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Financial services are usually a means to an end. No one wakes up in the morning thinking, “Oh, I want to go get a mortgage today.” They wake up saying they need a home.
Visionary banks understand this, which is why they are investing heavily in new platforms that allow them to embed themselves more and more in the customer’s needs, according to a recent IBM Institute for Business Value study. According to the data, global survey responses from 850 executives from the banking and financial industry show that the pessimism and fear with which incumbent banks once viewed disruptors and challenger banks has been replaced by optimism and aggressive ambition.
This is thanks largely to new ways of doing business, where incumbent banks once saw potential threats, they now see potential collaborators, and most importantly, they are turning customer data into their most valuable asset. They are, in short, beginning to embrace the platform model.
A platform business is simply a business that facilitates exchange. Social media platforms like Facebook or Twitter facilitate the exchange of ideas and information; marketplace platforms like Ebay or Amazon facilitate the exchange of goods by uniting buyers and sellers. For their part, financial services companies are increasingly looking to use platforms to grow their business, and better service their customers. Platforms provide banks the ability to reach markets at scale and capture adjacent marketspace by managing essential processes on behalf of a broader ecosystem of partners.
The data speaks for itself: The next era in banking will be defined by the pursuit and development of new industry-wide platforms. According to responses to the new IBV report:
- As many as 90 percent of executives surveyed predict cross-industry platforms will only become more important to their industry over the next ten years.
- 78 percent say platforms enable greater innovation of products and services.
- 79 percent say platform business models enable greater personalization.
- 82 percent say platform models offer business, technical, and financial benefits that would not be achievable employing a more traditional banking model.
Fortunately, many within the industry will rise to the challenge. While 38 percent of bankers responding still see the disruption created by cross-industry platforms as a threat, 45 percent now view it as an opportunity. Perhaps more revealingly, almost four fifths – as many as 79 percent of banking executives surveyed globally – say that adoption of platform business models will help them achieve sustainable differentiation and competitive advantage with benefits across multiple dimensions.
One example is the success of DBS, one of the largest banks in Singapore, which has employed a technology-centric platform model since 2010. DBS now offers a suite of APIs that integrate into its other banking services, including a roboadviser, iWealth, which helped the bank triple the size of its wealth management income between 2009 and 2015, and Home Connect, a real estate browsing app that lets users compare prices and browse listings.
DBS realized early that the banking model of tomorrow is going to look quite different from today. Visionaries are moving from selling solely banking products to a strategy that involves moving further downstream — selling the idea of a home itself, as opposed to simply selling the mortgage.
There are other, similar examples. The largest fintech in the world now is likely Ant Financial, an Alibaba subsidiary, which processed $8 trillion in transaction volume in 2017. Ant achieved this by focusing on technology services platforms that complement banks, rather than replacing them, including an open insurance marketplace with more than 80 insurance companies and an asset management and retirement planning platform that reaches more than 180 million users.
But these explanations elide the fundamental way the banking business has shifted over the last year toward platform-centric models which play to banks’ strengths, chiefly their vast repositories of customer data. For their part, consumers are actually far more comfortable sharing personal information with their bank than they are with virtually any other kind of organization, according to the data in the IBV survey, including healthcare providers and government organizations. More than 71 percent of survey respondents indicate they are willing to share personal information and data with their bank or other financial services institution, more than any type of organization including governments and healthcare providers.
To capitalize on their newfound optimism, I believe banks around the world need to embrace the platform model as many visionary banks have already begun to do in Asia. Financial services companies should even consider collaborating on standard technology frameworks like the Banking Industry Architecture Network (BIAN), founded in 2008 to promote bank interoperability.
Global banking consists of numerous legacy systems that have grown in complexity and become increasingly inflexible. Banks are already facing serious challenges to their business and operating models that are forcing them to decompose their business and IT architecture into independent but interlinked units..As the platform economy develops, they will likely focus more attentively on more effective interaction in their systems. Common frameworks through broad collaborative and consensus-based efforts through the global banking industry can enable more rapid, efficient and effective strategic and operational innovation in global banking services.
Collaboration amongst long-time competitors will not come naturally. Indeed, at a fundamental level, banks should no longer just wait for the customer to come to them for a mortgage, an automotive loan, or an IRA. They should constantly reinvent new ways to engage with their users, by enabling them to find affordable homes and cars, and by integrating retirement planning into their daily lives. I believe that without an effective platform model, the emergent global financial system is bound to leave traditional banks behind.
Read the study here.