“There are hundreds of startups with a lot of brains and money working on various alternatives to traditional banking,” wrote Jamie Dimon, CEO of JPMorgan in his 2015 letter to shareholders. That was four years ago. But things haven’t slowed down in the financial sector – meaning this is both a challenging and exciting time for traditional banks.
After all, banks have historically been organized according to the products they offered while managing compliance reporting and risk quotients. Offers are often promoted that do not interest customers – and, as a result, major financial institutions are still missing out on various business opportunities today.
Meanwhile, FinTechs and challenger banks continue to have an advantage over more traditional financial players. These companies have systems that can be scaled up and down, modified quickly, and changed at speed to fit any business or customer need. They can do this because IT functions are seen as core business strategy enablers that provide a competitive advantage.
This is why banks are starting to focus on technology-powered solutions. These solutions respond rapidly to the challenges posed by FinTechs, enabling traditional players to accentuate their offerings and enabling them to become more responsive to their customers’ needs and experience journeys. One of these key solutions is Banking-as-a-Platform (BaaP).
Why should banks focus on a BaaP model?
To compete in today’s financial market, banks need a connected platform to consolidate disparate applications and capabilities into a single architecture. This will create value and provide products and services that are customized to each customer’s unique journey.
A bank’s platform strategy then should aggregate not just internal applications, but also niche industry players such as FinTechs and other relevant business that can complement and enhance its offerings. This should hardly come as a surprise, as a recent suggested that 60% of banks would partner with FinTechs, should the appropriate opportunity arise.
But the move to a digital platform is still a slow and onerous process.
A mere 12% of the British public has fully switched to a digital-only bank and 47% of those clients keep less than £1,000 in their accounts, according to a recent article in Finder.
These findings confirm that modern banking customers are varied and need to be addressed on their own terms. However, in the same survey, customers rated services offered via digital platforms as a critical component of their digital needs. Some of the services they want their banking experience to include are:
What are the challenges and the real-world value of BaaP solutions?
The Capgemini World Payments Report 2019 shows us that 90% of banks believe in participating in an ecosystem-based business model. But banks are slow to adopt, with only 48% considering APIs beyond regulatory compliance, 50% using aggregator APIs, and only 35% using marketplace APIs.
While this is happening, FinTechs are also struggling to scale their operations and banks are struggling to collaborate with them. This is why an API-based engagement model between banks and FinTechs will be critical in creating a marketplace in which banks can offer more effective products and services.
In addition, Capgemini’s World Fintech Report 2019 has found that the industry is currently looking at two potential models for monetizing APIs in the marketplace. Sixty percent of banks and 70% of FinTechs believe a revenue-sharing model is effective, while 46% of banks and 55% of FinTechs believe an API access-fee model works for them.
But despite these problems, BBVA, Deutsche Bank, and Wells Fargo have already built platform exchanges – which essentially let third-party providers interact with their bank’s platform to create synergies based on shared data. This includes verifying customer identity, moving money, and managing co-branded cards. For example, the business banking platform FISPAN provides a set of FinTech services with which banks can integrate to enhance their client offerings.
Lending is also a great use case worth noting for a platform-based strategy, with companies such as Kabbage and LendKey integrating with a variety of commerce and payment platforms to originate and service loans.
But lending is not the only key area for these strategies. Integration enabler platforms such as Avoka and Sherpa, which offer pre-built connectors across various domains to help account services and onboarding alleviate integration issues between large corporations and FinTechs, have also been developed.
Platform-based economy beyond banking
As we come to the end of this blog, it is important to remember that this strategy is not limited to banks or financial services – it is a strategy that transcends borders and industries. A recent shows us that there are unicorns building a platform economy around the world, with 126 now available in the US, 77 in China, and 18 in India. For example, WeChat has over 900 million active users on its consumer platform, TikTok has more than 500 million active users on its user generated platform, and Practo has over 40 million users on its health services platform.
With these platforms now available across geographies and industries, banks need to keep brainstorming and innovating while remaining agile and engineering well in order to build a truly sustainable PaaS model that is able to monetize its capabilities and offerings effectively in the digital banking world, both today and tomorrow.
For more insights on how the Connected Banking Platform can rapidly develop innovative propositions and revolutionize the customer experience please feel free to contact me, Rishi Vijay at firstname.lastname@example.org .
Rishi Vijay, Senior Director and Global Account Executive, Capgemini Financial Services UK
Rishi`s LinkedIn Profile: https://www.linkedin.com/in/rishi-vijay-b875005?originalSubdomain=in
Rakesh Roshan, Director – Digital and Cloud Practice, Capgemini Financial Services
Rakesh’s LinkedIn Profile: https://www.linkedin.com/in/raxroshan/?originalSubdomain=uk