On the Platform We Bank
Chief Business Officer and Global Head, Infosys Finacle
Research from the World Economic Forum’s Digital Transformation Initiative indicates that digital B2B platforms could create up to US$ 10 trillion in value for business and society between 2016 and 2025. According to a leading IT research and advisory firm, more than half the companies in the Global 2000 list will experience a third of their digital services interactions via open ecosystems.
If there is any residual doubt that the platform business model is here, and here to stay, the global leaderboard of companies by market capitalization – where the top 5 positions are taken by platform businesses – should dispel it forever.
The trend is also underway in the world of banking and financial services, and is most visible in the spectacular success of technology giants like Alipay and WeChat whose platforms carry 95 percent of Chinese money transfers today, or of Fintech firm, Paytm, which has notched up 250 million customers that it plans to double by 2020. However, the bigger news is that incumbent banks, who are not digital natives, are also plunging into the platform economy in earnest: think of JPMorgan Chase and Capital One collaborating with Amazon to launch checking accounts on the latter’s platform. DBS Bank has gone so far as to envision itself as a part of a platform world order that it has nicknamed “GANDALF” – standing for the GAFA lot along with Netflix, LinkedIn and DBS (as the “D”) – sometime in the future. Most progressive banks around the world, from HSBC to Deutsche to BBVA, have got some platform action going.
In a document produced in collaboration with our Banking Visionary Council, we identified 6 strategies to enable banks to build a platform business. APIs (Application Programming Interfaces) are at the center of each of these strategies as they render a bank’s various properties – products, services, distribution, applications, operations, data, licenses, compliance, etc. – accessible to authorized third parties such as developers, partners and collaborators. But to attract interest in its published APIs, a bank must first provide the right tools, sandboxes, support documentation and API usage guidelines, all of which contribute to user experience. Now, the bank is ready to pursue any or a combination of the following approaches to create its platform business:
1. Embed banking in the customer’s application or form factor of choice
A bank’s relationships with corporate clients is a good starting point for this strategy. Big companies typically exchange large quantities of information with their banks via a cumbersome upload/download process. In the past, a host-to-host connection eased this somewhat, but was unsustainable since it lacked standardization. Now, the API offers a great alternative by enabling banks to expose various services that corporate customers can take as needed. After corporations, Fintech firms make the best prospects, given their appetite for APIs on which they can build new experiences.
Having identified the customers for their APIs, banks must embed their services in their (customers’) applications, form factors and business processes to enable them to provide value to their end customers. A popular mechanism is to build an API store, or alternatively, a development center, to expose APIs to those who want them. BBVA and Citibank figure among a long list of banks with API stores or developer portals.
2. Participate in an ecosystem
A bank would probably also want to join other ecosystems to expand its reach. Sometimes, this decision is forced by open banking regulations, as is the case with the Payment Services Directive 2 in Europe, Open Banking in the United Kingdom, or the Unified Payments Interface initiative in India. If the bank were only guided by strategic considerations, it would likely seek to join the giant payment ecosystems of Apple, Google or Amazon.
3. Curate an ecosystem
Large banks, or those deeply committed to the platform idea, may want to curate an ecosystem to gain both momentum and a community of producers and consumers who will benefit from the business. We can see quite a few examples of banks with such initiatives. There is the HSBC Connections Hub, a network where the Bank’s business customers gather to buy and sell to other HSBC customers around the world, or simply to connect with peers. A couple of years ago, Deutsche Bank built a digital platform or “UnternehmerPortal” for SME customers where they could access benchmarking, business intelligence, credit monitoring and trade information tools.
In some cases, a couple or more banks are getting together to build a platform ecosystem. ICICI Bank and Emirates NBD, for example, have collaborated with Infosys to build a Blockchain-based network to carry international remittances on the busy India-UAE corridor. Last July, seven banks in Singapore went live on PayNow, a money transfer facility requiring only a mobile number or NRIC that they built together. India is waiting on a similar banksled initiative to create a Blockchain-based ecosystem of banks, trading partners and shipping companies facilitating exchange of information and documentation in international trade deals.
4. Buy out or invest in an ecosystem player
Buying out an existing ecosystem player is an expedient alternative to building an ecosystem organically. This is what Alibaba chose to do in India when it took a stake in payments and ecommerce platform, Paytm; in Europe, Groupe BPCE of France did something similar by acquiring Fidor Bank, a platform-based bank from Germany.
5. Offer banking as a service
Banks following this strategy pool their strengths with the complementary strengths of Fintech companies/neo banks to offer banking services. Under this arrangement, the younger partner consumes basic banking elements – technology stack, operations, network connections and compliance – from a licensed bank as a service, and builds new customer experiences and value propositions on top. The Moven-CBW alliance is an example of this. Germany’s Fidor Bank also provides a full stack of banking services required by digital banks and others – telecom company, O2, for example, taps Fidor’s banking services to offer a credit card to its customers. In India, a Fintech firm named Moneytap layers its offering of quick, short-term, small loans on top of a banking service it consumes from elsewhere. Moneytap’s role is to find and enroll customers, gather the information needed for underwriting, offer underwriting tools and services, and act as an intermediary between the customer and the lending bank.
6. Offer services to other traditional banks
Similar to the abovementioned “banking as a service” approach, this approach envisions offering services to incumbent banks. In 2013, Denmark’s Danske Bank launched MobilePay, a mobile payments app, with immense success. With 3.3 million of the country’s 4.5 million adults using the app, other banks, such as Nordea and Jyske, had no option but to partake of the service. In China, WeBank offers its payment services riding on the WeChat network to smaller banks that cannot afford to build a real-time payment service on their own.
While these strategies offer a path to a platform business, being adopted by most banks, they do not afford much differentiation to their followers. The only way for one bank to distinguish its platform business from that of another is execution excellence.
On the business side, execution excellence comes from having the right talent, right external partner, and the courage to cannibalize part of the existing business in order to feed the platform business. It also calls for refreshing the banking mindset – which has always been about a bank designing, manufacturing and distributing products and services it owns, on channels that it also owns – and opening it up to the possibility of operating a financial services marketplace featuring best of breed offerings from the bank’s own stable as well as from other providers. The way performance is recognized in an ecosystem business model will also differ from traditional banking KPIs. One example – the platform bank would need to reward creation of collaborative business use cases.
From a technology perspective, excellence in implementation is, to quote from DBS Bank’s digital strategy presentation, about employing modern product design principles, finding the right product owners, agile product management, the right product funding model, and good product governance.
Since the transition from a traditional “pipeline” business model to a platform bank is a difficult one, not all banks will succeed at it. This will lead to a spate of consolidation because in the platform economy there are no middling survivors, only winners who take all. A bank can improve its chances by executing impeccably of course, but also by moving quickly. Amidst so much uncertainty around traditional banking, the rise of the platform/ecosystem business model is a rare certainty. There is no reason to hold back.