Opening the Vault

We live in an era of platforms. Many sectors, including financial services, are embracing platforms as a new and better way of doing business. Banking as a Platform (BaaP) is nascent but the benefits of “platformification” show the direction of travel for the industry. Banks that are not yet prepared for this new era must start to be soon.

Banking in an Age of Platforms

Banking is perceived as a utility: An essential but perhaps dull element of life. Everyone needs banking, but we rely less and less on physical branches. In fact, over 70% of bank interactions in the UK and US are now digital (closer to 90% in China). The adoption of financial technology services among internet users nearly doubled in the past two years, and continues to grow. Data shows that 64% of digitally active consumers across 27 markets globally use fintech.*

In our digital age, customer expectations are high – we all want banking our way. Customers demand engaging banking services that add value and reduce transaction friction, and expect uninterrupted access and a consistent experience across all channels: branch, phone, internet and mobile. Many banks struggle to deliver on this because of legacy technology constraints and a product-led culture. Open banking means doing banking differently, to give customers what they want – when,  where, and how they want it. Open banking also invites new market entrants, so if your bank doesn’t give customers what they want, other players will.

Platforms Promote Innovation and Differentiation

Platformification is a reaction to these market forces, enabling banking services to be co-mingled and integrated with apps and services from a wide range of suppliers, creating uniquely relevant and differentiated offerings and experiences. Platforms also support embedded analytics, artificial intelligence (AI) and machine learning (ML), helping banks to get closer to their customers and build loyalty. Platform technologies are proving to help streamline processing, boost efficiency, promote innovation and improve customer relationships; tangible benefits include getting access to new capabilities, the capability to be scaled quickly, inherent flexibility and resilience.

Change is Upon Us

Open banking is progressing fast. The reality is that all banks must participate in a financial ecosystem that’s growing astronomically in size and complexity. How should banks prepare for such a dynamic future? 

Positioning for Success

As bank products become more commoditized, human interaction and a superior customer experience (backed up by superior technology) are the main pathways to competitive advantage. Successful banks will be those that support customers across the spectrum of life journeys, to increase engagement and loyalty.

To position for success, banks will need to:

• Redefine their core processing platform – success in this new era requires a core that’s open, scalable and API-enabled to empower full participation in the financial ecosystem
  
  
• Adapt their culture and corporate mindset to align with the precepts of open banking
  
  
• Have the capability to deploy new products and services across all channels simultaneously and enable access via any device
  
  
• Adopt a microservices architecture that supports deployment of functional components which can be updated independently for agile software releases

Building an Inventory of APIs

APIs provide the connectivity that’s essential for ecosystem participants to connect with each other and exchange value. In an open banking environment, a bank’s inventory of APIs will increasingly determine its competitiveness; the bank can build up its API inventory via established API Marketplaces. In turn, Banking as a Platform (BaaP) offers an orderly, real-time orchestration of your API inventory.

Banks harnessing the power of APIs offer new user experiences that were previously impossible. Retail banking examples include instant account authentication, fast payments processing, customer data and other aggregation services across multiple accounts and banks; commercial banking examples include real-time cash management, better use of working capital and more accurate forecasting and decision making. Opportunities are limited only by the imagination.

Opening the Vault

Traditional core bank infrastructures are designed to be closed – they are effectively “vaults” and were not architected to support open data exchange. Increasingly, however, to deliver real value bank products are combined or integrated with third-party products and/or providers. The bottom line is that banks operating a legacy architecture will find it difficult to compete in this environment. The solution to this? Adopting a core that’s fully API-enabled positions the bank to transform from being a product provider to “open the vault” and become an agile solutions provider that supports open banking, offers innovation, and satisfies customer expectations.

Revitalizing the Banking Value Chain

Universal adoption of APIs also enables the banking value chain to be disaggregated into individual components (e.g., Trusted Advisor, Product Leader, Transaction Champion, Managed Service Provider, Universal Bank), each of which can be marketed. Although this is new territory for banks, tech giants such as Google show how APIs can create and drive business value (e.g., consider the Google Maps API which has direct business impacts and an astounding 1 billion users).

Today’s modern technologies can facilitate a sequential and incremental approach to bank modernization. Furthermore, with BaaP, banks can evolve and transform according to business needs and innovative opportunities rather than IT strategy. For many banks in our digital age this represents a compelling proposition.

* EY, Global FinTech Adoption Index 2019, https://www.emarketer.com/content/seven-charts-the-state-of-digital-banking-in-2020