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Undoubtedly, there has been no greater change to the way we interact with money than technology. The digitisation of services has opened the door to challenger firms; Fintechs have been upsetting the status quo by offering innovative products and services to address the needs of the modern consumer.
Established banks have invested heavily in order to keep up with the pace of change.However, signs in the market now point towards an accelerating trend of Platformification –the consolidation of services. Rather than using one provider or app for our holiday money,current account and loans (for example) these services are increasingly found through a small number of platforms, thereby offering consumers a seamless and convenient service. But why is Platformification a potentially seismic shift in the market, and what does the future hold for the trend?
What’s the current state of platformification?
Platformification has become a prevalent trend over the past few years. As a rule, we most commonly see Platformification when large players (namely established banks) acquire smaller Fintechs/challengers and incorporate their smaller offering into the bank’s platform.
This has not only helped the big banks to patch over legacy issues, stemming from decades’ old infrastructure, but granted Fintechs a seat at the table in a sector where consumers can often be wary of change.
This has seen banks begin to streamline their operations to focus on processing core financial transactions, whilst making room on their platforms for their more agile partners to offer their customers more innovative solutions alongside traditional services.
Is further consolidation necessary?
Consolidation is a key tenant of Platformification and has seen ever increasing numbers of Fintech firms acquired by the big banks in the latter’s effort to stay competitive and to offer the highest level of service. However Platformification is now set to stretch beyond traditional banks incorporating smaller Fintech firms and must involve the big players collaborating.
In fact some believe this is vital to their very survival, with analysts at leading research firm Gartner predicting that 80% of traditional financial firms will either be out of business, become commoditized or be irrelevant by 2030. Ultimately the embracing of platformification would allow banks to focus on competing in the areas that impact their bottom line, rather than trying to outdo each other in the tech world.
The last ten years has proven that smaller challenges have an undeniable advantage in their agility and propensity to innovate. Despite the banks’ deep pockets, they’re not always able to keep up – embracing the shift towards Platformification and initiatives such as Open Banking and the prevalence of APIs is the next natural step
What could the next decade bring?
While traditional banks are set to remain at the core of the financial services industry for the foreseeable future, the way in which consumers interact with these banks could look radically different over the next five to ten years. Some analysts suggest that the line between the financial and tech sectors could become increasingly blurred, with the model of Platformification resulting in future offerings from banks looking more akin to an app store, with consumers able to pick and choose from various financial solutions from a single platform. Platformification also looks to accelerate the notion of Open Banking, with small to medium-sized businesses benefiting from the ability to centralise their finances and search for a solution that best suits their business.
Start-up and traditional banks aim to create a seamless transition between multiple services, which are tailored to their customer base. It has become the norm to see services such as FX, crypto, P2P payments and insurance to be integrated in this way, but there is still plenty of room for innovation. Open Banking will make this process even more accessible and address the need for innovation – for example we still haven’t solved the issue of how to integrate different bank accounts cross-border. This would be a huge shift for the payments industry.
However, whether any of this will come to pass will likely depend on the willingness of traditional banks to collaborate and adopt a standard platform and embrace the flexibility Platformification can offer – so watch this space. Over the next decade, we can expect large financial institutions to start exposing richer platform toolkits, as these institutions become increasingly invested in the Platformification process. Banks and other large players will still be the market leaders, but they are likely to take on the role of coordinators, rather than authoritarians. This in turn will see the emergence of new vendors, who will solely focus on the interoperability of these platform services. It’s an environment that’s set up to foster innovation and effective delivery to end users, to the benefit of both consumers and the wider marketplace.