More and more financial institutions are driving value by collaborating with Fintechs, usually by leveraging open APIs. This strategy is in direct contrast to the way in which banks have traditionally managed their businesses, which is to directly own technology
resources and keep everything firmly closed.
Increasingly being referred to as the platform economy, drivers behind this revolution in financial services include regulations such as PSD2, which is forcing banks to open up payment data to third parties and customers.
The dawning of the platform approach
A platform-based approach facilitates collaboration and helps to support community building and sharing of best practice between developers and consumers. Most of all, it allows multiple producers to deliver value to multiple consumers, leaving the customer
the freedom to choose the services that matter most to them.
From a development perspective, institutions recognise that in a world of digital collaboration they can’t achieve their goals using traditional software delivery methods. In a fast-moving world, updates taking 6-12 months to deliver are no longer acceptable.
Today’s approach requires rapid iteration and may involve collaboration with large enterprises, growing Fintechs or even a two-person company focused on a single value-added service underpinned by the bank’s core systems. This demands a different strategy.
The platform approach enables the best of both worlds for banks and Fintechs. Banks get access to innovative new ideas and apps that they can offer to customers; Fintechs have a ready-made marketplace to address while leveraging the bank’s powerful technology
Choosing a collaboration partner
The question for external partners and programmers is how they can add value or extend the banks’ existing value chains to enable new products or services to be created.
An ideal place to start with is the API portal or platform. Programmers will increasingly collaborate and create microservices on top of existing banking assets by using open APIs provided by banks and third parties. Now it is possible for developers to
jump on this trend and assess the same APIs that the banks use themselves in order to create new customer experiences.
This brings us to the next consideration, which is usability: what tools and technologies are available to Fintechs who wish to develop these new services? The good news is that most of these platforms offer low-code options with easy access to algorithms,
machine learning and data science that was previously only available to the largest companies with the deepest pockets.
However, there are Fintechs that want to move beyond this low-code approach. They are more likely to have a long-standing relationship with a bank and prefer a full coding environment that enables them to build more complex products and services. Banks that
want to attract the best quality innovative partners recognise that they need to offer both low-code and full coding environments to third party programmers.
Robust, standardised APIs need to be in place to encourage third party developers. A great example of how this works in a different industry is Google Maps. It has a simple, effective, easy to use set of APIs that enables anybody to build value on top of
the app or integrate it into other systems.
Finally, app platforms need to be highly secure. Banks are subject to tight regulation and will never open up every aspect of their business to third parties. Developers that pay attention to security will be in high demand and, correspondingly, platforms
will be mandated to observe the highest levels of security and would attract heavy fines for non-compliance. As these platforms mature, we will notice the emergence of an app economy in finance.
Find it in the app store
And collaboration doesn’t begin and end with a single app. App stores and marketplaces supported by platforms mean that apps can be consumed and distributed across multiple transactions and value chains.
Of course, this type of thinking can be adopted by developers working inside the bank, as well as those seeking to provide functionality and value from a third party. Collaboration is the new innovation in the era of platform computing, apps and agile, whether
that’s between banks and their partners, or between developers in a bank’s IT department and colleagues across the business.