The Future of Banking
Via @Forbes / Getty
The five biggest companies today — Apple, Google, Microsoft, Amazon, and Facebook — are all built around the platform business model, which is a central infrastructures that facilitate the creation and exchange of value between players outside of the company.
I recently wrote this article for Forbes, outlining three ways that banks too can capitalize on the platform economy to stay ahead of competitors.
1. Form Tech-Banking Alliances
Tech firms and banks will need to form alliances. Regulatory restraints for banks mean that tech firms may struggle to compete. Such restraints include the requirement of banking charters and maintaining minimum capital levels. In-house supervision from government regulators is also a requirement, something that tech firms have largely been able to avoid.
Tech-banking alliances, on the other hand, enable tech firms to avoid burdensome regulatory requirements and enable banks to remain competitive. Apple is currently working on a joint credit card with Goldman Sachs, for example, to further its Apple Pay brand. For Goldman Sachs, such an alliance proves advantageous in its strategy to broaden its focus beyond investment banking to consumer banking.
2. Create Platforms for Existing Markets
To remain competitive, banks, like other businesses that I work with, need to create their own platforms targeting existing markets.
Recognizing that their customers are increasingly banking through their smartphones, ING, a former client of mine, understood the need to adapt to new technologies as other sectors do. It developed a smart money app, Yolt, which has expanded from the U.K. into France and Italy. It’s a one-stop overview of a consumer’s accounts, displaying their personal finances from both ING and other banks in the same place. It also developed InsideBusiness, a digital commercial banking platform providing consumers with a single point of access to all their commercial banking products and services.
Another example is the P2P platform Zelle, which was founded through a partnership of more than 60 banks in the U.S. to compete against PayPal and Venmo. Zelle claims that nearly 100,000 consumers, on average, are signing up for this service per day.
3. Create Platforms for New Markets
This may be the most exciting point of progress for banks and for tech firms: the opportunity to create platforms that offer more than just the products and services of an individual bank. New platforms can create new markets by shifting focus to address customers’ needs related to a sector’s ecosystem, rather than a financial product or service. This will help a bank stay competitive as well as credible.
For example, ING partnered with fintech firm Funding Options to establish a small-and-medium-enterprise financing platform. This means that business owners will have access to a wider choice of financing options, even if they are not an ING customer. This platform seeks to address the need for small and medium-sized business owners to have a greater understanding and accessibility of this information.
In retail, banking platforms could provide new ways to approach buying property. Instead of only providing a mortgage product to a homebuyer, a financial institution’s digital platform could facilitate the end-to-end buying experience whereby the customer’s full needs are addressed. The platform could assist the customer in picking a property that suits their needs, assessing its value, providing information about utility providers and helping with its eventual resale.
The idea is that such platform ventures make formerly complex and convoluted financial processes (e.g., buying a house) simpler, user-friendly, and transparent.