Southeast Asia financial comparison startup Jirnexu lands $3M to expand to digital banking services
Malaysia-based #fintech #startup Saving Plus has closed a $ 3 million Series A round and renamed itself as #Jirnexu. Read More
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The New Banking Standard
In this op-ed, #bitcoin enthusiast Martin Hagelstrom touches on the slow but steady embrace of #blockchain by the world’s #banks.
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One of Ripple’s Early Supporters is Now Using Ethereum to Rethink Banking
Fidor Bank CIO Patrick Gruban takes CoinDesk inside a recent tech trial it conducted #using the #Ethereum #blockchain.
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Exploring Banking as a Platform (BaaP) Model
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. #Banking as a #Platform (#BaaP) 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 #technology 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.
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 #banks. 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 IBM, Cisco, Intel, Microsoft developed in the 80s and 90s. Equally, Amazon, Google, Apple 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.
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 #fintech 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 #model 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:
- 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?
- 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?
- 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?
- 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).
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
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Top 20 Most Promising Banking Technology Solution Providers 2016
Nexright driving #Banking & #Fintech innovation leveraging API Economy
The millennials will soon constitute up to half the global workforce by 2020 and it is only natural for public serving organizations like #banks to pay heed to their concerns. Banking–according to a study by Viacom, a media network–faces the highest risk of disruption.
Leaders of banking managements are often weighed down by the gravity of having to serve their customers, with mass transactions, at the same time, offering personalized content to their banking needs.
Unlike banks that are born digital, traditional banks cannot afford the luxury of starting with a clean slate, and they must build the newfangled architecture on top of the legacy foundation. In an effort to ease down the process of transformation, Nexright bids a continuous-delivery approach of new functionalities.
“We have developed an API management #solution for banks that allows digital innovation running alongside the slow-speed, transaction focused legacy systems,” explains Dilip Mohapatra, Director, Nexright.
Nexright’s solution provides for a digital customer ecosystem with digital customers–complementing and enhancing existing capabilities to collect, analyze, and utilize financial data. The Melbourne, Australia headquartered banking solution provider allows CIOs of banks to redefine banking and drive innovation, leveraging digital data and API as core foundation.
“Application Programming Interface (API) is the secret sauce of the digital economy that allows banks to open up banking services and data via APIs,
and offer a broader range of products and services to their customers,” Mohapatra adds. Holding their steadfast campaigns towards unravelling the concept of contextual banking via data analytics, Nexright channels harmless, but prospective banking information to invoke potential banking businesses through secure pluggable interfaces–APIs.For instance, a mortgage API holds relevant mortgage data as assets and the points of interest and impact for banks.
Nexright’s banking product, which is essentially a set of simplified service and API models, allows transformation of banks in core banking and
digital banking in parallel. Some of these solutions leverage banking industry standards like IBM IFW (Information FrameWork). Mohapatra cites an example of Nexright assisting one of Australia’s topmost banks in establishing an API center of Excellence to fuel the API economy and drive digital disruption. Through IBM IFW and BIAN, the provider created a modern platform based on open architecture with integration and straight-through processing capabilities.“Application Programming Interface (API) is the secret sauce of the digital economy that allows banks to open up banking services and data via APIs”
On top of that, Nexright also has a dedicated wealth management practice, providing Fintech (financial #technology) strategy and solutions to banks. For example, it includes client engagement platform and adviser support tools addressing cashflow management, long-term financial support services, and scalable advisory solutions to simplify existing complex advisory process.
“The Fintech strategy essentially allows banks to expand their existing banking products into various fintech areas e.g. financial advisory services into #robo-advisory,” states Mohapatra.
With a consulting team that comprises of both banking and technology domain experts, Nexright stays ahead of peers in the banking arena, by thrusting itself forward in the direction of business strategy and outcomes rather than just getting the technical infrastructure in place.
By entrusting their success on their customer’s success, Mohapatra points out, “Nexright assigns a Customer Program Success Manager (CPSM), which once the program is live, assesses the customer’s achievement against expected levels.”
Nexright’s innovation lab functions as an idea incubator and accelerator, where there is a constant endeavor to develop newer products and better services and solutions, collaborating with customers, partners, and industry experts.
With his rich experience in product development and consulting services across several multinational IT and consulting firms, Mohapatra drives Nexright’s growth globally and is very passionate and committed in making a substantial difference in customer’s business. “Considering banking and Fintech demand for API, integration and cloud services, Nexright is investing further in open banking and Fintech initiatives,” assures Mohapatra.
Author john steward is the Senior Technical Consultant of Nexright, AustraliaFind More Fintech Articles
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