Fintech

How to build the future of Bank-as-a-Platform

Aleksandra Rajczyk
Aleksandra Rajczyk

The PSD2 Directive will bring significant changes to the banking industry. It provides new opportunities for financial institutions but also intensifies competition in the European market. However, there is a way of adapting to this new era of mobile banking platforms. The key is understanding how to  reshape your business model. 

Significant regulation changes have lowered the point of entry into financial markets, as well as the digital banking platforms market, to a very low level – an unprecedented occurrence in the world of finance. The PSD2 Directive introduces Third Party Providers (TPPs): technology-driven service providers that integrate with banks’ open API. TPPs can obtain a full banking license from the European Central Bank and, essentially, become a bank. Then they have the possibility to extend licensing to different companies under their umbrella. In this way, a TPP banking platfrom can become a real threat to well-established players in the finance sector.

Are we really on the verge of a battle between old school banking and new, mobile-driven fintech solutions with new online banking platforms? Despite some commentators’ pessimism, that’s an unlikely scenario. Often times one cannot function without the other. For example, a fintech providing a loan aggregator platform does well as long as the banks that offer loans do well. E-commerce giants profit from banks exposing their long-term customers to the goods e-stores have to sell. Rental services could use a built-in insurance option, and so on. 

The focus should shift from competition to synergy. A concept that should be explored more by traditional banking institutions is the new model of providing services called Banking-as-a-Platform (the BaaP model). Bringing together the worlds of banking and a startup approach to technology is the perfect beginning of the change into the digital banking platform market. 

How to define Bank As A Platform?

There are several ways in which we can describe how the BaaP model works. Here are some banking as a platform examples:

  • a bank that offers multiple customer journeys
  • a bank where services are the primary source of revenue
  • a finance marketplace 
  • a bank that has multiple points of connection on the customer’s side instead of the pipeline model based on a straightforward chain of needs from the customer

What’s noticeable about these definitions is that they all require multiple channels. This is mostly due to the fact that customers are choosing mobile phones to deal with their day-to-day needs. Creating new touchpoints for them to interact with their bank is crucial to stay relevant to the market. It is clear that any success in developing the best online banking platform strategy (BaaP) will depend on mindset changes from technological, cultural, and business points of view. 

Openness towards new ideas is the basis of a successful banking platform as a service. Unique digital product concepts should be welcomed at every level of a digital banking platform. ATMs as mini-banks? Easy loans for small companies? Quick risk prognosis for investments? Verification by an iris scan? Open banking platforms make these ideas possible. 

What to do to start the digital transformation?

Digital banking engagement platforms and BaaP are an evolution of existing business models. New online banking platforms will be more like one-stop shops for various services dealing with finance, insurance, and investment. To achieve this, the core segments of banks don’t have to be completely replaced by others, but they’ll need to develop further than before. 

  • Introduce sales to a customer-centric approach 

There is no doubt that digitalization is fully focused on the convenience of the customer. Having an account with one bank does not mean that a customer will use it for all other financial products and services. 

In order to keep old clients and attract new ones, banks shouldn’t focus on a single customer group but rather, they should go back to the drawing board and define new buyer personas. There will have to be plenty of them: after all, nowadays everyone has a smartphone. Offer them unique experiences and education – customers want to know exactly what they are paying for.

  • Build solid IT structures

Banks with technological legacy have to closely re-examine their IT structures. Architecture suitable for the open banking api platform model has to be open, flexible, fast, and scalable. 

The key components are:

  • an open API platform with an API management tool
  • a precisely defined TTP integration process 
  • seamless data flow synchronization

The financial aspect of transforming IT structures according to the needs of the current market may seem like a crushing expense. However, outdated IT systems require high maintenance costs and weigh down the core banking platforms in the long run. 

  • Strengthen security and authentication

Banking platform capabilities, including mobile applications, e-payment, and new sales channels are great for customers, but the risk of online fraud is at an all-time high. The click-and-collect system of most retailers is a playground for fraudsters because the consumer often has no time to notice that something is wrong. Online safety is one of the biggest challenges of the digital era for even the best digital banking platforms. 

PSD2 responds to these concerns. The directive requires banks to provide a Strong Authentication Procedure. This means that banks have to provide at least two elements for identity verification. The quest to keep customers safe shouldn’t stop there. By providing services that keep their money and identities safe, banks can gain a real advantage in the competitive market. It is worth investing in new methods of privacy protection, including those based on biometric data and augmented reality. 

  • Keep up with the needs of the e-commerce leaders

Traditional banks often don’t respond quickly enough to the demands of massive retailers (e.g., Amazon, Zalando, Aliexpress, eBay). They drive changes in the digital landscape thanks to the number of customers they attract every day. Being one step ahead of them could be a winning factor in this highly competitive field. No corporate client is the same: always seek regulatory guidance before any digital product launch, especially with corporate banking platforms. 

Ask for advice

At BinarApps, we specialize in creating digital products, including solutions for open banking, third-party integration, and API. We can expand a product from a backlog or build it from scratch.

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