Platform banking: Why getting cozy with Big Tech is good news for incumbent banks

  • Sudeepto Mukherjee, Senior Vice President, Financial Services at Publicis Sapient

  • 28.08.2020 06:45 pm
  • Banking

They’re not the most natural of bedfellows, but tech titans like Google, Microsoft, Apple, Facebook and Amazon have exactly what global banking behemoths need to reach new customers and stay relevant.

In 2017, more than half of Europeans shifted to digital forms of banking. The emergence of Covid-19 has only served to accelerate this mass movement, with lack of access to bank branches, ATM closures and card-only payment options, just a few of the motivators. And as more and more people grow comfortable with the idea and practicalities of digital banking – or are driven to it out of necessity – it’s reasonable to assume that remote account openings, deposits, loans, credit card applications and day-to-day transactions will only increase.

For the likes of Revolut, Starling and their ilk this is good news. Smaller, more agile and not reliant on legacy technology, they are already streets ahead in terms of onboarding and service speed. They’re also plugging in more and more third party services with relevance to their customers’ needs, making them even more attractive to consumers looking for a better way to manage their money and payments.

In response, legacy banks – slow to digitise in response to the threat from challengers – are turning to Big Tech and a model that makes good business sense for both parties.

Put simply, a platform is a kind of business model that facilitates transactions between large networks of users such as sellers and buyers, drivers and riders, hosts and guests.

Amazon, Uber and Airbnb are obvious examples of platforms.

The core strength of platforms can be distilled into two main characteristics. First, they are organised around the user experience and meeting their needs by coordinating and integrating products and services from an ecosystem of producers. Second, platforms significantly minimise users’ transaction costs. This comes in part from indirect network effects as the platform achieves scale but also from the use of data in insightful, efficient ways.

For incumbent banks, platforms offer the ability to better fulfil requirements for new and existing customers, while offering more services they’ve been unable to realise traditionally. It also allows banks to capitalise on the huge amounts of long-term customer data they’re currently sitting on. And for organisations not known for operating cutting edge systems, partnering with Big Tech means access to the latest tech without major investments in time and money.

Access to data is, not surprisingly, also a major attraction for Big Tech in teaming up with incumbent banks. Access to a banking partner’s customer data – from buying habits to active loans and insurance products – allows them to add huge value to their existing services as well as open up opportunities to partners. And this is value they can obtain without getting bogged down in the regulatory quagmire that comes with setting up a bank of their own.

With recent partnership announcements from Google, we’re seeing just how quickly platform banking is taking off.

At the beginning of August, the company announced it was partnering with six more US banks – in addition to existing partners Citi and SFCU – to offer digital checking and savings accounts to users of its Google Pay service; including, BBVA, BMO Harris, Bank Mobile, Coastal Community Bank, First Independence and SEFCU.

While the banks will operate the accounts, Google will handle the front-end experience and offer financial insights and budgeting tools (for starters).

Similarly we see Microsoft also very successfully diversifying away from a pure licence model into more enterprise services which will allow banks to leverage not only its workplace modernising tools like Office 365 but also its enterprise platforms like Azure, Dynamics and Teams to accelerate transformation. Its recent announcements of the Microsof Cloud for Healthcare and its partnership with Mastercard shows how this platform model can work to help banks and other FS institutions.

Other members of the GAFA (Google, Amazon, Facebook and Apple) collective – Amazon and Facebook – have also been making news with their explorations into the financial space. And while both have faced setbacks – Amazon recently reneged on its intention to provide checking accounts through JP Morgan, while Facebook has revised its Libra cryptocurrency plans – it can’t be too long before these innovators return with fresh offerings.

So it seems the digital wave that threatened to make banks redundant is actually proving to be a boon for the industry. Access to new customers, new offerings and the very latest technology, without considerable investment, recruitment and training is giving incumbent organisations a new lease on life.

It also provides us with a glimpse of their potential future – seamlessly blending into existing customer offerings, an unseen layer focusing on its core historical strengths, empowering people to do more with their money. Or perhaps this chapter will convince banks to become something else entirely. Making use of the vast amounts of customer data, collected over years of association and across multiple touchpoints to engage with customers in new ways to the benefit of both parties.

The one thing we can be sure of when it comes to the marriage between Big Tech and Big Banks – this is just the beginning.

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