Four factors banks need to consider before embracing a platform business model
Sanat Rao is the Chief Business Officer and Global Head of Infosys Finacle. Here he shares with us that while the platform business model has been lauded as the future of banking, banks should evaluate some key considerations before deciding if the platform model is right for them.
Nearly every article or commentary about the platform business model in banking heralds it as the harbinger of success in the digital future. Is there merit in a contrarian view? Is there a distinction banks must draw between ecosystem-led banking and platform-driven banking?
The platform business model is upstaging traditional models in every industry. Some of the world’s most successful companies today are platforms, and leading traditional multinationals have also begun integrating platform play in their business model. An example is e-Buy Corporate Mall, a comprehensive e-commerce platform for business customers introduced by ICBC, Forbes’ most profitable company of 2018.
Further evidentiary support for the rampant rise of platforms in banking comes from industry studies. A 2017 study by Mckinsey reported distribution business to account for 65% of global banking profits as opposed to 35% produced by the core business of financing and lending.
There is no denying the upside potential of platforms. However, while successful large banks with vast distribution networks are well poised to extract considerable gains from ecosystem-driven platform banking, is the model the omega in the new open world of banking for every bank? Probably not.
Multidimensional headwinds, some of which did not exist as recently as five years back, rage fiercely today. Sluggish macroeconomic growth notwithstanding, the dual forces of technological change and regulatory mandates are intensifying the competitive pressure on banks.
Amid these challenges, most progressive banks have begun cultivating ecosystems to enrich their value propositions and augment the sources for creating value. The evolution of the adversarial relationship between banks and FinTechs to collaborative symbiosis amply demonstrates the trend. However, embracing the platform model, although perceived as the next logical step to an ecosystem strategy, may not be the most urgent. It requires sharp strategy based on a bank’s existing positioning in the market.
Before taking the plunge into platform business, banks must ask themselves some hard questions. They must assess their readiness, identify their unique strengths, their scalable competitive value, and align their strategic play within the platform value chain.
Apart from the strategic choices, outcomes in the ecosystem-driven future will also rest on certain business and technology considerations in the medium to short term. What are some of these?
Transforming core banking legacy systems
After years of habitual practice of piecemeal technology facelifts, there is a growing recognition of a more foundational transformation for the digital future. The 2018 Efma-Infosys Innovation in Retail Banking study indicated that legacy technology is one of the biggest impediments to innovation.
New digital realities demand core banking systems that lend themselves to open innovation, automation, cloud-nativity, continuous innovation, and comprehensive analytics.
Finding the right cloud strategy
The cloud conversation in banking has moved past the initial apprehensions of “whether the cloud is the way forward” to the more advanced considerations of “what is the right cloud strategy in a bank’s unique context”.
Progressive banks have begun adopting the cloud for benefits of innovation, agility and flexibility. We recommend that incumbent banks transitioning to the cloud make appropriate trade-offs while selecting and pursuing their migration strategy. Seamless functioning in multi-cloud environments, regulatory compliance, infrastructural efficiencies, and system complexities are some essential factors to consider while charting out the course for migration. Addressing these right in the beginning, prevents the need to engage providers repeatedly after they transition out.
Developing an open API strategy
Ecosystem-driven banking and regulations that encourage competition have compelled banks to take a fresh look at a foundational principle in programming – the application programming interface (API). Before banks can claim readiness for the platform model, they must develop an open API strategy that aligns with their business strategy.
Finally, extensive automation that also ensures the right digital-human interplay is the hallmark of a successful digital business. By using modern AI technologies to automate routine tasks, banks can not only ensure higher efficiency gains and insight-driven action but also scale up attributes such as empathy that technology is not equipped to replace.
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A central theme across functions, units, processes, systems and products in the digital future will inevitably be customer experience. The good news for banks is that ten years after the debacle that was the global recession of 2008, the industry has succeeded reasonably in restoring customer trust.
In an increasingly open world, the amount of financial and non-financial customer data banks possess places a significant responsibility on banks, but also presents an enormous opportunity. It puts banks in a prime position to ensure supremely contextual experiences as banking becomes invisible and embedded in all kinds of digital interactions.
The four factors listed above are key to ensuring agile, responsive, innovative and contextual experiences. Success in the digital future will be an outcome of industrialization at scale, a culmination of approaches that allow emerging technologies to be harnessed amid new open banking realities. These factors are crucial for setting the right digital foundation.
All too often banks profess their digital success on the basis of disparate niche initiatives. Expansive enterprise-wide initiatives that qualify as truly-digital success are far and few. A large traditional bank that incubates an extremely agile platform player in a small part of its footprint cannot be said to be setting itself up for sustainable success if the bank does not contend with the larger challenges of scaling it up across the enterprise. The bank must address the more compelling requirements of opening up APIs in the legacy structures of the parent bank, moving workloads to the cloud judiciously, and automating extensively, to achieve industrialization at scale.
While the spreading recognition underlying ecosystem strategies – that banks do not want to be all things to all people – is resoundingly cogent, banks must not be hoodwinked by the popular view that failing to adopt the platform model urgently is a precursor to becoming a digital dinosaur. Sound foundational principles anchored towards customer-centricity are not only prerequisites of a successful platform business, but also digital readiness that translates into tangible dollar value on the balance sheet.
Upgrade launch new credit card with bitcoin rewards
Upgrade, a fintech company focused on providing credit for mainstream consumers, has launched the Upgrade Bitcoin Rewards Card a new version of its Upgrade Card featuring bitcoin rewards. Under the new programme, users earn unlimited 1.5% bitcoin rewards on every purchase as they make payments.
The custody and trading platform for holding and selling bitcoin is provided by NYDIG and the card is a Visa Signature card, which includes benefits such as trip and baggage insurance, purchase protection, and extended warranty coverage.
The company offers credit lines from $500 to $25,000 with the Upgrade Bitcoin Rewards Card depending on your credit score. It works with Apple Pay and Google Pay. Like other Upgrade credit cards, there are no monthly fees, late fees, or returned payment fees.
"Upgrade Card is already delivering over $3 billion in annualised credit to consumers," said Renaud Laplanche, co-founder and CEO at Upgrade. "Starting today, anyone can apply for an Upgrade Bitcoin Rewards Card and enjoy the same affordable and responsible credit as with any Upgrade Card, plus the potential upside and fun of owning bitcoin."
Participating in the crypto economy
Upgrade isn’t the first company to announce a credit card with bitcoin rewards, but it’s the first one that is generally available. Anyone can apply with no waitlist, and start using their virtual card immediately until they get their physical card in the mail.
"Crypto rewards introduce cardholders to a new asset class that is increasingly part of a consumer's financial portfolio," said Terry Angelos, SVP and Global Head of Fintech at Visa. "Whether you're a crypto enthusiast or just getting started, programmes like the Upgrade Bitcoin Rewards Card offer an engaging and low-risk way to participate in the crypto economy."
At the moment, you can’t do much with your bitcoins. You can choose to hold them or sell them. There’s no way to transfer your bitcoins to another wallet for instance. If you choose to sell your rewards, there’s a 1.5% transaction fee.
This card is not currently available in all 50 states. Customers in Hawaii, Indiana, Iowa, Louisiana, Nebraska, Nevada, New Hampshire, North Carolina, Washington, West Virginia, Wisconsin, and the District of Columbia can’t order an Upgrade Bitcoin Rewards Card at the moment.