{Platformification

of Banking

Dr. Vinosh Peter K.V.

The most significant trend of 2016 will be the ‘Platformification’ of banking, where both existing banks and startups begin a strategic shift towards becoming banking platforms, much like how Amazon is a platform in retail.”

Part of the challenge is arriving at an agreed-upon definition of what a platform is. Despite it’s relatively recent use in the world of banking, the concept — as a business model — has been around for a long time (see David Evans’ work on the topic of two-sided business models).

What is a Platform?A platform is a plug-and-play business model that allows multiple participants (producers and consumers) to connect to it, interact with each other and create and exchange value.”Three important components of the definition:Business Model. First and foremost, a platform is a type of business model.Plug-and-Play. A platform must enable participants to easily engage — and disengage (which partnerships typically don’t).Create/Exchange Value. One plus one has to equal more than two, or there’s no need for the platform.

1. Become a magnet. Without the ability to attract a meaningful number of the “right” participants, a platform cannot succeed. Simply having a lot of producers and consumers is no guarantee of success. The platform must attract the right producers (those with the most desirable products and services) and the right consumers (those who the producers in the platform want to do business with).

2. Act as a matchmaker. A platform requires a mechanism for matching consumers to the right producers, and for enabling producers to reach the right consumers who come to the platform. At its most basic level, a search engine can be matchmaking mechanism.

3. Offer a toolkit. The toolkit is what enables producers (and consumers) to easily plug-and-play. This is why APIs are so critical to firms pursuing platform strategies.

Three Elements of a Successful Platform Strategy

Today’s banks are consumer magnets, not producer magnets. Banks do a fairly good job of attracting consumers. But there is practically no focus on attracting other producers, other than the one-off partnerships that a bank pursues.

Today’s banks only match consumers to their own products or services. The key to successful matchmaking on a platform is matching a consumer to one (or more) of a number of providers. Banks only match consumers with the just one provider’s products — the bank’s. If they even do that.

Today’s banks don’t have a toolkit. Banks have a mixed track record of integrating the products and services of the firms with whom they develop partnerships with, let alone providing the ability to plug-and-play.

Are Today’s Banks Platforms?

Platform Levers Core Platform Partners

1. Scope of Firm Focused only on core activities.

Define broad array of activities to be performed outside of firm by partners.

2. Product Own core product stack.Allow for partners to develop and offer ancillary products.

3. Service Own core service stack.Allow for partners to develop and offer ancillary services.

4. IP/Data Sharing of information. Define what to disclose to partners.

5. TechnologyModular tech, open source and open standards use, API interface openness.

Interoperability between partner interfaces and firm’s interfaces is key.

6. Relations w/Partners

Decide where on the collaborative/competitive continuum will the company sit. How will relations/decisions and consensus be arrived at?

Collaboration with some partners, competition with others. Different types of consensus mechanisms between firm and partners.

7. Internal HR Organization

Articulate HR between group that focuses on core and groups that focus on platform across product, service, IP/data, technology, partners and C-suite executives within firm.

Develop ability to “speak the same language” as partners.

Financial technology, also known as FinTech, is an industry composed of companies that use new technology and innovation with available resources in order to compete in the marketplace of traditional financial institutions and intermediaries in the delivery of financial servicesFin tech is the future of financial services:Over the past five years investment in fin tech has grown at three and a half times the rate of the overall venture capital market (201 per cent versus 63 per cent), hitting the US$13.8 billion mark across 730 deals. Fin tech startups targeting Millennials have caught the attention of investors attracting 16 per cent (US$3.7 billion) of this funding. For financial organizations the challenge is finding ways to apply the innovation and skills of ‘Millennial-savvy’ fin tech startups to their operations: how to marry their expertise in mobile app experiences with traditional banking applications to achieve ‘Platformification’, or finance-as-a-service.

What is Fin Tech?

Application programming interfaces (APIs) will play a key role in achieving these goals. APIs allow software applications to interact with each other. Through APIs organizations can flexibly expose services and data, enabling these to be exploited to create new and innovative products.