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.
"The broader digital economy has seen a clear trend toward platform-based business models"
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.
Organizational and technological aspects of platform-based banking
We believe that traditional banks possess the skills and resources to execute upon the vision of building a platform-based bank.
The most challenging aspect of moving to a platform-based approach will be in managing the organizational change involved, which is an integrated effort that covers everything from strategy and governance to customer experience management.
Organizational aspects of platform-based banking
Set a platform-based banking strategy:
Commit to building or joining a banking platform, and decide upon an approach through a combination of partnerships and alliances, technology incubators, FinTech acquisitions or investments, and internal FinTech capabilities
Reshape the business architecture:
Decompose the operations into capabilities and manage interactions and services with third parties
Put together a multidisciplinary team:
Include product owners from the lines of business, technology experts, and specialists in risk, compliance, and digital strategy
Redesign the customer experience:
Leverage design thinking approach to identify the customer journeys that should prompt digital offerings from the platform, as well as those moments that require human interaction
Simplify the internal product lineup:
Focus on profitable products and discontinue products that are not competitive on price or other dimensions, especially if they have significant variable costs associated with their operations
Make distribution and operations platform-ready:
Train employees and the call center to guide customers toward platform-based services as appropriate; sales incentive structures need to be adjusted to account for the platform-based business model
Highlight digital expertise across the org chart:
Re-evaluate existing organizational structures to place a focus on digital talent management; establish incentives for a test-and-learn culture of innovation
Realign the process, risk and control (PRC) framework:
Extend the control environment to third parties, document and trace PRC changes, and manage the impact of regulatory requirements and risk management concerns
Technological aspects of platform-based banking
Upgrade data and analytics:
Ensure that you can act on usage metrics and transaction data generated through a platform; create a single view of the customer to enable targeted products and other interfaces with platform offerings
Pursue process automation:
Streamline operations for existing manual processes and existing operations, so that bank capabilities can be delivered through APIs as platform-based services to FinTech providers
Adopt next-generation technology:
Ensure compatibility with advanced services by deploying flexible IT infrastructure that enables open collaboration with partners, customers and employees
Update development approaches:
Train development teams in Agile, microservices, and DevOps, mimicking FinTech approaches to synchronize with their development capabilities
Experiment with minimum viable product (MVP) and rapid prototyping:
Regularly push out product features and enhancements to customers as part of a continuous feedback loop with customers to understand what works, and what doesn’t
Maintain open banking APIs:
Provide managed third-party access to bank and customer data, so that FinTech companies can integrate and test their apps in a sandbox environment, and then easily move to production