The titans of the banking industry need to set aggressive aspirational goals and execute upon strategic platform building capabilities to grow top line revenues, take their business beyond their core capabilities and compete with digital native platform companies that are moving into the banking domain. Platform business models pioneered by technology companies like Amazon and Google are having a significant impact on traditional banks and asset management firms by changing user expectations to becoming competitive threats.
Financial services companies over the past decade have done very well in building strong operational efficiency models and building capabilities to do ‘more with less’. What they are lagging in is the ability to grow top line and come up with new services /products to meet the changing customer needs in their domain or other domains.
Major financial services firms need to work expeditiously on building digital platforms to meet customer expectations, exploring broader business service areas, new product design, and partnerships in the pursuit of new revenue streams and competitive edge.
Financial companies have a strong trust equation with their customers. This in turn affords them an opportunity to build platforms and services that the customers will accept. Banks also have access to data on customers spending habits, their credit cards, mortgages, car loans and other financial transactions, giving them a holistic perspective of customers and how they can help them navigate their life journey seamlessly.
Not too long ago, Amazon started as a book business and grew by becoming a demand management machine. Bolting on third party products and services such as third party suppliers, cloud platforms, Amazon scaled by leveraging three things: User Experience, Data and Technology. Instead of focusing on growth in adjacencies, Amazon grew by customer demand management and having a scalable platform which allowed them to bolt on product and services which the customers demanded.
These three foundational elements of the banking platform—User Experience, Data and Technology—are all key to ensure that efforts to develop such an ecosystem are sustainable. I have witnessed a number of cases where companies focused on one, only to realize the spend created a temporary, yet unsustainable, spike in value. This happens when banks build very user friendly mobile interfaces that are actually empty shells offering little or no additional value to customers. Others build massive data lakes and consolidated data sources only to realize that big data does not equate to customer satisfaction.
The shift from traditional service models to customer centric centricity is well on its way, and it isn’t a technology exercise. Together, the user experience, data strategy, and technology serve as the foundation for a successful platform.
Why the shift to Platforms?
Building a digital platform is key to executing digital and business strategies. There are three factors driving the need for a platform for banks:
– New Revenue Sources. Financial institutions have struggled to grow revenue within their traditional suite of services. The loss in capital markets and trading revenue has not been replaced by increased market share in lending and credit cards. Platforms provide an opportunity for financial services to create new revenue streams beyond traditional products and services.
– Changing Customer Expectations. Customers today demand a personalized experience, customized to an audience of one and want to be have the convenience of when, where and what they want to transact with the bank. They are today holding banks to the same standards, which they expect, from say an Apple store experience.
– Avoiding Disintermediation. With fintech companies and non-banking companies all going after the customer, banks need to avoid becoming just a white labeled service to another platform ecosystem. Banks need to take control of their customer interactions and trust equation they have built with their customers.
Examples of banks partnering to build platforms are in the news every day. Recently HSBC Bank USA, the U.S. arm of HSBC Group, announced that it is partnering with Roostify to launch a digital mortgage platform. The highly successful Marcus platform of digital lending and deposits at Goldman Sachs is another example.
If you talk about platform players making entry into banking, Facebook with their introduction of Libra crypto currency is looking to leverage their billion+ customer base to sell them payment/banking services. They have partnered with 27 key players to build the service.
Building a Platform – What successful companies are doing right
Building platforms for banks requires a truly strategic approach to make it work. When I see clients doing it right, they tend to focus on these key factors for success:
1. Sourcing right talent. either in house or building partnerships for talent.
2. Implementing Agile at scale. Breaking down siloes and getting the business, user experience, developers, testers and infrastructure to come together is truly Agile at scale.
3. Keeping Customer at the Center. Building a platform which serves real customer needs is key. Ability to get real time customer feedback and test and learn allows customer to stay at the center of platform services.
4. Right Data. Big Data is key, but right data at the right time is more important. What that means is that there needs to be an overall data governance and implementation strategy at the top of the house to ensure the siloes are being broken and right internal and external data can be leveraged.
5. Innovation at Scale. There are examples of AI, RPA within banks but keeping customer at the center and innovating for the customer either in house or in partnership is key to move from a reactive to a predictive model. Innovation can also follow a fail fast model but banks also need a capability to scale innovation rapidly where value is determined.
6. Partnership and Open Platforms. Building partnership with so called competitors and leveraging skills of niche startups and being open allows the platforms to attract third parties and bolt on services/products.
When releasing iTunes, Steve Jobs said, ‘Convenience is cheaper than free.’ Building a platform which has a frictionless user experiences—one that wows the customers—and personalizes customer demand management is key to a successful platform strategy.
Banks could with the right platform bolt on products and services such as selling cars, to insurance, to mobile phones getting into markets and growing top line revenues as they understand the customer demand and build upon customer trust.
If a small Seattle book seller 25 years back can become an e-commerce supergiant, banks can become the one-stop-shop lifecycle platforms of the future.
As the famous 20th century poet Jay-z says:
“ I’m Not A Businessman, I’m A Business, Man”