Banking-as-a-platform 2.0

Banks are becoming platforms organically, driven by consumer preferences. So what does banking-as-a-platform 2.0 look like?

While some early prognostications said that fintech could overtake banks, today's landscape seems to suggest that the future looks like banks and—not or—fintech. And as increasingly more applications depend on connections to personal financial accounts in order to offer their services, banks have started to look more like platforms. With the use of trusted intermediaries, these platforms enable consumer access to a range of financial services — without necessarily providing those services themselves.

The fact that the bank-as-platform concept and financial technology have been pitted against each other and portrayed (at least in the media) as mutually exclusive isn’t surprising. After all, conventional wisdom has held that the company interacting most directly with the consumer — the one building the UI, and, in the case of financial services, the application or service provider — is closest to, and in many cases owns, the relationship. In other industries, middlemen get disintermediated. But in financial services, it’s not so black and white. In the current landscape, consumers have individual relationships with a number of financial services applications, including their bank accounts, which store personal financial data on their behalf.

As such, banks are, in some ways, becoming platforms organically, and it is consumers themselves who have sparked the transformation. According to a 2016 Plaid study, the average consumer has 15.6 connections per bank account, which include third-party applications connected to the account as well as a litany of recurring billing payments, from utilities to insurance and investments. Banks are acting as the platform that facilitates exchanges between consumers and these third-parties—whether they meant to or not.

And becoming a platform, rather than a verticalized service provider, isn’t a bad idea. Driven by these consumer preferences, some banks have begun to actively participate in their own “platformification,” if you will, viewing third parties less as competitors and more as extensions of their own offering, serving their goal of being the hub for consumers’ financial lives.

That’s why there’s such a frenzy around banks standing up their own APIs, as doing so presents a clear embrace of the idea that developers can extend value from a bank account. Equally important is the acknowledgment that interoperability is key, and that the APIs and other technologies developed by trusted intermediaries — which forge those connections between banks and third-party developers — are perhaps more impactful. And APIs are really only part of the story.

For example, a second Plaid-commissioned study of U.S. consumers who use financial applications found that consumers are looking to banks to help them manage their digital financial lives. Fully 80 percent said they’d find a bank-enabled dashboard to be useful, presumably because it would make visualizing the varied connections to their accounts — and managing them — even clearer. So it’s no wonder some banks are said to be considering building such a dashboard, which, supported by trusted intermediaries, would also help manage data exchange. This concept is not unlike the value provided to consumers via, say, an iTunes marketplace — just as Apple doesn’t produce music, platform banks won’t have to build all of the apps they support, but rather provide a central place to manage them.

These connections are happening already, of course, but now that it’s clear that banks are, indeed, platforms, there are big opportunities to take a platform strategy further. One clear example of a bank digging deep into platform strategies is BBVA. Forget forging ahead with a vertically integrated strategy, as with a traditional bank model: BBVA has inked partnerships with OnDeck and Dwolla, acquired Simple, and opened its API marketplace — all with the goal of enabling consumers to access a full suite of services provided by third-party financial technology companies. “At BBVA, we believe the data belongs to our customers, and we want to make it easier for them to share their information with those companies that offer them value and are capable of delivering the best services for them,” Raúl Lucas, Head of Open APIs in Spain, has said. In this case, it’s an acknowledgement that the best applications — or the things consumers want to use — aren’t necessarily built by the banks themselves. As bank business models have been jostled by innovation, driving a true platform strategy might also unlock interesting new opportunities on that front, just as it has for other platforms.

In becoming platforms, banks may actually be able to have it all — including key touchpoints throughout a consumer’s financial life via third-party spokes. But the major interesting shifts are still to come. Here’s to banking as a platform 2.0.

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