select and pay for a service without leaving Gmail with Tez.
Banks are left with no choice but to self-disrupt their business. They have to discard the go-it-alone approach in favor of platform banking to be more – be more open, more collaborative, more diversified (into non-financial products) and more invisible.
However, the platform business is an altogether different ball game for banks that have relied on pipeline business for all these years. Banks need to understand what makes a successful platform business and what the perils are. In their book “Platform Revolution”, Geoffrey G. Parker, Marshall Van Alstyne, and Sangeet Paul Choudary elucidate the key factors to create a successful platform business. Here we look at these in the context of banking.

  • Achieve demand economies of scale

    The success of a platform business hinges on network effects. The more the number of users of a platform, the greater the value it creates. It’s a no brainer then that a platform that doesn’t make it easy for its users to use it, is only setting itself up for failure.

    Thus the first step towards building a platform bank is to ensure a frictionless experience for their customers and partners. For customers, the process of on-boarding, transacting or service enquiries should match the experience they get in prevalent platforms like Uber or Facebook. The customer’s experience should be seamless whether they access the bank’s own or partner products / service offerings offered on the platform. Only then can banks hope to build the economies of scale that attracts new customers and partners.

  • Make the right matches

    A platform creates value by “consummating matches among users”. Flawless logic and a well-defined algorithm that can perform pairing immaculately are pivotal for a successful platform business.

    Banks have an advantage here due to their access to customer data and insights that can be drawn to match consumer preferences with complementary offerings from their partner ecosystem. Banks that have already embarked on an API strategy stand to gain since they can consummate matches among developers, fintechs and other partners, to create new digital experiences for their consumers. BBVA has made eight of its APIs commercially available to companies, startups and developers. The Citi Developer Community offers APIs in 3 countries, in categories ranging from account management and peer-to-peer payments to Citi rewards and investment purchases.

  • Enjoy positive network effects

    An example of this is accurately penned down by Eric Jorgenson of Evergreen Business Fortnightly:

    “More number of riders does not necessarily improve my Uber experience but it does attract more drivers, which will improve Uber for me.”

    Similarly, a platform bank must look to cultivate large and diverse ecosystems. The greater the choice, the better is the platform for its customers. The success of tomorrow’s banks will be measured by the size of their ecosystem in addition to their asset base.

  • Be easy to consume

    A platform that causes friction in use is a non-starter. A successful banking platform must ensure easy integration of APIs into other applications to encourage adoption.

    In our study of offerings of 6 banks that have formed API marketplaces, Citibank led the pack with 49 APIs to its name, closely followed by Oversea-Chinese Banking Corporation (45), Fidor (40+) and Ratnakar Bank Limited (40).

    Moving beyond the tactical approach to APIs, more banking APIs are now allowing digital firms and developer ecosystems to build applications with production data. Banks need a definite strategy to steadily increase the breadth and depth of their APIs.

  • Have a strong community feedback loop

    The digital world has made users accustomed to receiving instant feedback. The simplest examples are platforms such as Facebook or Instagram where users get reactions to their content within minutes of sharing it. Amazon’s feedback system that allows users to review products is a way to control quality and keep vendors in check. It also helps consumers make informed purchasing decisions increasing their confidence in the platform.

    In a platform model banks will not only sell their own products and services but will become aggregators of products and services to integrate banking in the lives of consumers. Banks must borrow this concept of a simple feedback mechanism to not only offer customers the best products and services, but also build trust.

Lastly, a successful platform evolves the value exchanged among users. Facebook evolved from making connections to sharing content. Amazon continues to advance into adjacent industries to become the quintessential ‘Everything Store’. Banks should move forward in their platform journeys with a scalable interaction model that constantly strives to evolve the value exchanged.
If you liked this post, you might find our paper on ‘Platform Business Model for Banking‘ interesting. You can access it here.
References:

6 Strategies for Building a Platform Bank

A Mckinsey study states that ‘manufacturing’, the primary industry for a bank’s financing and lending business now generates about 53% of industry revenues and 35% of profits with an ROE of 4.4%. On the contrary, ‘distribution’ produces 47% of revenues and 65% of profits with an ROE of 20%. This changing nature of banking balance sheets is a reflection of a clear shift in the banking business model. The traditional interest-based income of banks from lending and deposits is under pressure, and banks are looking to augment their revenue with new fee-based models.
Like every other industry digitization has led to a disruption in banking, making it possible for agile new entrants to offer innovative services at a lower cost to the customer. The disaggregation of the banking value chain, thanks to the agile and innovative solutions by disruptive entrants, is distancing banks from their customers as they lose the complete ownership of customer relationship. Thus many banks are looking to transform themselves into a platform of services to play a larger role in the lives of their customers. While the traditional pipeline model in banking creates value with owned assets and own products distributed through a bank’s own channels, a platform bank relies on a diverse ecosystem to aggregate complementary and even competing products on bank’s own and third-party channels. Here the bank looks to create value for the customer building a marketplace of financial and non-financial offerings.
As banks increasingly realize the importance of embracing the platform model, the question before them is how one goes about building a platform business. As explained in Infosys Finacle’s Point of View on Banking as a Platform, a bank can take two approaches to building a platform business– become a platform provider that curates or participates in a wider ecosystem, or become a service provider that delivers value from the ecosystem to the end consumer. Let’s first look at the key strategies for a platform provider.

  • Embed banking in the customer’s application or form factor of choice

Given the nature of transactions with their banks, large corporate customers seek an efficient way to transact and communicate with their banks. With APIs, banks can offer their corporate customers the choice of availing services as needed by embedding their services in their clients’ applications.
Besides corporate customers, digital businesses, such as Fintech firms and ecommerce companies, are also a good target because they are always looking for APIs on which they can build new, better experiences.
Progressive banks are setting up API stores and are exposing their APIs for these clients to use. BBVA has built an API marketplace with over 1500 developers and businesses, with 8 commercially available APIs.

A superset of the Banking-as-a-service model, here a bank offers services to other banks too. E.g. China’s WeBank offers its payment services to smaller banks that cannot afford to build a real-time payment service. Thus the consumer bank is able to retain customers in the payment space without having to own a product of that kind.
Instead of being a platform provider, some banks may choose to build their platform business as a service provider. In this model, banks operate a financial services marketplace. They offer their own services and products, products and services from partners or created jointly with partners, or even those procured from competitors. For example, a bank can offer its own home loans, insurance services from an insurance provider, a high interest deposit product from a competitor, and non-financial products such as holiday packages.
Banks are feeling the ground beneath moving. They need to act fast to leverage their position of trust as the primary provider of financial services and retain customer relationships by offering their customers the best that there is. The approaches shared above help banks convert the threat of digitization into opportunities by unlocking the value of ecosystems powered by digitization.
You might find our paper on ‘Platform Business Model for Banking‘ interesting, you can access it here.

Sources:

An Amazon-Inspired Wish List for Banks

finacle-blogger

 

We need banking. We don’t need banks anymore” Bill Gates, 1997
Amazon may or may not enter the banking industry anytime soon. But with a vision statement which reads “Our vision is to be earth’s most customer-centric company” and Jeff Bezos’s well-known customer obsession, which ensures that Amazon really walks the talk, there are many including me who ardently wish that it would.
As a regular user of multiple Amazon products and services, such as Kindle, Amazon Fire TV Stick, Amazon.com and Amazon Prime, I love many things about that company. I have also wished many times that my bank too would conduct its business like Amazon.
Drawing on my personal experiences, here is an Amazon inspired “Wish List” for banks, one that I hope will resonate with many readers and also provide some actionable insights for banks to consider.

My Wish List

Wide choice with “Platformification”
When you shop on Amazon, you are assured of a wide selection of products. The below image is a search for a laptop bag.

finacle-blogger

Other than the selection, what really strikes you is the clear and transparent manner in which Amazon’s own product, the actual best seller and the advertising money backed “sponsored” products are shown to the user so he or she can make an informed decision.
Contrast this with a typical banking experience. Let us say I am looking to buy car insurance or invest in a mutual fund. I am fairly certain that the priority of the bank and its personnel is to sell their own products.
If at all third party products are offered, it is quite likely that they would be displayed lower down the list. This is the exact space that the financial aggregators and comparison sites are targeting.
How I wish I could buy any financial product offered by any financial institution from my bank itself. What stops banks from selling products from other banks? Is it a fear of losing customers? Is it the possibility of lower margins and reduced profits? Maybe.
But there is definitely a need for a bank, which acts as a one-stop shop for fulfilling all customer banking needs, offering competitor products alongside its own.

Personalization

“You know you’re not anonymous on our site. We’re greeting you by name, showing you past purchases, to the degree that you can arrange to have transparency combined with an explanation of what the consumer benefit is.” – Jeff Bezos
It is one thing to aspire to offer wonderful personalized experiences based on insight to customers, and quite another to actually deliver them.
I have never availed a personal loan all my life. However, my bank somehow seems to think that I need one desperately or at the very least, would be interested in taking one. My bank regularly sends me messages like the one below.

finacle-blogger

The bank has so much of my financial data, including income sources and regular expenses, that it could make me offers that I would actually be interested in. Unfortunately, it has chosen to offer me loans that I have no need for.
Contrast this to my Amazon account. The below picture speaks a thousand words.

finacle-blogger

It say’s “ravichand’s Amazon” and it actually feels like one. The recommendations are based on things I have searched for or those that I am really interested in. Also, I have complete control over improving those recommendations by deleting things I don’t want to be alerted about.
Then there is this wonderful “Wish List” in Amazon where I can list as well as track things I find interesting. What makes it even better is that if there is a deal or offer on any item on my wish list, Amazon proactively notifies me so I don’t miss out.
How I wish my bank too kept a close watch on my browsing history on its website, applied insightful analytical data models to my banking transactions and provided me with actionable insights into things that I want to buy, as opposed to things that it wants to sell. How I wish there was a “wish list” I could use to inform my bank about my requirements.

Trust and Transparency

“I am a big fan of all-you-can-eat plans, because they are simpler for customers”- Jeff Bezos
The below image is a random offer based on an internet search for credit cards in India. Technically, there is nothing wrong with the credit card offer.

finacle-blogger

It is just that the principle of caveat emptor (buyer beware) applies here too. The prospective customer here is shown a 10% cashback but with a rider with various terms and conditions and a ceiling, all in fine print!
Also, the exact offer is not clearly articulated and the onus is on the prospect to actually “dig out” the relevant information as well as to scrutinize the fine print to check if there are any clauses, which are against his or her personal interests.
Contrast this with a search on Amazon for Chris Skinner’s book, “Digital Bank”.

finacle-blogger

The price, delivery charges, and taxes for each format are displayed in a transparent manner, with no scope for ambiguity. I don’t need to worry about reading the fine print or trying to understand legalese.
How I wish that banks would stop putting out catchy captions and teaser campaigns just to attract the customers’ attention. It would be significantly better to focus efforts on presenting the terms and conditions of the offer in a clear and transparent manner, so it could be understood even by a lay person. Things presented in a clear, simple and transparent manner inspire trust, a huge factor in building customer loyalty and advocacy.

Best Offer

“There are two kinds of companies, those that work to try to charge more and those that work to charge less. We will be the second” – Jeff Bezos
The above statement by Bezos highlights a key part of Amazon’s business model, which is to ensure that there is relentless focus on lowering the cost structure. The thing to note is that cost savings are actually passed on to the customer.
Contrast this with the way banks work. Most of the banks are seen working hard to increase or maintain their “spread”. There is a continual focus on increasing Net Interest Margins (NIM) by garnering low cost deposits, generating fee based income etc., all with an objective of profit and margin maximization.
A few years back when I was looking for a housing loan, I found that my bank was charging a whopping 1% more for a 20-year term. I am sure a similar story also plays out in deposits as well as other areas.
How I wish I could be confident that my bank will not overcharge me. How I wish I could take the bank’s offer at face value without having to read the fine print. How I wish I could be sure that my bank will strive relentlessly to provide me the best offer possible. Presently this remains just a wish.

Customer Experience

“The best customer service is if the customer doesn’t need to call you, doesn’t need to talk to you”. It just works.” – Jeff Bezos
Personally, I find the handling of returns and refunds a good barometer for judging the customer service / customer-centricity of a business. In Amazon’s case I was very impressed with the whole process.
Among many things, I had ordered a bottle of shampoo which was promptly delivered the same evening. When I opened the package, I found a dent in the bottle that was leaking shampoo. Returning the product was as easy as purchasing it.

finacle-blogger

The same night I used the customer service option shown above to lodge my complaint, including a photograph of the spillage. I woke up the next morning to a message saying that the refund process had already been initiated!
Let me contrast this with the experience I had when an excess charge was debited erroneously to my account. To get it reversed, I needed to visit the branch, submit a written application and then wait a few days for the internal approvals for processing the refund to come through.
Comparing the near frictionless and seamless return process of Amazon and the not so smooth refund process at the bank, it is clear as daylight that the former’s relentless focus on customer experience has permeated through and through.
How I wish that banks designed every possible banking interaction with customer experience in mind. As of now, they have a lot of catching up to do.

Final thoughts

For a long time now the “what” of banking has remained fairly stable. It’s in the “how” of banking that we are seeing tremendous action and innovation. Technology savvy, customer-centric companies like Amazon have a lot of lessons to offer to banks, such as providing wide choice, useful insight and delightful customer experience against a backdrop of trust and transparency.

Frictionless Customer Experience

Anything that makes the customer think causes friction. Example: it is difficult for customers to remember their login credentials. With the advent of biometric authentication experience of using applications has become frictionless.
Similarly, complex systems are difficult to understand without proper training, instructions, and FAQs. This also causes friction. UIs should be simple, intuitive and engaging so that the customer is delighted to use the application. Anything which is complex will not have many followers.
In this digital era, availability of many digital technologies has made life of all stakeholders easy. Following are some examples:

  • A business application developer can make use of cloud services to create apps with faster time to market without bothering about the underlying infrastructure. Based on the usage of applications by users across geographies the servers can be dynamically added without crashing the site, thus avoiding friction in end user experience.

  • A machine with IoT sensors can sense any complaint with the machine and transmit the information via network to a data exchange which processes the information and sends back response. An alert is sent to the end user suggesting actionable insights. This prevents sudden breakdown.

  • Blockchain network can help bring all stakeholders together for better collaboration and communication thereby bringing transparency. 

  • Analytics solutions are helping customers make better decisions by providing information that is personalized and contextual. This makes the customer feel empowered.

  • Automation makes users more productive by moving repetitive routine tasks to systems and shifting their focus to more meaningful work. Reduction in turnaround times of service requests also makes the customer happy.

  • Voice as an alternative to typing is more user-friendly and frictionless.

The new age technologies help anticipate needs, solve problems and improve efficiency. But security and compliance aspects must not be compromised at any stage so as to ensure seamless experience and customer satisfaction.

Who leads who?

Banks have globally witnessed and withstood an onslaught of changes in the last decade offsetting the absolute monopoly they enjoyed for the last one century.
These changes have emerged and originated not only in the financial/banking industry but also from entities that didn’t even exist a decade ago.
There are sweeping changes from the regulators as well who have joined the party, albeit not so much to the liking of traditional banks.
If we look at these changes in isolation and purely from the perspective of banking there are very few which are hard core domain related changes.
Changes started in the form of user experience offered by the new internet based tech giants (GAFA), progressed further by technology led startups- FinTechs, fueled by Government and regulatory directives.
As a result, we saw banks across the globe either in a denial mode, reactive mode or some even panicking, but very few being responsive and proactive to these changes.
This resulted in mergers and acquisitions, neo and challenger banks, digital only banks and finally some banks becoming invisible too!
Let’s look at three major change factors, their impact and the future state of these changes:

Influence/change by GAFA and FinTechs:

If we analyse the banks of 80’s,90’s and early 2000s’s what appears very common is – complacency of banks. Banks for obvious reasons took their business for granted which probably cannot be termed as negative from the position they were in.
As stated earlier, consumers of banking services are also consumers of other industries which offered them products and services in unique personalized ways and consumers were spoilt for choice and offers. But the same could not be said about their banking experience and that’s what led to the FinTech challenge.
As we know, at one point there were strong indications that FinTechs will close down traditional banks.
But now we see that banks somehow seem to have thwarted that threat by the sheer position they have in the market and the trust factor from consumers. But this didn’t happen overnight and not without paying a price. Most importantly this shook the entire banking industry and had some great learning too.
An offshoot of this challenge is that banks are now working more like tech start-ups with heavy investments made in futuristic technologies and platforms.

Change induced by regulators/governments:

Some of the leading regulators have always been keen observers at the global level and in fact at times have even taken proactive steps to embrace these changes in their sphere of influence, while still playing the role of regulators.
We have seen this phenomenon in India, Europe, Middle East, Australia and UK as age old regulations are revisited, new directives are framed and new business platforms are set up.
We can look at what NPCI (UPI) is doing in India, PSD2 in Europe, Blockchain banking in Australia, Open banking in UK etc.
Banks have lapped up these changes/challenges too or appear to have geared up to embrace them and here again, banks whether they like it or not learnt their lesson and for now, seem to be taking these challenges as opportunities to revive their branding and business.

Changes brought in by Technological innovations:

Interwoven with the above two influencing factors is the pace of technological innovations seen in the last one decade. The way data is presented, captured, processed, secured, analysed and used has changed from being manual to humanoid. Embracing this change has definitely not been easy for banks and in this process, banks have undergone overall transformation and have evolved into more lean, agile, digital and innovative organizations in the process.
Everyone in the process went through these waves of change thinking that they are the ones who are riding these waves and banks forever will be at the receiving end.
This leads us to think – who emerged as the winner, who lead whom?
In my view, majority of banks have taken a very balanced, matured approach and at times adopted the wait and watch approach too.
It’s an old saying that every now and then life comes a full circle. And who leads in a circle? Well, when everyone comes together and forms a circle/ecosystem of innovation is when we see a revolution that cannot be accomplished in individual capacity. To understand this is of utmost importance as we usher into the era of open banking.

GAFA – Retailification of Banking

GAFA, the four most famous (notorious?) internet based tech giants of the world – Google, Apple, Facebook and Amazon – are now synonymous with disruption of traditional business models.
The impact of the GAFA business model is industry agnostic, which is what makes it so special, and hard to ignore. Every entity, from FMCG companies to aggregators, manufacturers and even governments, (am not referring to the recent data breach by FB!) has been affected and has embraced GAFA in some way or the other. If nothing else, GAFA appears in the first slide of any corporate strategy presentation; such is the impact of these companies.
There are enough reams of paper and data on how these companies became what they are today, hence this post will not say more on that. Instead it will focus on the impact of Google and Amazon, without whom it is hard to imagine getting through a day in our lives (not just the online store, think AWS too!).

The experience:

Google is about connecting our world, providing insights on what works best for us (though it means reading our mails!) and influencing our decision making ability with its search engine optimization business approach. Right from managing our calendars first thing in the morning, to predicting the weather, mapping our routes, and booking our cabs, Google does everything to help us be more productive at work. It also helps us find things to eat and places to eat them, check movie reviews, book tickets, plan vacations, research doctors and what not! Essentially, Google is all over the place in the urban lifestyle.
Now, on to Amazon, which by virtue of its experience, has become the default store for buying anything from A to Z (or even when we don’t need to buy anything!). Amazon has actually flattened the world and completely changed the very experience of how we shop. Billions of dollars’ worth of sales take place in a single day thanks to Amazon’s large scale marketing, unheard of discounts, and ease of ordering.
Let us look at two other digital revolutions that have swept the whole of India and made waves worldwide – Reliance Jio and Paytm. Jio, in a matter of 3-4 months, made India the largest consumer of internet data in the world, at 1/10th the price, and ushered in a digital revolution with a ripple effect.
Paytm, on the other hand, revolutionized how Indians pay (not just the urban population, even villagers) achieving what even the largest telecom players could not do through their mobile wallets. Paytm now is a payments bank, has an online mall, offers most ticketing services, and “cashback” to boot.

Impact:

Google’s quality of experience has taught customers to demand the same from other providers, including banks. Customers expect consistent experience, aggregation of their financial footprint, the right information when needed, and help with decision-making. Open banking is an offshoot of this expectation, ironic, considering that Google is often criticized for killing competition.
Amazon and Paytm’s experiences have led to the creation of online marketplaces even for financial needs – insurance,  loan, credit card etc. – and expectations of a similar online shopping experience among customers.
This is what I would like to call “retailification in banking”- customers demanding a GAFA or Paytm kind of experience in banking too. I visualize banking becoming part of our lifestyle, embedded in all our transactions, staying in the background, like Google, and only becoming visible where required (like Amazon, when it helps me buy what I want, when and how I want it, and with adequate discounts!)

Future, extreme:

Extending the thought of retailification in banking to retailification of banking, in future would we really need banks to serve retail customers, or can GAFA and Paytm do that as well?
Can banks then concentrate only on large corporate clients, even as SME business requirements are mostly met by GAFA? I would like to think not.  I would rather see banks embracing the change soon and evolving into GAFA-type entities while retaining their essence.

Digital Banking, so what?

GAFA, Airbnb, Netflix, LinkedIn, UPI, Open Banking, PSD2, digital transformation, ecosystem play, analytics, AI, Blockchain and some more – together they constitute the what, why and how of digital banking. In the same breath we also talk about being cloud native, using RPA, establishing a start-up culture and so on, to recognize and accept both outside-in and inside-out strategies to become a Digital Bank for the present and future.
When they start their digital journey, most banks go through a “me too” syndrome, trying to stay relevant, and be recognized as tech savvy by analysts, peers and customers alike. In this process, they often reinvent themselves. In my view the outcome of this journey is dependent on how well banks accomplish this reinvention.

The journey:

Most banks, more or less, take the following approach to their digital transformation journey:
Define where they are, where they want to be and how they want to get there.

  • Define where they are – this phase can be quite a journey on its own and is mostly done in a bottom-up manner. This is the stage when banks open their eyes to the ground reality.

  • Defining where they want to be – this phase calls for introspection, external inputs and the preparation of short, medium and long term strategies.

  • Define how they want to get there – this phase focuses on things such as the organization’s culture, people, partners and investments.

Checkpoint review:

Banks on a digital transformation journey could find themselves falling short of their set goals at different stages owing to the following reasons:

  • The fast pace of digitalization, which requires the transformation strategy to be revisited or at least re-examined every 6 months.

  • A race against time and especially against nimble competitors, such as the likes of GAFA.

  • Complexity of transformation, causing both long lead times and internal resistance to change, which can derail the program.

And so what?

This brings us to a very pertinent and intriguing question: what is digital transformation?
What matters most in business is the health of the business itself and its profitability.
Earlier, business used to drive the IT landscape, but now we see that IT is driving business. While business continues to lead the change, it relies on IT to not just enable, but to play an important role in the achievement of its goals.
Though this can vary from organization to organization, a simple checklist driven framework of “WHAT” is necessitating the change, and what it is leading to, will make the journey more reliable and meaningful.
The checklist driven framework should be guided the following:

  • If it ain’t broke, don’t fix it: Dig deep to understand why something needs to be changed. Amazon’s back dated press release is a good example here.

  • Ask if the customer will get any value out of this change.

  • Also ask if the bank is deriving any value: This is very critical for avoiding the “me too digital syndrome” and ensuring that the decision is based on the impact on revenue, profitability and branding.

  • Well, it could be as simple as this – “we know that we need to change this, it’s time!”

Each bank should use this kind of checklist to evaluate its proposed changes to make sure that at least some of the boxes are ticked. Something that is applicable to a competitor need not be applicable to its own organization. Also, the bank need not have every technology under the sun (cloud!). Last but not least, it should never lose sight of profitability as that is what will allow it to be what it is in the present, and also stay relevant in the future.

Are Platform Banking and Bank-as-a-Platform, one & the same?

The information industry has evolved from monolithic applications, to client-server technology, to thin connections, to components & services, and the latest in this trend is ‘platform’. The significance of ‘platform’-ing an application varies in different degrees for different industries. ‘Platformification’ is becoming increasingly significant in banking or in the financial industry at large. The common understanding of platform in banking industry can be well described by using key words such as ‘standardization’, ‘industrialization’, ‘open architecture’, ‘intuitive’, ‘personalized’, ‘model driven’, ‘componentized’, ‘cloud ready’, ‘API enabled’, and more. While all are required to complete the definition of a platform, the best platform is one that allows the business to innovate and differentiate.
Application Programming Interface, more commonly known as ‘API’ is a key aspect that can elevate an application from the current state to a platform. APIs empower the application to allow exposure to business rules, definitions and usability in a manner that can be easily adapted to a given scenario thus providing a seamless methodology to integrate applications and components of varying maturity implemented for different technologies.  While there are several other aspects such as data models, DB agnosticism, layered architecture which play an important role in re-inventing an application into a platform APIs are the key ingredients in this journey. The more open an application becomes by using APIs, the closer it moves towards becoming a platform.
There are several standards in the API industry and slowly these are getting converged into one or two major groups. Native APIs, RPCs, SOAP APIs, REST APIs are coming together and we will soon witness most of these getting mapped to some sort of standard way of representation of application business.
The core matter to consider is that whether platform banking and bank as a platform are one and the same? Do APIs in terms of definition and applicability carry the same relevance in these two aspects? 
While it appears in the current state that the two convey the same meaning, we are beginning to clearly see the distinction between the two. Platform banking will continue to evolve the way it is currently going, helping banks open up more and more services for internal and external players and to re-imagine banking business through various means. However, it will still continue to revolve around the services, offers and differentiations provided by the banks or associated entities including Fin-Techs. Banking as a platform will soon imbibe an altogether different meaning and it will allow the clients or more commonly known as ‘account holders/CIF’ of the banks to reimagine banking in a way that is highly personalized to individuals. The journey on this front has already commenced for corporates and it will spread to retailers and individuals in a short span of time.
To differentiate the two aspects in a better way, let us consider the following examples:

  • Financial institutions including banks would like to separate processing of payments (including non-financial messages) from the core banking applications. This necessitates the payment processing hub functionality to be separated out and configured as a platform through which banks can interface with various standardized payment gateways. The platform is expected to be open in terms of architecture, must have API support, be extendable for corporate cash management processing, be cloud ready and so on. This qualifies the definition of platform banking.

  • A retail customer of the bank would like to configure and personalize an investment product as per his/her requirement. This would involve user experience, modularity, abstraction, compliance and the ability to manage individual products designed by a bank’s customers. The ‘bank’ will be abstract in this case and ‘banking’ for all practical purposes will be carried out by the customer. This requires the bank or banking to be available to all customers/prospects as a platform. Re-imagined APIs will enable this aspect.

Therefore, APIs will evolve into another ‘avatar’ to enable bank become a platform for its customers. The differentiation of platform banking and bank-as-a-platform will further help APIs to drive differentiation and simplification of the industry as a whole. The eco-system involving ERP systems, cloud ISVs, Fin-Techs will harmonize more and the banking community as a whole will altogether leap into significantly higher orbit. With changes in lifestyles and behaviors, banking will become more and more visible to customers and bank by itself will remain invisible to a large extent.

Culture of Analytics

What separates humans from the rest of the living beings is the power of thinking.  While the anatomy of all humans appears more or less the same, the most differentiated factor between two individuals is the ability to think differently. Well, thinking as per science is nothing but composition and reaction of chemical substances in our brain, and it is mesmerizing to see the variation in this process between people with ‘mind’ [‘minded’ needs clarification]. Ability to have a right mixture of chemicals at right interval of time and in right proportion makes people step up their level of thinking. Is this a gift of nature by birth or can we train humans to think better? While it certainly has genetic influence, a large part of thinking can be trained and that is where culture plays a major role.
Analytics is a result of differentiated thinking by humans. To be able to analyze, one must have the right balance of experience, data, presence of mind and most importantly the ability to synthesize information and think ahead for the solution. A well trained brain can definitely produce better analytical results than a disoriented brain in terms of culture. While technologies such as big data, AI add to the effectiveness of analytical thinking, the cultural part of it influences the most. When we refer to culture, it is not limited to the cultured analytical ability of the thinker; it also covers the aspects of cultural behaviors of the data subject.
Let us specifically look into this matter from a financial/banking world’s viewpoint. Well known analytical theories rally around volume of data, the financial behaviors of customer, the pattern of financial accounting, past history (again financial) of the subject in view, etc. It is interesting to notice that most such theories keenly focus upon ‘technical’ or ‘financial’ or ‘social’ behavior of the entity.  Most analytics completely miss out the cultural behavior of the subject matter. 
It is a well-known fact that individuals are majorly influenced by two aspects, one being the genetic quality and second being the culture in which he/she grows up. The culture includes all matters such as religion, region, family background, parents and parental behaviors, society in which individual has grown up, institution where he/she was educated, company of individuals/groups involved with the individual, value system of the family, financial and social behavior of the family, hobbies, etc. 
For example, consider the matter of generating a predictive analysis on whether a specific individual will default loan repayment or the probability of a loan becoming an NPA. We usually look at past financial behavior of the individual, his/her current earning capacity, availability of continuous cash flow, etc. to determine the probability of NPA. However, most important factor ignored in most such analytics is the cultural background of the individual. If the person hails from a culture where it strongly resists defaulting the loan, no matter what, the individual will make up and ensure the loan repayment is honored to the best of his ability and it can supersede all other analysis.
Let us focus on another example, which is a blend of cultural analytics as well as run-time or real-time user experience. Colors and cultures go hand-in-hand as each color means something in different culture. Color will also change according to situation within a culture. Therefore, if only applications can determine the culture, life events, occasions and circumstances of individuals, it can remodel the appearance (UX-UI) according to the cultural background.  This helps provide a personalized and contextualized experience to the users.
The current analytical engines therefore must be tuned to look for ‘culture’ of subject matter as one of the most important pieces of information and build a ‘cultural’ database for all subject matter entities. While all other behaviors of individuals can change over a period of time, the culture and value system will remain engraved with him/her and that can help to predict the financial or associated behavior in a more cultured way. One of the ways how this can be done is to build ‘cultural’ database for individuals that signifies the background, society, value system more so in defining real ‘character’. Social behavior and cultural behavior are different and in critical situations, culture takes over social behavior and therefore analytics can become more real-time.

Advancements in Trade Finance

Globally, trade finance transactions encompass multiple steps/processes heavily dependent on manual processing which is prone to errors.
The complexity involved in processing trade finance transactions can be understood by looking at the number of players involved right from the importer, exporter, importer’s bank, exporter’s bank, insurer, custom house, shipper and so on. The user processing the transactions needs to go through various types of documents and capture numerous data; some used for processing and some only for reporting and information purpose.
Overall, there is a need to invest in advancement in processing the trade finance transactions enabling the manual activities to be more abridged, eliminated or industrialized. Investment focusing on digitization will help the bank in providing a better customer experience and in reducing the cost of processing.
Advancement in trade finance processing can be targeted in the following areas:

  • Processing enablers like OCR

    Smart Optical Character Reader (OCR) is the solution to move to a more efficient way of processing trade finance transactions. This shall help in extracting data from the documents and automate processing the transactions. Adoption of the technology will help reduce time to process the transaction, reduce the mistakes as the process is automated and make the process cost-effective.

  • Enabling electronic channels within the Bank and the Corporate

    Banks are adopting technologies which are enabling the corporates to increasingly rely on electronic channels to interact with the bank, including request for processing a trade finance transaction. Adoption of the channel aimed to enable digital flow of information between the bank and the corporate clients and vice versa will lead the way towards processing trade transaction as a straight through process without paper.

  • Adoption of Blockchain

    Blockchain as a platform can also help advance the way a trade finance transaction is processed. Since blockchain allows real time transparent and secure means of sharing information between multiple stakeholders, it will help in smoother and faster processing.

  • Internet of Things (IOT)

    Finally, IOT is an area which is ready to unsettle traditional trade finance processing. The technology will enable connecting the goods in transit to internet, resulting in tracking and monitoring of real time movement of goods. The same will help in reducing the risk on financing a trade finance transaction and will bring better control over fake transactions.

    Adapting to IOT will also see inflow of additional set of data pertaining to the details of the movement of goods, e.g. GPS details of the goods, and this will require digitization of traditional trade finance system. The current labour-intensive and paper based processing will become more complex.

To conclude, because of the complex manual transaction involvement, advancement in trade finance processing despite moderate progress in the past is an area of high priority for all banks. The advancement involves revamping the existing and other surround systems. The fact that the end state cannot be achieved immediately, the banks need to lay down the path with a short, medium and long term view for the end state.