The earlier article in this series described how evolving customer demand, persistent regulatory pressure, disruptive technology and a new breed of platform players are creating the case for traditional institutions to reinvent consumer banking.
In particular, bigtech platforms go beyond a single business, product-oriented approach to collaborate with a multitude of partners to enhance customers’ financial lives. Similarly, banks that want to stay relevant to their customers need to push their traditional sectorial boundaries, collaborate and converge with other industries, and adapt platform-based business models.
What is a platform?
A platform is a digital infrastructure that allows multiple stakeholders (the providers: platform owners, third-party developers, distribution and services partners; and end-user consumers) to connect online, interact, create and exchange value with each other.
Participants in platforms shift from operating within a specialized industry to being part of a broader ecosystem, expanding their reach by linking to interconnected businesses from across multiple sectors. Operating in an ecosystem allows providers to switch focus from merely selling their own offerings to fulfilling customers’ desired outcomes. An integrated user experience in turn raises collective value for all stakeholders involved.
It is believed there are four key elements to platforms:
They are powered by information. Customer data is the digital asset upon which entire ecosystems are built, allowing providers to utilize integrated customer information and feedback captured within their platforms to improve personalization and contextual awareness, identify new market opportunities, and increase customer value.
The ecosystems within platforms are highly customer-centric gateways that allow consumers to access and switch between a range of related offerings across industries without needing to toggle between portals or manage multiple login identities. An example of such a frictionless gateway is a mobile application that enables users to text, make voice and video calls, transfer funds, place reservations, interact with retailers and play games among others. The formation of digital ecosystems results in the convergence of industries as boundaries blur and platform technologies connect consumers, businesses, governments and societies in new ways.
They use the network effect as their ecosystem of participants expand. Well-constructed platforms use external talents and assets, and take on momentum of their own as participants interact, generate reciprocal value, and help extend these infrastructures. As ecosystems grow exponentially, providers (banks included) would need to individually craft new business models and offerings, and collectively deliver on a wide range of solutions. That in turn, create much greater distribution, depth and breadth of customers, and higher consumer stickiness than could realistically be achieved by any single company.
Solutions on platforms are built using open source application program interfaces (APIs) and standards, creating new distribution opportunities via partner technologies and channels, and facilitating expansion into complementary services or new, adjacent businesses. Given the more diverse community of providers, customers also benefit from getting feature-rich experiences and much wider scope of offerings compared with the original platform as shown in Figure 1. Participants further benefit from social sharing and feedback, and from being part of digital communities of like-minded users.
Figure 1: Transitioning from linear value chain to platform-driven business models
Source: EY, 2018
Given the allure of platforms, more than 50% of large enterprises, and over 80% of those with advanced digital transformation strategies will have participated in a platform-based modeli by early 2019 to more effectively engage customers, improve offerings and accelerate customer acquisition.
Why do platforms matter in financial services?
Platforms matter because services, these days, are personalized. Just like how curated playlists on Spotify are replacing albums for songs, industries can no longer release pre-packaged ‘albums’ (i.e., product offerings) that are one-size-fits-all. Delivery methods should ideally be modified to cater to the customer of one.
Marketplaces and their ecosystems are most mature within consumer-centric verticals such as health care and medical advisory, travel, auto and real estate search, and financial services (FS). In FS, an ecosystem encourages firms to go beyond a proprietary, product-oriented approach and work with partners to deliver comprehensive solutions that can simplify customers’ financial lives. For instance:
- The ASEAN Financial Innovation Network (AFIN)ii facilitates innovation and collaboration between a network of financial institutions (FIs) and FinTechs though API Exchange (APIX). This marketplace enables participants to collaborate in a sandbox environment and drive financial inclusion across Asia-Pacific through FinTech innovation.
- Global payments technology companies have platform strategies to connect card issuers, acquirers and other payments service providers such as banks to merchants and consumers for seamless e-payments.
- Progressive insurers are embedding themselves into wider ecosystems for mobility, connected homes and cars, health diagnostics and medical advice, and financial planning.
Ideally, these innovative delivery models should embed customers’ financial interactions as part of their daily activities (such as shopping and entertainment), and help them achieve personal goals (such as funding a wedding, home ownership or education). This is possible as collation of rich customer data on platforms enables financial institutions and their ecosystem partners to better understand customers, then craft personalized or contextual offers that satisfy their current or even perceived future needs.
Figure 2: Providing an integrated experience within the FS ecosystem
Source: EY, 2018
Where there are regulatory mandates requiring open API policies, customers also benefit from the push for third-party collaborations with banks. In those markets, customers’ options for financial solutions will evolve from the current linear model to one where products and services are not limited to individual institution’s offerings. We expect to see financial platforms further evolve to digital ‘app stores’ (i.e., akin to the Spotify for FS) where customers can select desired services from multiple providers to build their own bespoke financial experiences.
Where are platforms working well?
Within the retail FS front, we see platform strategies being successfully applied by trendsetters in Asia-Pacific to elevate digital experience of clients and to collaborate with disruptors to deliver digital FS.
Elevating the digital experience of clients
Emulating the all-encompassing bigtechs that operate lifestyle ecosystems, digitally ambitious institutions are similarly aiming to become the unseen facilitators, providing a single integrated experience within the financial ecosystem.
- Ping An Insurance: China
Most insurers are primarily risk aggregators, but Ping An, with over a million employees and agents, has been able to use its ecosystem to tap into China’s massive e-consumer market. It offers services such as finance (Ping An Bank), peer-to-peer lending (Lufax), health care consultations (Ping An Good Doctor), real estate and auto listings (Pinganfang and Autohome respectively), and entertainment (Huayi Brothers) to over 430 million digital users via its One Account customer portal.
These multiple offerings generate consumer traffic back to Ping An’s core servicers and have elevated its status as the world's largest and most valuable insurance brand, and one of the largest investment and asset management companies globally. Ping An is probably one of the innovative institutions that best embodies “being everywhere” to cater to the requirements of customers.
- Discovery: South Africa
Discovery’s health care platform Vitality Shared-Value Insuranceiii, allows for dynamic risk-based pricing depending on policyholders’ personal commitment to their health, allowing for all platform participants to monetize better health. Proactive performance tracking reduces health risks by 22% leading to lower payouts by the group, while customers benefit not only with healthier lifestyles from meeting fitness goals, but with financial benefits in the form of travel, lifestyle and shopping rewards from global partners.
Discovery exported this platform model to leading global insurers (AIA in ASEAN, Ping An in China, Sumitomo in Japan, Generali across continental Europe and Manulife in Canada) enabling it to penetrate these markets via joint offerings. Ever since the launch of Vitality two decades ago, it has grown to provide access to its brand, product offerings, technological innovations, actuarial and data insights, and program assets across 16 countries, serving around 10 million clients through seven international insurers.
Collaborating with disruptors to deliver digital financial services
Many disruptors operate more in collaboration than in direct competition with FIs, helping them innovate quicker and cheaper, explore new distribution channels, or address customers’ needs more holistically.
- United Overseas Bank: Singaporeiv
United Overseas Bank (UOB) tied up with Chinese FinTech PINTEC to launch Avatec, providing quick and efficient digital credit assessment solution to FIs and other sectors such as e-commerce, telecommunications and retail that offers products such as point-of-sale financing and personal loans to potential customers. These tools harness the power of artificial intelligence, machine learning and anti-fraud algorithms to determine applicants’ credit quality within seconds, targeting the financially excluded in Indonesia and other Southeast Asian markets.
- KEB Hana Bank: South Korea
Hana Bank partnered with Samsung Electronicsv to deliver joint FS in mobile certification, payment and settlement; enter foreign markets; and introduce an affiliated reward point systems for customers of both organizations. The collaboration also allows for the bank’s accounts to be supported by the country’s top mobile payment system Samsung Pay.
- Macquarie Group: Australia
The first Australian-based bank to make its API available to third-party developers, Macquarie strengthened its Open Banking platformvi via partnership with cloud-based FinTech personal wealth platform, myprosperity in May 2018. This provides myprosperity’s customers access Macquarie’s investment and cash management accounts, and connects their portfolios through automated data feeds to gain real-time, consolidated view of their financial positions.
- Credit Saison: Japan
Consumer financing company Credit Saison collaborated with ride-hailing company Grab’s FinTech platform, Grab Financialvii, to offer small-ticket financing to consumers across Southeast Asia. This partnership uses Grab's information pools to provide alternative data points for assessing credit worthiness, using behavior from the app such as transport movements, geo-location and GrabPay transaction data.
FIs must explore platform strategies
As the world of FS becomes more fragmented, progressive brick-and-mortar institutions are reinvigorating their strategies by embracing platforms and tapping into their ecosystem of participants. They understand the vast opportunities to innovate through platform models, and are utilizing these to provide integrated customer experiences and co-create with nonbanks.
As playlists replace music albums, platforms could well replace FS. Like these innovators, other institutions should likewise have a platform strategy, if they don’t already. Read on to see how traditional institutions can implement the three Ds (of digitalization, differentiation and disruption) to adapt to today’s platforms and ecosystems.
Partner and Digital Platforms Lead
FSO IT Advisory
EY Banking and Capital Markets
Future of consumer banking in APAC
Part 1 – The case for change
Future of consumer banking in APAC
Part 3 – Digitize, differentiate, disrupt