Apitalism: Open Banking vs Platform Banking - what is the difference?

It may be hard to know the difference between Socialism and Communism for some. I think the same dilemma exists between Open Banking and Platform Banking definitions – as both sound very similar but actually two very different things. For this reason, I decided to write this article to clarify the boundary between these two terms.

Let’s start with some simple definitions.

Open Banking is more about Data Sharing across different parties – the main focus is data. Therefore, when you share your data voluntarily or forced to share it by legal reasons – you become part of the “Open Banking” community. On the other hand, Platform Banking or Platformization of Banking is about changing your business model or the way you do the banking business. In sum, we can safely conclude that if “Open Banking” is the primary school - “Platform Banking” is the university from strategic point of view. It is such a coincidence that primary school education is mandatory while university is optional - so it is up to the kid to continue the education or not :)

After such a definition, we can also say that a Bank cannot switch to Platform Business Model by simply opening couple of mandatory APIs to outside. It takes more than that, effort wise – time wise and cost wise. On the other side, doing nothing is very dangerous as well. The biggest strategic mistake a bank can do is to stick to classical pipeline business model but opening its data to the competitors with a platform business model. PSD2 forces banks to open their data, it does not force them to go after platform business model. It is the bank’s call to decide continuing with the existing business model or not. In my opinion, staying only compliant to PSD2 and not looking for the business opportunities it brings would be a very dangerous act for any bank in favour of such approach.

When we have a look at the digital disruption burning the world of traditional businesses – it is to conclude that platform business models are much more effective and profitable if deployed well. Just have a look at the Bigtechs: Google, Amazon, Facebook, Apple – What is the common component from strategic point of view? YES, all have been operating on platform business models. For this reason, they are fast, innovative, close to customers and engagements are super high. The chicken here is Platform Business Model, the eggs are the positive end results I just listed above. Nokia, Blackberry, Yahoo have left the stage to these guys - as they were not fast enough to switch from their existing business models to platformization.

Banks would be Bigtechs’ next competitors thanks to the changes of regulatory environment and mandatory introduction of Open Banking practices in different parts of the world. I do not think a competitive threat coming from a Fintech, Neobank, Challenger Bank and Big Bank is an issue – the biggest threat for the banks would be the involvement of the Bigtechs into banking business. Recently, Apple has announced that it is making its own credit card and offers 2% cash back (what a random figure!) on every Pay purchase. It has been already known by everyone that Bigtechs would be targeting sales part of the banking – that represents 47% of the banking revenues and 65% of the all profits banking industry has. There is no way to avoid such a threat and it has been getting more concrede as the time passes. Plus, competing with Bigtechs is not something competing with traditional players, they are digital native and have amazing data capabilities, with strong customer trust.

Data belongs to the client, not to the bank. This is a very strong value proposition of Open Banking and PSD2. Although it sounds quite simple, it is strong enough to change the “Power Balance” between the banks and their customers. Thanks to Open Banking, Customers would be much more free, they can take their data and proceed to any other place where they think better offers waiting for them. As the barriers for innovation and entering financial industry would have been lowered by PSD2, there would be much intense competition for free & easy floating clients around.

From banking perspective, there are many ways to deploy Platform business models, not only one. Depending on the internal and market dynamics, strategic goals and client selection – a unique formula could be created. I do not think the bottleneck for the banks to deploy “platform business models” would be the technology or financial resources – rather the culture and limited number of employees who can facilitate, run and work under such different models. Like in the early days of the mobile revolution, (when the customers already had the devices but banks were not able to provide satisfactory mobile banking experiences) unlike many bankers are concerned – customer adaptation to changing banking service models should be the least of the worries. In my opinion customers are already there, just waiting for a service that is decently provided. At the end of the day, from the customer point of view “open banking” will not be seen like a new bank or a channel – rather it will be seen & presented as a new, sexy value proposition to capture.

Slow take off “Open banking” in UK is not a reference to “Platform Banking’s” possible success or failure – as they are two separate things. Open Banking is a way to Platform Banking, not the alternative to Platform Banking. There have been some forecasts flying around about the possible extinction of the significant per cent of traditional banks in very near future. Well, the timeline is not tens of years, rather in couple of years in my opinion. I think it is time for the banking industry to position first Open Banking then Platform Banking as one of the top strategic priorities to stay relevant to the change on the way.