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 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 from changing user expectations to competitive threats.
Financial services companies over the past decade have done very well in building strong operating efficiency models and building capabilities to do “more with less.” What they are lagging in is the ability to come up with new services and products to meet 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 customer 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 life 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, Amazon scaled by leveraging three things: user experience, data and technology.
These three foundational elements of the banking platform—user experience, data and technology—are all key to ensuring 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 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.
Rising customer expectations. Customers today demand a personalized experience, customized to an audience of one and want to 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.
Avoid disintermediation. With fintech companies and non-banking companies all going after the customer, banks need to avoid becoming just a white-label service to another platform ecosystem. Banks need to take control of their customer interactions and trust.
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 its introduction of Libra crypto currency—is looking to leverage its billion+ customer base to sell them payment and banking services. In addition, they have partnered with key players (none of which are banks) to build the service.
Building platforms for banks requires a truly strategic approach. 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 that serves real customer needs is key. The 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 the right data at the right time is more important. 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 the customer at the center and innovating for the customer, either in house or in partnership, is key to moving 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 partnerships with so-called competitors, leveraging the skills of niche startups and being open allow the platforms to attract third parties and bolt on services and products.
When releasing iTunes, Steve Jobs said, “Convenience is cheaper than free.” Building a platform that 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, getting into markets and growing top-line revenues as they understand the customer demand and build upon customer trust.
If a small Seattle bookseller 25 years ago 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.”