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  • @fintechna 11:35 am on June 16, 2016 Permalink | Reply
    Tags: BaaP, , , , , ,   

    The Future is Now for Banking as a Platform (BaaP) 

    The Future is Now for Banking as a Platform (BaaP) fintech

    What do fast-growing companies like Uber, Airbnb, Amazon, Deliveroo, and Facebook all have in common? They’re all platforms.

    Deliveroo delivers food – but doesn’t make it; Uber is the world’s largest taxi firm, but doesn’t own any taxis; Airbnb is one of the world’s largest accommodations provider, but owns no accommodations.

    These platforms have quickly grown to become giants in their fields because they benefit from network effects: the more people and businesses that join them, the bigger the benefit of being a member, which creates a positive feedback loop encouraging further growth.

    But What About ?

    So far, banking has been almost unique in resisting the platform business model: there were no benefits from network effects – so no reason to share a platform, and owned the way customers purchased financial services – so no reason to share an alternative.

    But all of that is changing.

    New is lowering the barriers to entry, new regulations on information sharing (such as PSD2) are creating opportunities for new business models, and changes in customer attitudes are encouraging fresh approaches.

    Soon, banks may lose their dominant position as the primary intermediaries for their customers, and traditional industry leaders will face calls to either revamp or risk becoming obsolete.

    What does the future hold for your ? And how will fit into the equation?

    What will BaaP look like?

    In the traditional model, banks create products and sell them to their customers. Almost all of the products and services offered are owned and controlled by the bank, and there is only limited collaboration with key partners.

    In contrast, a BaaP model allows for much more in the way of partnerships. Banks focus only on their core activities, with other functions fulfilled by partners. There is scope for partners to develop and offer their own products, which will work in partnership with the core products through the use of APIs and open source. Key data is shared with partners to enable this.

    Three Questions Banks Must Answer to Succeed at BaaP

    Moving to a platform model is a big step, involving reversing the silo mentality that many banks have and replacing it with a new culture in which other organisations aren’t necessarily your rivals.

    Here are three key questions banks must answer before getting started:

    1. What is your focus going to be?

    When you move to a platform model, you no longer need to be producing and controlling every product. The possibility for other businesses to have products on your platform means you must decide exactly what value you are going to bring, as this will influence which partners you try to attract to your platform.

    2. How will your architecture support your platform?

    Most legacy software used by banks were built with the idea that other businesses should not have access to the information within. These silos need to be broken down, and new infrastructure built in their place that enables APIs and open standards.

    3. How will you maintain and improve security?

    The necessary changes in culture and technology to move to a platform strategy will inevitably create new security challenges. As these changes take place, it is imperative that banks continue to invest in their security; a significant breach in the early days of a platform could cause significant damage to reputation, making it harder to gather partners.

    Should You Choose a BaaP Model?

    BaaP is happening now – and those that embrace it now will have a significant advantage over those left trying to catch up. The platform model offers almost limitless possibilities for those that choose it, and banks should decide soon whether they want to have an absolute platform or not.

    Are you considering BaaP? Crealogix can help.  We provide a multi-disciplinary absolute platform model that is fully-customisable, modular, and transparent.

    To find out more, check out Crealogix


    Elke Blank-Buerk is Senior Sales Manager at CREALOGIX Group.

     
  • @fintechna 10:56 am on May 9, 2016 Permalink | Reply
    Tags: BaaP, , , , , , ,   

    Exploring Banking as a Platform (BaaP) Model 

    Exploring Banking as a Platform (BaaP) Model fintech

    I co-authored this post (and its sequel which will be published shortly) with David Brear, Chief Thinker at Think Different Group

    The integration and delivery of financial services is changing as new channels, products and partnerships are being explored. as a () is one of the alternatives. Platform strategies require a radically different approach to how a business is architected. Owning an entire business stack may not be feasible nor desirable anymore.

    In 2015, it became almost the expected cliché slide at any self respecting financial  conference that someone would stand up and reference the interesting infographic highlighting the success of new ‘sharing economy’ players. The references, first discussed by Tom Goodwin on TechCrunch, illustrates how the middle men get cut out and how companies that take over the customer interface are the ones to gain.

    Exploring Banking as a Platform (BaaP) Model fintech

    If the presenter had an updated slide, they may have referenced Deliveroo, the biggest restaurant delivery service that makes no food.

    These companies have grown exponentially in both popularity and success in the last 4 years. They have scaled their business models and platforms to cover more geographies and locations than even the largest global . But while platform strategies have taken the world by storm in many other industries, platform strategies haven’t worked out in banking or insurance.

    By platform strategy, we mean those that IBMCiscoIntelMicrosoft developed in the 80s and 90s. Equally, AmazonGoogleApple and the firms previously mentioned have also employed more recently.

    The only exceptions in the banking sector may be found with Visa and MasterCard who, as networks, had to develop a platform strategy where issuers, acquirers, startups, various payments service providers and merchants are symbiotically linked. In that sense, most banks are part of Visa or MasterCard’s platform strategy, but do not have a platform strategy of their own. In insurance, developing a network of agents, brokers and master general agents does not really qualify as a platform as it is limited to a distribution channel.

    Why Didn’t Financial Services Organize As Platforms?

    There are three main reasons why financial services industry incumbent did not organize as platforms:

    1. Current Business Models – Banking and insurance company business models do not currently lend themselves to network effects. They do benefit from economies of scale – although this may be hotly debated – but not network effects. Without the benefit of network effects, it makes more sense to own one’s stack entirely and not share it. Why create a platform with partners when the benefits will be linear at best?

    2. We’re Number One, So Why Change? – Up until recently, banks and insurers were the perfect intermediaries. They were the best positioned to make credit or underwriting decisions. Why create a platform with partners when no one else knows how to lend or insure better than the current players?

    3. We ‘own’ the customer – Up until now, how individuals or corporations interacted with one another and between themselves lent itself to a top down organization for the selling of financial services. If the industry owns the narrative of how a financial product gets pushed to an end user, why create a platform with partners?

    These conditions have been unique and protected the financial services industry incumbent players from the reality faced into by many other industries and individual organizations. Today, though, we live in a world where computers and algorithms are proving to be very adept at pricing credit and underwriting risk. And where in the past data that was not readily available, it is very abundant and available in real-time today.

    Technological innovations, coupled with significant regulation changes, have lowered the barriers of entry into these markets to a staggeringly low level. Completely new organizations like Mondo Bank in the UK, Simple and Moven in the US, and some of the largest technology firms, like Apple and Google, now move freely into these markets at will.

    As this occurs, banks and insurers run the risk of losing their dominant position as primary intermediaries for customer interaction and engagement.

    Network Effects Have Changed The World

    Network effects impact us all on a daily basis, via social networks and other marketplaces. These same social networks and marketplaces, after having gotten us used to interacting with one another in a different way, are now encroaching on financial services, with payments and lending initially being their target.

    Smartphones, broadband internet, the 24/7 availability of commerce and data, and social networks have made us organize ourselves very differently than in the past. The Millennial generation, weaned on this new paradigm, now have completely different expectations than their parents or grand parents of communication and commerce.

    Exploring Banking as a Platform (BaaP) Model fintech

    There are other reasons why financial services industry incumbents need to shift to a platform strategy. For example, financial services startups, competing against these incumbents, is one narrative brandied about. Frankly, the startup competition is a by-product of the root causes rather than a driver.

    Without  competition, financial services industry incumbents would still need to think about platform strategies, as the root causes are much more fundamental than that. Financial services industry incumbents need to transform into “fintech incumbents,” with a complementary platform business to better compete.

    We recommend the book Platform Leadership by Annabelle Gawer and Michael A. Cusumanoto to those who want to explore further what platform strategies are. In the book, the authors’ outline four sets of strategic choices that are part of platform leadership:

    1. Determine the scope of the firm: Is it better to create product complements internally or let someone else do it? How far into the technology value chain should a firm extend?
    2. Design the product with strategic intent: What degree of modularity is appropriate? Should product interfaces be open or closed? What information should be disclosed to other companies?
    3. Shape relationships with external complementors: How can the company balance competition and collaboration with outside players? What’s the best way to create and sustain relationships with complementary product providers?
    4. Optimize internal organizational structures: What processes and systems will allow the company to manage internal and external conflicts of interest most effectively? What’s the right way to resolve the tensions between industry players?

    7 Levels of FinTech Platforms

    For a bank or an insurance company to become a platform for financial services, profound transformations need to happen. Becoming a “digital bank”, if taken in the strictest sense of the term (i.e. bringing distribution channels to the digital realm) is not enough.

    A platform architecture implies transformational changes across the business/technology stack as well as fundamental choices that dictate how product, service, technology and HR resources are articulated between, 1) What is delivered internally by the core; and 2) What is delivered externally by partners active on the platform.

    The distinction is important as it defines the company and the core differentiator in the market. What do we have to be awesome at? What can we let other people do? How do we exceed consumer expectations?

    Below is a potential view of a financial services industry incumbent platform state. For the purposes of the analysis, we dissected the levers into 7 components (vs. the four in the Platform Leadership book).

    Exploring Banking as a Platform (BaaP) Model fintech

    Because of current legacy mindsets and structures, a platform play would be very difficult to implement for the vast majority of organizations.

    Making a Platform Play in Banking Possible

    It is clear that any success in developing a platform strategy for banking (BaaP) will be largely dependent on wholesale cultural and technology mindset changes. Traditional business models are far easier since banks are in full control. Financial services industry incumbents created products and sold them to their customers. Value was produced upstream by the banks and consumed downstream by the consumer.

    Unlike traditional models, a Banking as a Platform structure does not just create and push products. The BaaP structure allows users to create and consume value. At the technology layer, external developers can extend platform functionality using APIs. At the business layer, users (producers) can create value on the platform for other to consume.

    This is a massive shift from any form of financial services model that exists today. Creation of network effects is more important than simply bringing in users or charging all users to make money.

    In this model for financial services, software and technology are not the end product. Instead, they simply serve as the underlying infrastructure that enable users to interact with each other. Most importantly, the business itself doesn’t create all the value.

     

    This post originally appeared on The Financial Brand in a different format

    FiniCulture

     
  • @fintechna 4:54 pm on May 8, 2016 Permalink | Reply
    Tags: , , , , BaaP, , , , , , ,   

    Making Bank as a Platform (BaaP) a reality 

    Making Bank as a Platform (BaaP) a reality fintech

    This is the second post of a two post series I co-authored with David Brear. Both posts appeared originally on The Financial Brand thanks to Jim Marous.

    You can read the first post here.

    All up to speed? Excellent. As you will already know from Part 1, as a has never really taken off for various reasons. Traditional approaches and business models are easy as the had full control. Financial services industry incumbents created products, pushed them out and sold them to their customers. Value was produced upstream by the banks and consumed downstream by the customers.

    Unlike traditional models, platforms do not just create and push products out. They allow users to create and consume value. At the layer, external developers can extend platform functionality using APIs. At the business layer, users (producers) can create value on the platform for others to consume.

    This is a massive shift from any form of financial services business that we have ever known. A platform play within financial services is different from traditional business thinking. Creation of network effects is more important than simply bringing in users or charging all users to make money.

    In this model, for financial services, software and technology are not the only end products. Instead, they simply serve as the underlying infrastructure that enables users to interact with each other. Most importantly, the business itself doesn’t create all the value.

    We believe that this is the future of financial services business models and will outline how we think this can be pulled off.

    7 Layers of

    We recommend the book Platform Leadership by Annabelle Gawer and Michael A. Cusumanoto to those who want to explore further what platform strategies are. We are borrowing from this book somewhat, especially from the authors&; four levers of platform leadership which we have expanded upon to create the “7 layers of BaaP”.

    • Scope of the firm
    • Product
    • Service
    • IP/Data
    • Technology
    • Relations with Partners
    • Internal HR Organization

    How do financial services industry incumbents fair?

    Against this model it is clear that a platform play would not be successful within the banks with their current setups and mindsets as they have not developed the ability, nor the sophistication, to pull it off.

    Making Bank as a Platform (BaaP) a reality fintech

    What would a BaaP look like?

    But across these platform levers what could a bank BaaP be and how could it operate?

    Making Bank as a Platform (BaaP) a reality fintech

    Ultimately there will be different platform answers for different banks or insurers given their direction and make up. What is clear though is that being a platform is different from partnering or merely becoming a &;digital&; incumbent.

    6 key questions to enable banks for BaaP

    1) What is the focus of your company? &; If the core of your business used to be articulated around intermediating between deposit taking and extending credit then what will the new core be around? Is this going to continue to be a store of money or will it be around something else?

    This something else could be identity or the data of customers but if not identity and data then what else is of value that you could focus around?

    Answering this first question will make it easier to choose a clear strategy for customer centered products based around it. In addition, answering this question may lead a bank or an insurance company to make an acquisition should the part of the core identified not currently reside within its skills set.

    For example, we would venture to say that a bank may want to purchase an identity management platform &8211; consensus computer based &8211; and an insurer may want to purchase a cybersecurity consultancy or service provider.

    2) How are you going to attract partners to your BaaP? &8211; Once the core and product/service decisions have been made, what partners you choose and how you plan to attract them to the platform will be of paramount importance.

    We would characterize this decision across a continuum, from complementary collaborative to competitive partners, and as changing over time based on the needs and demands of the business.

    Other industries who have seen success in these strategies have done so through very inclusive practices around the platform. Excluding competitive partners reduces the overarching capability that would be held in the platform and changes the dynamic of the BaaP owner responsibility.

    3) How are you going to rethink your architecture to support this new direction? &8211; The technology architecture needed to support a platform strategy is radically different than the current ones implemented into most banking organizations.

    This maybe the most difficult lever to re-engineer, given the level of legacy debt in play, but it is one of the most needed. A holistic technology architecture where silos are broken down, open source and open standards are used judiciously, and where APIs are used widely is a must to include partners and interact with them, and to exchange or analyze the right information at the right time within the right situation. Most stakeholders know this, few have the right answer, including most incumbent software service providers. This will change though.

    4) How are you going to protect your BaaP? If you think cybersecurity was top of mind for FinServ incumbents, then it will be ever more crucial with incumbents and their platform businesses and partners. It is an implicit statement and a crucial one. The only platforms in the financial services industry, that is Visa or MasterCard and their eco-systems, warrant cybersecurity, fraud and data breaches daily.

    5) Do you understand what new business architecture is required for your BaaP? – The business architecture is significantly more important to the long term success of any BaaP play than its technology equivalent.

    Financial services industry incumbents will need to become governance nerds and fast. Will decisions taken between the incumbents in the platform eco-system be consensus-based, top down, a hybrid? How will differences of opinion be reconciled, how will conflict be resolved? This will depend in part on the incumbent internal DNA as well as the types of partners chosen, i.e. collaborate or competitive ones.

    6) HR needs be rethought &8211; which resources are needed for the core and which for the platform? &8211; Internal human resources will need to be rethought. The obvious rethink will develop along the lines of which resources are needed for the core and which for the platform. It will also develop along the lines of which disciplines will resources need to acquire and apply to their businesses. By this we do not mean traditional intra-disciplinary business skills pairs such as marketing and financial engineering, business development and strategy, trading and sales. Rather, I mean legal and coding, trading and data analysis, strategy and information systems management where non-financial services skills are added to the traditional mix.

    No platform Vs. Absolute Platform

    If we plot these paradigm shifts across these vectors, where the Financial services industry incumbents will have to move the dial from left (current status) to right (absolute platform status), the decisions for each vector become clear. I view these as meta vectors that can apply to front end, middleware, backend processes, people, products and services alike.

    Making Bank as a Platform (BaaP) a reality fintech

    BaaP on the horizon

    Its clear from our research that BaaP in Banks is possible but will take a huge amount of change to take place.

    Examples of BaaP thinking is starting to emerge in Europe particularly taking advantage of favorable regulatory frameworks and market opportunities.

    solarisBank

    FinLeap’s, the Berlin FinTech startup factory, investment to create Solaris Bank as a BaaP offering opportunities to FinTech companies to take their services to market via an organization who is fully licensed to do so as a digital bank.

    Solaris Bank has been born out of the need of FinLeap to gain traction with some of their own startups who have failed to gain the umbrella of someone with a license.

    Solaris Bank is looking to offer a full range of transactional services, compliance, capital financing and loans through a range of FinTechs. These are aggregated into one uniformed service to the customer.  It remains to be seen how their platform strategy will flesh out and which core services they will focus on and which ones they will partner for.

    The Open Payments Ecosystem

    The Open Payments Ecosystem (OPE) has been established by Ixaris with European Commission funding.

    The  purpose of OPE is twofold:

    • To make it easier for developers to build payment apps for banks by embracing Open APIs in a pre and post PSDII world.
    • To make it easier for banks to safely access new payment technologies by providing resources like curated app marketplaces.

    The project features six “sub-systems,” each representing a different stage in the life cycle of payment services.

    • A developer environment for payments app development and testing.
    • A payments application store.
    • A secure execution environment that prevents the original developer from accessing live customer data.
    • A compliance system for the life cycle of the app.
    • The ability to add additional service offerings for payment service providers
    • A comprehensive data warehouse for business intelligence

    While not fully a BaaP construct the OPE programme will offer, within the confinds of payments, all of the needed attributes to change how payments services are constructed and how people within the platform are remunerated. In its current guise, the OPE programme is the closest to the iTunes development platform model within banking that we have.

    Mondo Bank

    While most know Mondo Bank for their Alpha and Beta programme, and selling out of a million pound of stock in 96 seconds, they also made no secret of their longer term intensions to become a marketplace. We would define a marketplace strategy as a sub-set of a platform strategy and are, similar with solarisBank, intrigued by how Mondo’s thinking will develop.

    While their focus has been on creating a unique current account for the UK market they see the integration with innovative financial services and technology providers is an obvious step to giving customers control over their money. Instead of thinking that they “own the customer”, as most banks globally do, Mondo intend to give users the power to choose, based on price, convenience and customer-service from a range of services and products that are not created by them.

    Tandem

    Tandem is the second startup digital bank to have been granted a full license from UK regulators. Although more bank than marketplace, Tandem is focused on customer service as opposed to product offerings. As such this approach forces them to partner with best of breed offerings &8211; not part of their core offering – and integrate such offerings to their platform for their own users’ benefits. Tandem does not give the power to choose, rather it curates best of breed offerings, and delivers a platform experience to its users.

     

    It’s clear that there is a huge amount of benefit to be had for banks to become the platforms for banking in the future.

    Building a marketplace does not mean one has built a platform strategy. Ceding control of the old core, i.e. access to checking accounts, without developing a new strategic core will spell doom for those who trend those places.

    These new BaaP partners will not only be found within the scores of FinTech startup disruptors but, also outside of the traditional financial services universe such as technology incumbents, social networks, e-commerce giants.

    Building a platform strategy without understanding that some control will be lost to or shared with partners will not be effective. Only looking within human resources will make it more difficult execute a platform strategy.

    Tech companies such as Amazon, Facebook or Alibaba are already executing from a mature and growing platform. They do not have the benefit &8211; or for some the curse &8211; of being regulated, licensed and able to handle money. Still they are formidable competitors that want to &8220;own&8221; their customers in depth and breadth, and this means a customer&8217;s money, not only a customer&8217;s spending.

    Banks who dither and miss the opportunity to reinvent oneself as a platform will find themselves on the wrong side of societal trends. Similarly, regulation and regulators will need to adapt and be educated in the intricacies of platform strategies.

    Rather than view this as an impediment we believe this might be a great advantage. Financial services industry incumbents with aspirations to become truly digital players already have a strong and long-standing relationship with the regulators as well as a large number of suppliers who could become partners.

    While Mondo, Solaris and OPE have fantastic ambitions who better than the existing banks with all of their investment, employees and existing customers to take the lead, educate and ease the transformation towards the future and BaaP?

     

    FiniCulture

     
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