Fast-evolving customer expectations have reinforced the need for banks to prioritize experience. As a result, banks are transforming into the platform companies of the future, unique because of their regulated structure, use of open banking solutions to support dynamic partnerships with fintechs, and ability to meet customer demand for innovation.
The banking as a platform (BaaP) model is a major shift in mindset for traditional banks, many of which have designed, built, and managed their own custom technology for decades. Around the world, open banking legislation is leading banks to become more open and collaborative, and application programming interfaces (APIs) have emerged as a prime enabler of innovation and growth across the industry.
What does it take for banking to evolve as a platform? BaaP empowers banks to adopt an open approach often associated with fintechs, such as collaborating with third-party disruptors, and accelerating delivery of modern products and services that customers want, paving the way for a more interconnected financial ecosystem.
Banking as a platform — why now?
Fintech innovation has dramatically raised customers’ expectations. In an age of personalization, customers expect financial services that meet their exact needs.
Banks have unique advantages to be at the forefront of this innovation. Banks are able to leverage their API-driven solutions and partner with fintechs to develop new apps and services. APIs are the building blocks of BaaP because, at a simple level, they allow different systems to be integrated on a single platform. This enables banks to leverage a technology partner’s infrastructure to offer better services to more customers and geographies, with more speed and agility. This enables banks to leverage their strengths in payments, lending, and information management to power the partners’ infrastructure to offer better services to more customers and geographies, with more speed and agility.
Consumers who desire convenient interactions with different providers are a massive untapped opportunity for platform services, according to Deloitte research. BaaP addresses this latent appetite by integrating a variety of banking and related services into a digital marketplace, owned and operated by a bank, and helps ensure that all participants operate in harmony.
Think of a customer who wants to access finances related to their utilities. Rather than logging into each website separately to pay for electricity, gas, or water, BaaP allows the consumer to choose a single provider and handle their utility payments in one place. It’s easy to see how customers can benefit from greater convenience, greater choice, ability to compare products, and even potentially better pricing, among other advantages.
“Customers want to maintain flexibility and have choice on their solution provider, no matter how much they love a product or a service. You might have diehard fans of Netflix, but that doesn’t mean they’re not getting Prime,” says Reetika Grewal, Head of Digital for Commercial Banking and Corporate & Investment Banking at Wells Fargo. “Because of the nature of human preferences, becoming a platform player will offer flexibility in terms of how the end client experiences your products or services or risk losing customers to companies that already are.”
To some, platform banking might seem a far-fetched construct since it is still a nascent trend. But we are already seeing real-world examples of success in financial services. Among them, Wells Fargo’s Vantage—a new business management system—creates a connected ecosystem for businesses to manage their business cash flow and money movement within a single platform.
A platform system like Vantage offers CEOs and CFOs more insight into their cash positions and enables them to do nightly sweeps in a safe fashion. They can also see their invoices, make bill payments, and essentially get a full view of their company’s perspective all in one place. Through Vantage, businesses can keep managing their finances on a single platform even as they grow in scale — from their formation through an IPO and beyond. Wells Fargo leverages APIs both internal and via partners to deliver the Vantage platform to its clients.
How banks are sparking fintech innovation
The key factor for banking as a platform? Collaboration.
Wells Fargo’s Multi-X Innovation Challenge is a prime example of how banks can work with startups and fintechs to develop consumer preference-informed solutions that make for a more cohesive financial journey.
In an increasingly complex and competitive market, financial solutions almost always involve multiple players in the mix. No single provider can satisfy all customer needs. Often, the work falls on the customers, forcing them to curate what they need from their various financial providers. The Multi-X Innovation Challenge invited fintech startups to design a single platform that would combine different financial solutions to simplify the customer experience.
“We asked them to solve one big question: How can you address the friction when customers want to string together their preferred providers, but without requiring them to understand every in and out?” Chintan Mehta, CIO, Head of Digital Technology and Innovation at Wells Fargo.
The recently announced winner of the Multi-X Innovation Challenge, HomeZada, answered that question by building a consumer digital home management platform where users can manage, maintain, protect, and improve their homes.
The home—often the most expensive asset people own—has a life cycle on its own, which includes home renovation and repairs. HomeZada designed a solution that would help customers financially manage home ownership as a whole, from buying the property to remodeling, landscaping, and design projects. By combining multiple apps, content, and data, HomeZada can help people save money and maximize home value.
“We are honored that the Wells Fargo Innovation Challenge selected HomeZada as a digital home management platform,” says Elizabeth Dodson, a co-founder of HomeZada. “This validates our dual mission of providing complete financial visibility about a home for homeowners while helping financial services companies cultivate deep and enduring relationships with customers.”
Disruption or collaboration?
Globally, a wave of open banking legislation is dictating that banks become more collaborative. In several major markets, such as the EU, Hong Kong, and Australia, participation in open banking is already mandatory. Over time, these kinds of regulations will require banks to move toward a more horizontal architecture that facilitates BaaP.
At the same time, there is increasing pressure on banks and fintechs to innovate to catch up with consumer demands and growing digitization. Since technological growth and innovation are the engines of economic growth, this is a healthy trend for the industry as a whole. Yet, a dilemma arises when banks have to weigh the demand to innovate with the regulatory environment.
“Do you want to go fast? Or do you want to go far?” says Grewal. “You can go pretty fast to nowhere. Or you can collaborate with a larger ecosystem and go farther, and have more sustainable existence and products.”
Continued partnerships between technology companies and banks, combined with efforts by governments and regulators to interpret, adapt, and expand traditional regulatory regimes, can increase potential for future success for banks, fintechs, and their customers. In an increasingly connected digital environment, any organization or entity that believes they can define the entire ecosystem by themselves will quickly realize this is not possible.
Migrating to a new business model enabled by platform banking won’t be easy and requires a change in mindset, culture, and talent models. Operating in an open banking environment and thinking more holistically about client needs will be key. As BaaP ushers in a new era of banking, the industry should embrace both innovation and collaboration to build a more inclusive and interconnected financial future for all.