By Chris Zingo
There’s no question that banks need to innovate, but with legacy technology holding them back, many remain stuck on the how. Overcoming the constraints of old systems is no simple feat. But one approach to innovating around the core is platformification—that is, the ability to aggregate a variety of financial services from different providers on a single platform. The growing availability of platform options means that banks no longer have to regard legacy technology as an insurmountable obstacle.
Through platformification, a new economic model emerges for how financial innovation is developed, deployed and consumed. In this platform economy, banks have an opportunity to free up the kind of resources needed for rapid, continuous digital innovation—and focus instead on the seamless integration of third-party digital capabilities into their environments.
This represents a shift in the bank’s role from tech proprietor to facilitator.
The model benefits customers by making it easier for them to access what they need. For banks, it offers the potential to extend their reach beyond the traditional bounds of the customer-bank relationship to better align their solutions to the way their customers operate in their natural working environment.
For example, Bank of America Merrill Lynch is using API services to extend its data into Excel, Quik, SAS, and Tableau to help its corporate clients more accurately forecast cash flows and optimize working capital. Citi brings the benefit of real-time, automated data access to transaction banking via its CitiConnect API solution, including collection of real-time account balance information and receiving real-time transaction status notifications of critical payments, among other things.
In Q2 2018 alone, investment in U.S.-based fintech companies reached a record $8 billion. Banks have a growing number of fintech partnership opportunities with the potential to generate additional value for customers. But navigating today’s rather dizzying set of fintech and digital vendor partnerships can complicate matters when it comes to prioritizing digital initiatives, ensuring pain-free integration and evaluating partnership risks and exposure.
Fortunately, platform offerings can help banks simplify these decisions in three main ways:
- Open platform technologies are implemented with specific customer use cases in mind—like solutions for the distressed traveler or working capital optimization for a large corporate client. By default, this narrows the ecosystem to the relevant fintech players required to launch the strategy.
- Open platform technology serves as an orchestrator, linking outside technologies to on-premise banking solutions to implement new offerings rapidly and without the need for custom development. This dynamic enables the agile deployment of proof of concepts as the effort and cost to perform such analysis is greatly reduced.
- As the link between third-party applications and on-premise banking solutions, the platform provider becomes the banking ecosystem arbitrator, establishing common standards and best practices around the lifecycle development of new market use cases and business models, serving the market as an independent source of validation of third party technologies.
Through APIs, banks can integrate multiple new offerings with ease, alleviating integration challenges and eliminating the need for a one-size – or one-vendor-fits-all approach to digital add-ons.
As digital innovation continues to evolve, platformification gives banks the option to replace third-party digital capabilities as better offerings come to market. In the old world of proprietary technology and in-house development, this flexibility simply wouldn’t be possible without a loss of investment.
It’s commonly said that to survive, today’s financial institutions must transform into technology companies with a banking license. But the recent introduction of the OCC’s national fintech charter is enabling technology companies to make the reverse journey—seeking out banking licenses to become financial institutions.
The charter is an opportunity for banks to open up new business models and revenue streams, previously too costly or onerous to explore, by partnering with fintechs. In the age of open banking and platform solutions, combining the unique strengths of fintechs (agility and a culture of innovation) with the strengths of banks (trust of intermediation and regulatory investments) makes for a truly symbiotic relationship.
As the old adage goes, change is the only constant. The rapid clip of innovation in financial services is not going to slow. As a result, the demands on banks and traditional financial services to do more and go further for their customers will continue to grow. Platformification will enable banks to get off the innovation treadmill, and opt for a smarter, more efficient approach that will position them on the right side of the industry’s digital transformation.
Chris Zingo is managing director, Americas enterprise markets at Finastra, a financial services technology company. Based on the belief that 90 percent of financial services innovation takes place outside of an individual organization, Finastra has created an open platform for banks and fintechs to build, deploy and consume financial apps on top of our core system to accelerate the speed and lower the cost of fintech innovation.