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It seemed like only yesterday that banking lenders felt secure in their market position. After all, who could disrupt the banking industry, with its profound regulatory environment and other barriers to entry?
The answer soon became clear, as emerging technology paved the way for digital-only financial services companies to encroach on hallowed banking ground. PayPal was one of the first big names, offering payment services to eBay buyers before expanding into relationships with traditional retailers. As of early 2021, PayPal counted twenty-nine million merchants using its services, which now includes financing on larger online purchases.[i]
Soon, others entered the scene, this time directly carving out a piece of banking’s humble lending pie. Some began as deposit institutions, offering online accounts before expanding into digital lending products.
New, digital savvy mortgage lenders began to lure homebuyers with seductive offers. “Apply in minutes,” they said. “Get approved online,” and so consumers did, creating a digital mortgage industry with revenues topping $615 million by 2021.[ii]
Now, Google has announced an expansion of the company’s Google Pay digital wallet. The new service, called Plex by Google Pay, will partner with traditional financial institutions to provide checking and deposit account services to consumers through the Google Pay app.
Simply put, Google opens its platform to financial institutions, allowing them to offer their products and services to Google Pay customers. Plex offers an example of how financial institutions can partner to compete in the new competitive era, but it isn’t the only way that banks and credit unions can reach new customers.
Creating the Platform Ecosystem in Banking
Like the way that the Google Plex marketplace is helping financial institutions to expand their reach, fintech providers are also becoming nimbler to help banks and credit unions attract and retain more customers and members. It’s done by creating platform-based ecosystems of third-party products and services, offering financial institutions the means to compete with the growing arena of new entrants.
Platforms are a concept made simple by understanding a few basic components.
- A platform is simply a cloud-based location where software is built and housed.
- Application programming interfaces (APIs) provide a connection layer between the platform and users who consume the products.
The advantage to financial institutions comes through the modularity of the offerings. While banks and credit unions can easily create an end-to-end solution, they are also free to pick and choose the products required to round out the consumer experience.
This approach is particularly advantageous to banks and credit unions tied into existing service contracts. Ecosystems, such as Finastra FusionFabric.Cloud, then make it possible to add new products or services to create a more competitive banking environment.
As financial institutions adopt digital offerings, they realize the advantages of automation and enhanced access to data. Digitization of the lending journey, for example, removes many manual workflows and automates repetitive tasks, while also enhancing the customer experience. Learn more in Finastra’s recent webinar Digitalization Journey: Fixing the Loan Documentation Headache, where a community bank tells the story of utilizing the financial services ecosystem to move ahead of the competition.
Since automation can improve productivity, time to close is reduced, putting financial institutions into a more competitive standing with fast-moving newcomers.
Best of all, as new technologies emerge and improve lending processes, financial institutions have the unprecedented agility to respond. By partnering with cloud-based platform providers, banks and credit unions can more easily add and remove products. It’s the agility they need remain at the ready, easily meeting emerging trends and taking on the competition.
Transformation in commercial and consumer lending is happening now. View more resources on how you can prepare at Finastra.com/commercialwhatsnext.
[i] Pamela N. Danziger. “PayPal Is Moving Aggressively to In-Store Contactless Payments Tapping A $19B Opportunity.” Forbes, Mar. 1, 2021. Web.
[ii] “Online Mortgage Brokers in the US – Market Size 2003–2027.” IBISWorld, Mar. 22, 2021. Web.
