Banks need to re-evaluate their vertically integrated banking business models by considering platform-based business models.
The platform-based business model has taken hold in the digital economy, and the concept is starting to emerge in banking. Aided by ubiquitous mobile access and easy distribution through mobile app stores, FinTech companies and some progressive banks have started to make inroads with the customers of traditional banks. This threatens the banks’ vertically integrated and product-focused business model, which is not always suited for building or integrating innovative FinTech services.
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Introducing platform-based banking
A platform for financial transactions would need to establish “plug-and-play” standards enabling developers to build innovative products and services for consumers. The platform infrastructure would manage the secure exchange of data, oversee authentication and authorization, and ensure compliance with relevant regulations.
Oversight and governance of a banking platform would ideally be managed using defined and shared standards among institutions working in federation with network operators and associations of FinTech companies.
Fast-moving banks have already started taking steps toward the platform strategy and building their own platforms. The largest banks are involved with developing projects jointly with partners and with each other, and some are establishing FinTech divisions with the skill sets needed to develop software for these platforms. The banking marketplace has also seen online lending and deposit products coming from new entrants, including institutional banks that traditionally avoided retail.