To build a platform or join one? Both approaches can yield rewards, but that doesn’t mean they’re equally right for your bank, says Rik Coeckelbergs of The Banking Scene, a contributor to Entersekt’s new ebook, Open banking state of play.
People have been talking about platform banking for years. Inspired by Big Tech and the Asian “super apps”, the whizz kids in financial services say that if a bank can’t be a lifestyle platform, then it’s destined to become a “dumb pipe” for other platforms.
Financial services and loyalty programs linked to payments are no longer enough to bind customers to their bank, the argument goes. Banks must venture beyond these offerings and start providing all kinds of lifestyle services. These services may not all generate revenue, but as they create a new kind of loyalty, cross-sell opportunities and additional data streams will compensate.
Super apps like WeChat and Grab have changed consumer expectations with all-in-one digital experiences. WeChat started as a messaging app, but it quickly added other functions, such as payments and other financial products, to the service. Grab began as a car-hailing app and swiftly incorporated food delivery, payments, and insurance products, among others, to its services. It stands ready to assist its customers at almost every step in their daily lives.
Stimulated by these companies and new trends like open banking, many banks are deciding they need to create similar experiences for their customers to prevent other players taking over these online touchpoints.
Many banks have tried, but only a few have succeeded.
Banks that have succeeded with platform banking
Creating a platform is one thing; aligning it with customer expectations to drive volume is something else entirely. Banks are trusted with financial services. Providing a super app goes far beyond this trusted role. It involves convincing people that their bank is better placed to curate a winning set of useful and convenient services than they are on their own.
To succeed, banks need the right technology stack but also bright talent capable of thinking outside the box, excellent partnership skills, and the leadership to steer them into this new role – evolving from simply providing financial services to becoming a life companion.
KBC Bank in Belgium is a great example of a bank that has shown success in this transition. Over the past few years, it has added many new services, from managing meal vouchers to paying for parking and car sharing, to loyalty programs and cinema tickets. In fact, more public transport tickets have been bought through the KBC’s app than through our dedicated public transport app!
Recently, KBC even added real-time updates of Belgian Pro League football matches. Now, fans can be notified every time their favorite team scores and even watch replays of the goals. The bank went beyond its perceived remit of financial services, which created both enthusiasm and criticism. The criticism came from those who couldn’t see how this move aligned with the bank’s purpose and believed that the investment would have been better spent improving financial services.
Tinkoff in Russia is another excellent example of successfully moving beyond financial services. On top of basic digital banking services, it created a list of functionalities to teach children about financial matters. It has loyalty programs and easy integrations with government services, as well as many other lifestyle services.
HolaBank, from CaixaBank in Spain, built a platform with a full range of services for its foreign clients. Next to the traditional banking services, their HolaBank Living Solutions offer legal advice, translation services, home emergency, and relocation services.
Not everyone will understand the benefits, but platform providers don’t have to convince everyone of their choice. You simply need to ask yourself these questions: Who is your key audience, what do they want today, and what will they be looking for tomorrow? What will make them knock on your institution’s door?
Why it’s OK to skip platform banking
These developments may be incredibly sexy and inspiring, but they’re not right for every bank. It’s not in every bank’s DNA to be omnipresent, so not everyone should try it. Most banks have what we call a “second bank relationship” with their customers. Their customers deal with them for a certain set of services, but their primary banking relationship is with someone else. These “second relationship banks” are niche players and have a limited set of excellent products, whether they’re competing on functionality or price.
It’s OK to be niche, just as it’s OK to provide services on third-party platforms. Operating a platform is expensive, and most banks can’t afford the technology and talent necessary to be omnipresent and truly responsive to a wider range of customer needs.
For me, there are two important lessons to learn from the upheaval caused by this pandemic. First, digital banking is here to stay and, second, banking customers remain loyal to brands they trust. This implies that successful smaller banks that had the basic digital banking requirements before the upheaval will continue to thrive after it’s all over.
For continued success, niche players must focus on their competitive advantage, expanding and exploiting it where they can. Open banking and the new trend of embedded finance, where banks offer their products through non-financial services providers, could be the answer.
Instead of trying to find organizations that connect to you, look for the platforms that best match your core business and brand, and in that way grow your market potential. Do you provide great mortgage products? Then, link to a real estate platform that allows prospects to instantly calculate or even sign up for a mortgage, so they can buy the house of their dreams.
Stripe shows us what this looks like for the SME market in e-commerce. It partnered with banks to offer its Shopify customers a treasury solution through an API. Merchants that connect to the service get a card, the option of an ACH, or wire transfers and bill payments.
Every bank has to determine what it stands for today and what it wants to stand for tomorrow. For some banks, this means growing beyond financial services, creating a lifestyle app in which financial services will remain the central offering. Other banks will prefer not to change the status quo and continue working to meet customer expectations on core services, using partnerships to grow their market.
The one thing they all know, however, is the importance of investing in digital identification and authentication solutions that work together securely, irrespective of whether the bank builds and maintains a platform or consumes a platform for business development, marketing or customer experience purposes. Banks are trusted institutions where safeguarding customer data is as important as the uses to which they put that data.
Rik believes open banking needs more than a European directive to fulfil its promise. Download the Entersekt Ideas Lab ebook Open banking state of play to learn why!