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Digital Platforms Are Eating Banking

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OBSERVATIONS FROM THE FINTECH SNARK TANK

I asked a room full of bankers recently what they thought when they heard the word "platform." The most frequent responses were "online banking," "mobile banking," and "lending."

One guy said "shoes." Very funny, Mr. Saturday Night Fever.

Interestingly, no one said "Amazon."

While the term "platform" is widely used in the industry as a technology construct, there is another (non-footwear) use of the word--as a business model. And platform business models are taking over banking.

What is a Platform?

Despite the recent spate of books on the topic, the platform business model is hardly new. Platform Strategy defines a platform as a:

“Plug-and-play business model that allows multiple providers and consumers to connect, interact, and create and exchange value.”

Mark Bonchek and Sangeet Paul Choudary describe three things a company must do to be a platform:

  1. Be a magnet. A platform must attract the right providers--those with the most desirable products and services) and the right consumers (those who the providers want to do business with).
  2. Act as a matchmaker. A platform requires a mechanism for matching consumers to the right providers, and for enabling providers to reach the right consumers who come to the platform.
  3. Provide a toolkit. The toolkit is what enables providers to easily plug into (and out of) the platform, and to integrate with consumers.

There are (at least) five types of digital platforms taking over the banking world.

1) Megabank API Toolkits

BBVA, Capital One, Citibank, Deutsche Bank, HSBC, and Wells Fargo all have some form of developer hub, portal, or exchange that enables third-party apps to access, integrate, and/or extract data about the bank's customer base.

BBVA's Open Platform, for example, touts four API suites: 1) Identity verification--giving third-party apps the ability to verify their customer’s identity in one call; 2) Money movement--supporting a range of payment types, including custom ACH and bill pay solutions, through a single endpoint; 3) Account origination--for creating and managing branded consumer and commercial deposit accounts; and 4) Cards--enabling the design and management of  branded customer debit cards.

While a "toolkit" is a critical component of a platform strategy, the megabanks' efforts are too narrowly focused on the technology side of the coin to qualify as a true platform. The mindset still seems to be "if enabling third-parties to interact, integrate, and engage our client base enables us to sell more of what we already sell, we're all for it."

2) Marketplace Platforms

In their earliest incarnations, marketplace lenders like Prosper and Lending Club couldn't really be considered platform because they lacked the toolkit for integration.

That's changing.

As lending marketplaces hit speed bumps in their evolution, some have turned to a platform strategy, including:

  • Kabbage. Re-branding itself as Kabbage Platform, the small business lending marketplace offers financial institutions processing capabilities and access to non-traditional data sources for underwriting. The firm's toolkit includes integrating data from a variety of sources including Ebay, Etsy, Amazon, and PayPal.
  • LendKey. The company provides demand generation, decisioning, origination, servicing and liquidity management services to banks and credit unions for student and home improvement loans.
  • Akouba. Acquired by Velocity Solutions in 2018, Akbouba’s platform enables banks to retain control over lending decisions, the pricing, the credit policy, the loan dollars, and the customer experience. Akouba configures the underwriting for each institution based on its credit policy and guidelines. Akouba integrates with the big three core systems, and integrates data from Experian, Transunion, Paynet, and LexisNexis.

3) Analytics Platforms

Analytics platforms are emerging on two fronts:

  • Use-case specific. On the use-case specific side of the coin, NICE Actimize has launched X-Sight, which it describes as a "cloud-based Financial Crime Risk Management Platform-as-a-Service​," enabling financial institutions to manage and use data from multiple sources.
  • Generic. An example of a generic analytics platform in banking is Trellance, thanks to its 2018 acquisition of OnApproach. Its CU Analytics Platform is "a collaborative ecosystem that will create communities of users, data scientists, and application developers." The platform has attracted analytics providers like Alpharank, Argus, and Allied Solutions.

SAS claims to have an "open analytics platform that's accessible from the interface or coding language of your choice," and IBM offers the Watson Data Platform, but as best as I can tell neither integrates any third-party providers.

Looking ahead, it will be interesting to see what Salesforce does to leverage its Mulesoft and Tableau acquisitions. Offering an analytics platform would be a logical extension of these firms' capabilities.

4) Business Banking Platforms

According to Finovate, Vancouver-based FI.SPAN is a:

Cloud-based bank API services platform that leverages APIs to enable banks to offer a wide variety of new business banking products and services to their business customers. The company offers curated and pre-integrated third party fintech solutions that banks can use independently or integrated with their own technology."

In December 2018, the company announced a $4 million funding round and a partnership with JPMorgan Chase to help the bank develop pilot programs for the corporate treasurers of Chase’s business banking customers.

5) Core Integration Platforms

There's an emerging set of players in the fintech vendor space that might be thought of as "core integration platforms." These providers enable financial institutions to better integrate ancillary systems with their cores. Examples of these firms include:

  • Avoka. Acquired by Temenos in 2018, Avoka’s Exchange™ is a catalog of pre-integrated applications that integrates pre-built connectors for more than 30 services, including fraud detection, identity verification, and digital signatures from companies like FIS, Mitek, Yodlee, Salesforce, and eSignLive, to enable account opening and onboarding.
  • Constellation. Constellation’s Digital Services Platform gives credit unions the ability to create, provision and integrate digital banking services from various providers. Constellation recently received a patent for the provisioning of secure services via an application container model.
  • Sandbox Banking. Sandbox Banking is a software integration and deployment platform​ which has created an apps store to integrate apps and tools from third-party providers for automated financial statement analysis for lending, FX and trade analysis, international money transfer, and other services.
  • Sherpa Technologies. This credit union service organization says its Mosaic Platform is a "cloud-based digital development and integration platform."

Implications of The Platformification of Banking

A few thoughts on this platformification of banking:

  • Open doesn't mean platform. A firm can't pursue a platform strategy and not be "open"--but it can be "open" and not pursue a platform strategy. Simply providing a facility to share data doesn't make a company a platform.
  • Platforms will change the way banks acquire and deploy technology. While much of the attention on platforms like Amazon where consumers are buyers, many of the examples of platformification listed here are those with banks as buyers. Platforms will change traditional software sales approaches making vendor performance management a critical IT skill.
  • There's a downside to platformification. Over-personalization and unintended consequences of data sharing are two risks of platformification. In a report titled Five Fears About Mass Predictive Personalisation in an Age of Surveillance Capitalism, Karen Yeung wrote, “Personalization practices foster and exacerbate the asymmetry of power between profilers and those to whom personalized services are provided, thereby increasing the opportunities for the former to exploit the latter.”

For more on the topic of platforms, see the report The Impact of the Platform Economy on Financial Services Marketing.

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