Banks should get rid of their mobile apps… soon!
Have a look at banks these days. Their innovation adoption approach is quite strange. On one hand legacy core systems, ultra-complex data-warehouses and on the other hand tendency to provide mobile apps as fast as possible.
Why? It's obvious, mobile apps are simple to create. It's new way how to make more transactions and to provide new simple products on-the-go. And of course for Generation Y usual way how to deal with almost everything.
However the rise of the fintech companies seems to change the perception of innovation in banking. And it seems, that the banks are doing it wrong.
Service provider or Platform owner
To clearly understand what's going on, let's start with two terms:
- Service provider
- Platform owner
Platform owner is a company owning a platform, which is fundation for providing other service. Platform owner is focused on providing best of breed platform within particular industry. Looking for examples? Microsoft, Oracle, Intel, Samsung, Facebook, Teradata etc. All these companies focus on providing some kind of platform which is used for building other applications.
On the other hand Service provider is a company providing service without owning any platform. Service provider is focused on providing remarkable apps or services. Some examples? WhatsApp, Uber, GoodData, Zynga, etc. These companies may leverage platforms created and maintained by their owners.
Uber is clear example. Uber wants to change transportation without owning large fleet all over the world. GoodData same way: providing cloud based data analysis without owning or building large data-warehouses like Teradata does.
Surely the larger the Service provider is as a company, the more incentives to become a Platform owner.
The split between Service providers and Product owners may not be sharp and of course may change during the time. However being one of these clearly states what is the company's goal. And that's one of the most important advice any startup company gets is: FOCUS. Focus on one thing, provide the best user experience and hope for the bright future.
However, banks do not focus nowadays.
Is bank a service provider or platform owner?
So what about them? Are they service providers or a platform owners? Currently in 99% cases they are both. Banks are trying both to deliver best of breed mobile and web apps and to provide the best financial products.
The problem is, that there are and always will be smarter and faster startups focusing only on the mobile apps user experience (Mint), simple and swift transactions (Square) or realtime general ledger (Ripple, Blockchain). Too many battles banks can't win. Even if they try so hard.
Bank should ask themselves: Is there any necessity to invest and try to fight? Or should we find new goal? Well this is something what has already been solved, with huge success.
Shortly back to history: First generation of iPhone was just interesting phones. Expensive, easy to use, shiny, but still phone. The great change occured in the mid of 2008 with the introduction of AppStore. With this move, Apple became a platform owner and the sales started to growth.
Apple wants to create the best devices in the world which simply leads to providing great platform. All service providers — no matter if you develop games or provide payment transaction tool like Square does — leverage from this platform and are monetizing it.
Banks as platform owners
Now it's banks turn. Banks should start to focus. And I believe that becoming a platform owner is the best approach. Why?
First of all financial products are complex and need lot of experience, which is already within the banks. And there is still huge place to provide customizable modern financial products.
Secondly becoming a platform owner means understanding your customers. When banks provide their platform to service providers, they reach much wider audience than they would reach in case of doing it all themselves. The equation would look like this: The wider audience, the more relevant data to be analysed. The more data, the better understanding and predictions. The better predictions, the more financial products sold.
Becoming a platform owner has another advantage: The Ecosystem. Ecosystem is what drives platforms. Just look at the latest Slack move: Slack is now a platform owner supporting service providers to monetize its platform (http://www.businessinsider.com/slack-launches-own-vc-fund-and-app-store-2015-12).
The same should be embraced by banks. They should immediately start creating Open APIs, implementing latest data analysis tools and replacing legacy core system with realtime ones. Cooperation with startups should be intentional in order to create platform as best as possible.
All these activities are the corner stones of the new banking ecosystems.
By the way, becoming a platform owner has several key financial benefits:
- Lower costs — leaving developer teams to tech companies
- More customers — each service provider may reach audience, bank would't be able to reach
- New revenue stream — Banking App Store sales introduce fees payed by service providers
- Monetization of data — Understanding customers and specific groups introduces new business stream to banks
Surely there are many risk bank would face during the transition: Brand awareness, technology complexity, regulations, etc. But the focus is something deeply needed within the banking industry. Banks try to play on too many playgrounds these days.
So banks please, get rid of mobile apps. The sooner, the better! The money is your platform.