Why the Future of Open Banking Belongs to Platforms

Why the Future of Open Banking Belongs to Platforms

Jan Erwin Thomas

Director UK & Ireland at Deposit Solutions

Views 477

Why the Future of Open Banking Belongs to Platforms

21.02.2020 11:15 am

The platform economy is revolutionising the $50bn global deposits business. By separating the product provider and financial point of sale, banks can now choose whether they want to collect deposits for financing or offer deposits as a product, without one depending on the other. While the deposits business has not always been perceived as one of the most innovative areas of banking, it is now leading the charge towards a better connected and more functional industry. This is bringing massive benefits to customers and institutions alike. 

This innovation is being driven by the growing number of banks who are either using platforms or becoming platforms themselves and embracing the model. This enables banks to interact with and offer their products to customers of other financial institutions, improving access to certain market segments, increasing their overall reach, and allowing them to benefit from economies of scale. In turn, this improves the efficiency of transactions between banks and their customers and is opening the market up to new players.

Lower interest costs thanks to connecting to the platform

At roughly 40 percent of the balance sheet total of European banks, customer deposits are a key source of funding. Savings deposits also account for roughly one-third of the total private assets of all customers worldwide, acting as an important anchor product through which banks can strengthen their relationship with existing customers, and acquire new ones. Deposits, therefore, fulfil two functions at once: they’re a popular product amongst customers and an important source of funding for the banks.

In the past, banks could only collect customer deposits for financing if they had their own infrastructure and customer access. Furthermore, banks only offered their customers savings products, if they could place the customer’s money on their balance sheet without creating high costs or imbalances.

Under the platform model, however, banks that want to collect deposits can gain access to millions of savers via the many point-of-sale partners offered by a platform. Access to this additional funding source is highly attractive to banks; by increasing the size of the addressable market for their deposit products, banks reduce their interest costs and diversify their funding mix.

Furthermore, the platform economy breaks down geographic borders in the deposit business. Banks can collect retail deposits in overseas countries, without needing to establish their own infrastructure there. This has obvious benefits for UK banks facing the uncertainty of Brexit. Banks looking to take deposits can reach out to various point of sale partners across countries, using the same infrastructure for a standardised, unified process.

By using an open banking platform and offering the deposit products of third parties, banks can become the central financial point of sale for their customers, without customers needing to open another account. Private banks can also give customers competitive interest rates by offering third bank deposits, comprehensively taking care of all customer needs from a single source.

Open banking opens the market to non-banks 

The platform model is also making waves beyond the banking sector by giving non-banks the tools to access the deposits market. In the future, account information services, comparison portals, and ecommerce companies will all be able to safely and securely offer their customers deposit products through the platform, despite not being banks themselves.

The benefits of this will be felt by everyone. The likes of Amazon and Compare The Market will be empowered to position themselves as a central point of contact for their customers’ needs, while banks will be able to reach a much bigger pool of potential customers. However, the real winner of this will ultimately be customers, who will find it much easier to access a broader range of products in a more competitive market.

Latest blogs

Otabek Nuritdinov Safenetpay

A strong fintech needs more than just access to funding

  Investors, both private and institutional, are excited about investing in fintechs that are in the payments services business. What are the issues that really should matter to you, as a client? In 2019, institutional investors Read more »

Martijn Bos Holland FinTech

Get your head up in the clouds, it’s good for business

How Digital Transformation is reshaping competition in financial services The message is clear and it’s coming at us from all sides: digitalize now. No business unit seems to be immune to the onslaught of cloud-based, AI-driven, real-time, Read more »

Sonny Aulakh Pure Storage

How to support remote working without compromising productivity

As the need to work remotely continues to impact the daily lives of people and businesses around the globe, it places unexpected demand on IT departments. How do you transition supporting 30% of your workforce to work remotely to 100% in a matter of Read more »

Martijn Bos Holland FinTech

Making it through the rain: Finance in times of turmoil

You’d need to be living on a remote island, without electricity or internet to not be aware of what the world is going through right now – a medical crisis that has spread across the world and disrupted supply chains, goods and services production, Read more »

James Devoy Sysnet Global Solutions

PCI DSS and Remote Assessments

COVID-19 is obviously changing many aspects of daily life. Some will be short term measures to see us all through these times, although I wonder how many will become more permanent fixtures in our lives. The PCI SSC has provided guidance to allow Read more »

Related Blogs

Rahul Singh HCL Technologies

Democratising Financial Data Through Open Banking

While it’s difficult to overlook the importance of data in today’s financial services landscape, many banks are still grappling with the question of how to mine, evaluate and use it. Banks have historically struggled to get value from data, seeing Read more »

Todd Clyde Token

Open banking connectivity: the outlook is better than you think

You have probably seen the headlines about banks not being ready for PSD2 – as the deadline approached and then passed, they were hard to miss. While it is true that less than 50% of banks have met all of the requirements mandated by the EU Read more »

Teresa Affinito W2 Global Data

The UK Operators Need An Open Banking Strategy

Following on from the earlier article on Open Banking (What does Open Banking mean for Gaming Operators?), here is the second of the three pieces; some further considerations on the operational impacts should a Gaming operator embrace the benefits Read more »

Nikhil Sengupta Five Degrees

For UK banks to survive they need to find their place in the FinTech ecosystem

“Over the last decade, we are seeing a transition from traditional banking offerings to an inter-connected web of banking and financial service providers, with technology at its core. “A 2016 report conducted by Capgemini and LinkedIn of 8,000 Read more »

Brian Hanrahan Nuapay

Open Banking: The European Challenge

A common belief in the financial services industry is that traditional banks are under fierce threat from challenger banks, fintechs and global tech corporations, alike. With competition growing by the day, take Facebook’s recent Libra announcement Read more »

Free Newsletter Sign-up
+44 (0) 208 819 32 53 +44 (0) 173 261 71 47
Download Our Mobile App
Financial It Youtube channel