Platform Banking — Can we call banks the new e-commerce?

Published in

FinTech 2030

4 min readAug 11, 2021

What is platform banking? How is it different from banking as a service and open banking?

Platform banking is diametrically opposed to both BaaS and open banking. Unlike past models, the bank does not share its infrastructure and instead combines the services of other companies into its own app. Why does it behave in this manner? To begin with, to compete with organizations that are more progressive and agile. The old bank paradigm is now somewhat obsolete. In terms of innovation and a range of in-app rewards, it falls short of modern fintech offerings. Big banks are at risk of losing customers in this situation. That is why they are investing in technology and using third-party technologies to improve the user experience.

As per the research done by IBM, the highest percentage response for any industry studied was 68 percent of consumers eager to exchange personal information. Platform business models, according to 72 percent of bank executives polled, are disruptive to the banking industry as a whole.

The platform future: Disruption as opportunity

Banks should embrace the open banking revolution rather than relying solely on third parties to integrate and deliver innovative services. Banks should come up with APIs to integrate their banking with the customer’s app as soon as possible. The target audience for this programme should be large business customers. Banks should design their own ecosystems in response to market demands, in addition to participating in the open banking ecosystem as mandated by regulatory rules.

The HSBC Connections Hub, a social network where corporate customers can interact with buyers and sellers all over the world, is a nice example of this. Business customers are HSBC clients, which saves buyers and sellers time and money by eliminating the need for due diligence checks, allowing them to transact business more easily.

Platform banking is unavoidable, and those who get it right will reap enormous rewards, including not only increased reach, scalability, efficiency, and growth, but also extraordinary valuations: a platform firm often receives a price that is 2 to 3 times that of a linear business. Platform businesses received $494 billion of the $700 billion in private equity funding in 2017.

Bank as a platform for aggregation

The moment is right for banks to start acting as data aggregators. Banks must employ analytics to harness their extensive data warehouses in order to provide customers with the best product and service recommendations, even if those offerings are from a competitor. The majority of customers in our poll were hesitant to pay more costs for value-added services from their bank, while only 10% of customers claimed they would be prepared to pay extra fees for such services. While delivering third-party services on its platform, the bank must seek new revenue streams and cut costs, even if this means consumers incur monetary and non-monetary costs (time).

Benefits for the banks

A platform typically improves company in two ways: first, it produces value to attract customers, and then it uses the same ecosystem to collect value for itself. Apple provides as a wonderful example yet again.Apple is an excellent example. It leveraged on its software strength to increase value by developing a platform and reaping the benefits of the ecosystem after drawing millions of customers by offering phone communication, Internet, and data on the same device (iPhone).

Banks are well positioned to adopt a platform business model, despite the fact that it may seem illogical. They have a lengthy history of offering value through a variety of financial goods and services, therefore they are far past the first stage. They now have the chance to create a new ecosystem in which consumers can meet their demands, vendors can grow their businesses, and banks can earn both loyal clients and additional money through advertising, subscriptions, and transaction fees.

Finally, platform banking approaches create a variety of business strategy concerns. Is platform banking an addition to or a replacement for existing businesses? Should banks investigate this approach separately from their regular business? Should they substantially restructure their core business to adopt a platform strategy?

Platform banking is projected to make the shift to a new business model more difficult, but the payback might be enormous. While establishing platform capabilities will raise many questions, banks should not wait too long to investigate this concept. Being the first to market can provide significant benefits. And it’s possible that the future of platform banking will arrive sooner rather than later.

References:

Platform Banking — Can we call banks the new e-commerce?

Written by Truptesh Wagh