By Eli Rosner, Chief Product and Technology Officer at Finastra
To create the best platform-based business there are many strategic decisions financial institutions must make. For example, should they create their own digital platform or partner with third parties? Should they establish digital platforms for targeted customer segments or orchestrate other service providers to create and deliver new forms of value?
Financial institutions must consider how best to share customer relationships, data and economic value – and who to share these assets with. Regardless of the preferred end state, there are common factors behind every successful platform-based business. These include:
- Research and revision.Platform-based businesses need an open architecture providing control, agility, flexibility and resilience against any future changes. Such an architecture will increase the pace of adoption of new technologies and at significantly reduced operating costs. Banks must understand and define what they want to achieve: a platform-based business without a clearly articulated goal is likely to fail. The project needs to be led from the top and incentivised appropriately – just like any other change program.
- Security.Security is essential for banks and financial services businesses, regulators and customers, and is usually associated with the bank more than its partners. Banks must leverage their identity, onboarding and authentication capabilities so that, once on a platform, customers can securely explore between the various customer experience options without needing a new key for each service.
- Understanding strengths and weaknesses.There are usually three types of barrier to innovation, and adopting platforms is no exception. These barriers are: process barriers that affect decision-making, technology barriers that impede access, and internal barriers that make it difficult to grasp new approaches. This last category is particularly important. The “not invented here” mentality can be both pervasive and damaging, particularly after years of technology firefighting and maintaining systems just to keep up with the competition. Banks should also recognise where they have restrictions on their internal talent, since there may well be an internal shortage of in-demand specialists, such as data scientists and advanced analytics developers. Finally, don’t be scared of collaborating with other banks; collaborative competition can deliver benefits for all.
- Learning when to let go.Service design is critical if the gathered ecosystem is to be managed in a positive way. That means that all partners, particularly banks with primary customer relationships, must recognise that they do not own all the relationships and all the data. In a platform environment, these are shared commodities. The pay-off is that the platform becomes a welcoming environment for innovators; smaller companies, service providers, solutions developers and other third parties, who have real choice about who to partner with and how to do so.
- Going behind the scenes.Successful platforms depend on thriving ecosystems. Technology is important: great tech and smart APIs are essential features; sandboxes and hackathons are highly attractive. Banks also need to think about the way they procure services, how they partner with other parties, their investment methodologies, the way the legal team operates, and of course, compliance. All these departments need an open mind if platformification is to succeed. If cumbersome processes and bureaucracy prevail, they can kill partners’ enthusiasm, ambition and pace.
- Thinking of the financials. For a platform to succeed, it needs a critical mass of suppliers to attract a critical mass of customers. B2C platforms, born in Silicon Valley and nurtured by VC money, hype and hope, are often sustained by excessive debt for far longer than traditional businesses. Amazon famously made no money for nearly a decade. Uber is yet to turn a profit. This debt-driven model simply does not work in financial services, where the financial gravity is far more powerful. The good news is that banking platforms are not built on sand: they rely on existing relationships with real customers. To make the most of platformification, work out how these can be deployed to ensure customers and suppliers both join the ecosystem.
- Avoiding tech for tech’s sake. Platformification comes with fear of missing out. However, FOMO is never a good motivator for sensible decision-making. Avoid implementing technology just because you can, and make sure it is something that customers really want and will use.
- Arts and science.Data is key but so is knowing how to use it. This means you need to be able to find it, interrogate it, augment it, and act upon it. You also need to add value by bringing in other perspectives. By looking at it purely from the data scientists’ point of view, you can miss some of its beauty and artistry. Psychologists, semioticians, ethnographers, and ethicists can all help build value from the data science. Platforms are about changing businesses, not just applying algorithms. A multi-talented team will be best placed to do that.