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BanksandFintech onPlatform Economies ContextualandConsciousBanking PAOLOSIRONI Thiseditionfirstpublished2022
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LibraryofCongressCataloging-in-PublicationData
Names:Sironi,Paolo,author.
Title:Banksandfintechonplatformeconomies:contextualandconscious banking/PaoloSironi.
Description:Chichester,WestSussex,UnitedKingdom:JohnWiley&Sons, 2022.|Series:TheWileyfinanceseries|Includesbibliographical referencesandindex.
Identifiers:LCCN2021033426(print)|LCCN2021033427(ebook)|ISBN 9781119756972(cloth)|ISBN9781119756989(adobepdf)|ISBN 9781119756996(epub)
Subjects:LCSH:Banksandbanking.|Internetbanking.|Financialservices industry.|Finance—Technologicalinnovations.|Multi-sidedplatform businesses.
Classification:LCCHG1601.S5452022(print)|LCCHG1601(ebook)|DDC 332.1/7—dc23
LCrecordavailableathttps://lccn.loc.gov/2021033426
LCebookrecordavailableathttps://lccn.loc.gov/2021033427
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CoverImage:©AKSANASHUM/Shutterstock
Setin10/12ptTimesLTStdbyStraive,Chennai,India
IamgratefultoMR.Heinspiredthisepistemologicaljourneyand openedmyconsciousmind–throughtransparency–inthediscovery of homosapiens’biologicalvalueonourplanetoffiniteresources.
2.2.1Theplatformchallenge38
2.2.2Thechicken-or-eggdilemma39 2.3Transparencygeneratestrust42
2.3.1It’smarketing,stupid!ornot?42
2.3.2Trustinthemiddlekingdom43
3.2.1Attributesofclosedandopeninnovation52
3.5.1Freeuse59
3.5.2APIconsumerspay59
3.5.3APIconsumersgetpaid60
3.6.1Imposingtransactionfees61
3.6.2Askingforaccessfees61
3.6.3Tieringenhancedaccessfees61
CHAPTER4 PlatformGovernanceFoundedonTransparency67
4.1Introduction67
4.2Powercomeswithresponsibility68
4.3Platformmonopolybetweencompetition andregulation71
4.3.1Intensifiedregulation71
4.3.2Bettergovernancetofightmonopolypowers73
4.4Negativeexternalitiesthreatenplatformresilience74
4.5Governanceofopennessandcuration76
4.6Thetransparencygoverningprinciple78
4.6.1Transparencyaboutplatformmanagement78
4.6.2Transparencyaboutplatformorchestration79
4.7Transparencyforbanksandfintech80 4.8Conclusions82 Takeawaysforbanksandfintech83
5.1Introduction89
5.2Thenewnormalofcentralbanks91
5.2.1LehmanBrothers’default91
5.2.2Theannihilationofcentralbanks’ systemicput92
5.2.3Banks’Catch-2295
5.2.4Fromproduct-centricitytohuman-centricity98
5.3Aboutthetensionbetweeninformation andcommunication99
5.4Thebankingreinventionquadrant101
5.4.1Themapandthecompass101
5.4.2Theinformationandcommunication quotients103
Contents
5.5FourBRQbusinessvaluespaces104
5.5.1TraditionalBanking105
5.5.2DigitalBanking105
5.5.3ContextualBanking105
5.5.4ConsciousBanking106
5.6Conclusions107 Takeawaysforbanksandfintech108
CHAPTER6
6.1Introduction110
6.2Thetruemeaningofdisruption111
6.2.1MyRobo-advisorwasaniPod113
6.2.2SustaininginnovationwithContextual andConsciousBanking117
6.3Resolvingthe“pull-push”motivationalgap119
6.3.1Digitalisapulltechnology120
6.3.2WhatishappeningonAmazon?121
6.3.3Theoffer-drivenbusinessofbanking122
6.4Rebundlingonplatformeconomies123
6.4.1Fromclient-centricitytohuman-centricity124
6.4.2Banking-as-a-Serviceand Banking-as-a-Platform126
6.5Conclusions128 Takeawaysforbanksandfintech129
CHAPTER7
7.1Introduction131
7.2Thefinancialservicesengine132
7.3Externalfactorsaffectingdigitaltransformations135
7.3.1Digitalinfrastructure135
7.3.2Digitalsociety135
7.3.3Digitalecosystems136
7.3.4Capitalatrisk137
7.3.5Regulation137
7.4Internalfactorsenablingdigitaltransformation138
7.4.1Digitalleadership,strategy,andculture138
7.4.2Newbusinessarchitecturesandoperating models139
7.5Conclusions140
Takeawaysforbanksandfintech141
PARTTHREE LeadingPlatformStrategies CHAPTER8 ContextualBanking147
8.1Introduction147
8.2Competewithopenbusinessarchitectures150
8.3Fromopenbankingtoopenfinance152
8.4ContextualBanking156
8.4.1Removingex-antefrictionswithout increasingthemex-post158
8.5Bigtechgravity159
8.5.1Facebookexperiencevs.WeChat engagement160
8.5.2Amazon’splatformphilosophy161
8.6Financialservicesfightback164
8.6.1Cloud-nativepaymentprovidersarealso chippingawaybankrevenues164
8.6.2PingAn’sinvestmentphilosophy166
8.6.3Bankingorchestrationofnon-banking ecosystems168
8.6.4Theplatformofplatforms170
8.7Conclusions173
Takeawaysforbanksandfintech174
CHAPTER9
FoundationsofFinancialMarketTransparency175
9.1Introduction175
9.2ContextualBankingandarchitecturalresilience177
9.3ConsciousBankingandfinancialantifragility179
9.3.1Breakingoutfrommainstreamreference theory179
9.3.2Openingthereferencesystemto fundamentaluncertainty181
9.4Empiricalevidencetoopenplatformsandreference systems183
9.5Conclusions186 Takeawaysforbanksandfintech187
CHAPTER10 ConsciousBanking189
10.1Introduction190
10.2Microandmacroantifragilityacrossecosystems193
10.2.1Valuegenerationatthemicro-level investors’ecosystem193
10.2.2Valuegenerationatthemacro-level financialecosystem196
10.3Unlockinghiddenvalueintheecosystem197
10.4Exponentialtechnologiesontransparentmarkets199
10.4.1GeneratingvaluewithtransparentAI199
10.4.2Openingupthereferencesystemwith technology201
10.4.3Integratingclients’emotionwitha transparentheuristic203
10.4.4OpeningtheAIenvelopetostayradically rational204
10.5Thescientificshiftfromreductionismtoholism205
10.5.1ConsciousBankingplatformsontheedge ofchaos206
10.5.2Augmentingthehumanmindwith technology207
10.6ThecoreengineofConsciousBankingplatforms208
EMBEDDEDBANKINGEXPERIENCES1 BrettKing,bestsellingauthorof TheRiseofTechnosocialism, founderMovenandBreakingBanksPodcast
Thepandemicsawamassivedeclineinbranchactivityoveraveryshortperiod. Whilemanyhopeforbranchactivitytocomeback,changesinbehaviourinmobile usageandonlinetendtoremainpermanent––sothathopeisunfounded.Formany banks,however,theirdistributionplatformistheirbranchnetwork:itistheiraccess identity;itisthewaytheyareembeddedinthecommunity;itiswheretheirbranding sits;itishowtheymeasurecustomerexcellence,experience,andengagement.The biggerissueforbrancheconomicsisacquisitionofcustomersatadigitalscalethat isbeingdemonstratedbythemoresuccessfulneo-banks,buy-now-pay-lateroperators,andwalletsaroundtheworld.Asmoreandmoreday-to-daybankingmarket shareistakenbydigitalequivalentsofabankaccount,theroleofbranchesforall butcertainexceptionalusecasesbecomeslargelyunsustainable.Right-sizingbranch networkswillbeforceduponpubliclylistedbanks.Banksreliantonbrancheswill havenowheretogo.Itisnotthatbankbrancheswilldisappear,butthatbanksthat relyonbrancheswill.Withoutarobustdigitalacquisitionmodel,customerinflow andproductapplicationsthroughabranchwillslowtoatricklethatisnotenoughto sustainthefuturebank.Ifyouhaveaproductorservicethatstillrequiresasignature in2025,youaregoingtobestrugglingforanycross-sellandup-sell.Yousimplywill notbeabletosurviveasabankwithrevenuefromthebranchalone.Noway. Friction willbethebiggestkillerofbankrevenueinthenext10years.Thelowestfriction experienceswillwinthehighestnetworkadoptionrates.Wecanalreadydemonstrate thatinChina,India,Bangladesh,Kenya,andelsewhere.
In2020,themobilepaymentsnetworksofAlipayandTencentWeChatPaydeliveredalmosttwicethetotalnumberofpaymentstomerchantsoftheentireglobal plasticcardmarket,thatincludescreditcards,debitcards,giftcards,...asreminded inTurrin[1].Thesechangesareallillustrativeofbankingbecomingembeddedin ourworldthroughnon-banknetworks,wheremanyofthosenetworkoperatorsare
startingtoofferfinancialservicesincontext.Thebigshiftisthis:intheworldofbankingfromthe1400sto1995,everybanktransactionorproductwasissuedthrough abank-ownedandbank-operatedchannel––abranch,callcentre,broker,orATM network.Today,non-bankchannelsdominateday-to-daybankingaccessandtransactionalactivity.Withinadecade,non-bankchannelswilldominaterevenuealso.
BYE-BYEPRODUCTS,HELLOEXPERIENCES Aspaymentshaveevolved,thetendencyistomoveawayfromboththeclosed,proprietarynatureofbank-ownedandbank-operatedpaymentnetworksandfromcomplex, slowsystemstowardinstantornearreal-timepayments.Therealityisthatnetworks likePayPal,WeChatPay,andAlipayhavedemonstratedmuchgreaterutilitywithin theirnetworksthanbank-to-banktransactionsorcashforday-to-daypaymentscapability.Anditisnotjustforpayments.TheboominBuyNowPayLater(BNPL)credit accessisagainevidenceofembeddedbankingexperiences.Insteadoftreatingcredit asaproduct,suchasacreditcard,thatyouneedtoapplyforseparatelybeforeyou engageinpurchasingactivity,BNPLallowsyoutonotworryaboutcreditoptions untilyouareengagedinthepurchaseprocess.Bystreamliningcreditaccessinthis way,theutilityofcreditbecomesmuchmorepowerfulandmeaningful.Itmakes theusecasesforaplasticcreditcardthatyouneedtoapplyforinadvance,much hardertosellinareal-timeworld.Thereasonchequesandcashuseareindecline, andthereasonmorepeopleuseAlipayandWeChatPayinChinatoday,isbecausewe increasinglyusetechnologyinday-to-dayinteractions.Weareclearlygoingtouse deviceswithabiastowardfrictionlessandopenpaymentarchitecturesthathavecomparableutility. Thefutureofpaymentsisunavoidablyexperience-rich,frictionandartifact-poor.
Examiningsavings,credit,andlending,andotheraspectsoffinance,willdemonstratethesametrend.Onlineandmobileexperiencedesignisleadingustowardrapid utilityandfulfillment.Thefastest,mostseamlesscreditexperienceisnotanapplicationforacreditproductonyourphoneorlaptopwhileyouareinastore,butsimply aprovisioningofcreditbasedonapreferredorenabledrelationship.Theproduct (creditcard,overdraft,personalloan,lineofcredit,etc.)structuredisappearstosimplyenableyoutogetaccesstotheutilityofextracashwhenyouneeditthemost. Contextisthenewexperiencebattlefieldbecauseitbringstheutilityofbankingtoyou whenandwhereyouneedit,insteadofrelyingonthecustomeraskingtobeapproved. Thisisthekeyswitchthatisbeingmade––Bank4.0experienceswillbeanattack ontheentireonboardingandapplicationprocessbankshavedesignedtoday. DesigningexperiencesintheBank4.0agemeansthatthepreviousproductandchannelstructuresofferalmostzerobenefitinthisnewworld.Infact,theymaybiasyou towardexperienceswithunnecessaryfrictionandlimityouintermsofscale.
Thisbegsthequestion:ifproductshavetomakewayforcontextualexperiences, whatdoesabankorgchartlooklike?Wheredoalltheproductsandchannelsgo?
WHENBANKERSARENOTBANKERSANYMORE WhenIamaskedbybankerswhotheyshouldhireforwhatiscomingnext,Ialways beginwith,“Stophiringbankers!”.ThequalitativeresearchIhavecarriedouthas comeupwithjustafewofthejobsthatwillbeconsideredcriticalinrevenueand capabilitygrowthinfinancialservicesoverthenextfiveyearsorso:datascientist, machinelearningspecialist,experiencedesigner/storyteller,behaviouralpsychologist,blockchainintegrator,complianceandriskprogrammer,communityadvocate, andidentitybroker.Irefusetoaddrobotpsychologist,emojitranslator,andcustomer experienceNinjatothislist.However,ImightbetemptedtoaddanAIethicist,for example.SomerolesIhaveleftoutthatarecriticalforfuturedevelopmentalready existinnumerousbanks,buttheywillbecomeincreasinglyimportantinbuilding abankplatformthatiscompetitive.Theyincludebusinessanalysts,venturecapital teamsforinvestinginFinTech,thosethatmanageandgrowtechnologypartnerships, hackathon,orincubatorlabs––basicallytheabilitytorapidlygrowthebank’stechnologycapabilitywithoutbuildingitinternally.Therealchallenge,ofcourse,isthat ifyouareatechgraduatecomingoutofauniversitylookingforajobtoday,would youbelookingtoworkforastartup,atechmajorlikeFacebook,Apple,orGoogle,or wouldyoubewantingtojoinabank?Recruitingtheseskillswillsurelybeachallenge forfinancialservicesorganisationsculturally.
Anorganisationchartintoday’smodernbankisnotallthatdifferentfroman organisationchartyoumighthaveseen30or40yearsago,buttherehavebeennew competenciesandcapabilitiesinsertedintothestructure.Whatismostnoticeable aboutanorganisationchartofabankinthefutureisthatthebankfunctionsasa “platform”––itcansurfacetheunderlyingutilityandcapabilityofthebank.InaBank 4.0organisation,itisnottheomni-channelcapabilitythatisthekey,itiscomplete channelagnosticism,engagement,andrevenue-pragmaticfocus.Themodernbankingorganisationisfocusedoncustomerdelivery,whetherretail,SME,corporateor otherwise.Assuch,theorganisationbecomesmuchmoremission-focusedwhenit comestorevenuedelivery.WhenyoulookatthelikesofAntFinancialandothersattackingthisspace,theyhavebusinessunitsaroundcorecompetencies,butnot organisationchartsfocusedonproducts.Theirorganisationchartisunconventional, focusedonKPIsthatmeasureactiveusers,dailyengagement,cumulativeactions, suchasborrowingoverthelifetimeofthecustomer,andyear-on-yeargrowth.Their collectivebusinessunitgrowthisdesignedtospeedupthereachoftheirnetworkas itgrows[2].ThisleadsustothinkofthenewBank4.0organisationstructurenotas achartshowingstrategicbusinessunits,butascorecompetenciesacrosstheorganisationthatcansharemissions,customergoals,andsoforthinamatrixformthata typicalbanktodaywouldencounterhugechallengestoaccomplish.Intermsofcompetencies,weseethat“banking”persejustbecomesoneofthecompetenciesofthe bank,andinequaltermsDelivery,BusinessOperationsandTechnologyOperations arejustascritical.
WhilewemightseetodaythatAIandsomethinglikeAmazonAlexaorthe latestmobileappwouldsitunderthepurviewoftheInformationTechnologyorDigitalteam,inthisnewworlddeliverycapabilitybecomesacustomerexperienceand engagementplatformthatisfar-reaching––essentiallythenewdriverofrevenue,relationship,andreach.Inthisnewmodel,technologyoperationsbecometheunderlying platformcapabilitiesthatareneededtosurfaceutilityandexperiencesinrealtime. Insteadoftraditionaloperations,wehavetechnologyandbusinessoperationalcompetencies,asbotharejustascritical,butrequireverydifferentskillsetsanddivision oflabour.
Afewnewareasemergethatyouwouldnotfindontheorganisationcharttoday, namely,ResearchandDevelopment,PartnerManagementandOperations,Data Modelling,ExperienceDesign,and,ofcourse,ArtificialIntelligence.Manyofthese functionsarecounter-intuitiveforthebanksthathaveiteratedfromtheBank1.0 world––theirimmunesystemsofinternalcoresystems,legacyprocess,compliance, andentrenchedproductteamsareextremelylikelytopushbackagainstthesenew competencies.Ifthesecompetenciesarenotbuilt,however,theabilitytodeliver revenueinareal-time,tech-firstworldwillbetough.
NOTE 1.Thisisanexcerptfrom[3].
BANKINGASANAFTERTHOUGHT1 RichardTurrin,bestsellingauthorof Cashless:China’sDigital CurrencyRevolution
Whenyougotoyourbank’swebsite,oddsareitistocheckyourbalancesor perhapspayafewbills.Whetheryoudidsoonyourcomputerorcellphone,Iwill wagerthatwhilethereyouignoredthebank’slatestadvertisementstoutingtheirlatest creditcardorfavourablerates.Likemostusersbynow,youarecomfortablynumb tothebank’slatestoffers.
Thisexperienceisrepeatedbillionsoftimesgloballyeveryday.Theutilityof abank’swebsiteisnarrowlydefinedbyimmediateneedsandhowquicklyonecan accomplishthesetasks.Banksenablethissituationbecauseyourmoneyiscaptive ontheirportal.Youmustusetheirsystemtoaccessit.Thereason,beyondlegacy systemsandingrainedbehaviours,isthatbanksthinkoftheirportalsasdestinations withlimitedfunctionality.Theyaredesignedtodoonlytwothings:provideyouwith digitalservicesandpushproductsatyouinthehopeofmakingasale.Yougototheir siteorappnotbecauseyouwantto,butbecauseyouhaveto.Thereisnoalternative. Until,thatis,digitalcurrencycomestotown.
ThesystemIdescribedexistsintheWesttoday(atleastinthebanksmostofus use);italsoexistedinChinabeforethelaunchofpaymentgiantslikeWeChatand Alipayin2014.IntheWest,moneyisimmobile,itbelongstoyou,butthemeansof transferbelongstothebank.Inpracticalterms,ifyourbankfallsshortofyourneeds, itismorethanlikelythatyouneedtophysicallygotothebank,payafeeforissuinga chequetocloseyouraccount,andmarchofftoanotherbank.InChina,instantdigital paymentsthroughWeChatandAlipaybrokethatoldsystem,andthatcountry’snew digitalcurrencywillfurtherweakenthebanks’controlofhowclientsmanagetheir money.Itisadefiningmomentinbankingservices.Aboveall,itempowerstheindividual.Digitalcurrencieswillallowusersalmostcompletefreedomtomovemoney whereverandwhenevertheywant.
“STICKY”PLATFORMSREIGNSUPREME Nowcompareanybank’swebsiteexperiencewithafullplatformtechservicelike Amazon.YougotoAmazonnotjusttobuyabook,buttoreadthecandidreviews fromothercustomersonmillionsofproducts,checkoutafewmovies,seewhatisup withthelatestmusic,and,ifyouarehungry,seewhatisavailableatthesupermarket. Amazonisaplatformthatstartedwithsellingbooksbutwentontoofferproducts andservicesthatencompassvirtuallyanylifestyle.
PLATFORMSTRYTOCAPTUREOURTIMEBYPROVIDINGUS WITHASMANYDIVERSIONSANDASMUCHUTILITYAS POSSIBLE WhatmakesAmazonsospecial?Itisaplatformthataimstofulfillmanyoflife’s needsinonespot.Itistheexactoppositeofyourbank’swebsite,whichoffersone andonlyonesiloedservice.Platforms,whetherbuiltaroundsocialconnectionsor e-commerce(thetwomostcommoncoreofferings),trytocaptureourtimebyprovidinguswithasmanydiversionsandasmuchutilityaspossible.Weusethemwillingly becausewegetmoreoutofthem,andtheyharkenusbackbecausetheysatisfyour needs.
PAYMENTPLATFORMSASSUPERAPPS ThebankingexperienceinChina,is,asyouwouldexpect,radicallydifferent.Ino longerbankoneitherthebank’sapporonline;thereissimplynoneed.Mymoneyis allaccessedthroughWeChatPayorAlipayplatforms,whichareaptlynamed“superapps”becauseofthenumberofservicestheyperform.Itisaremarkableexperience thatfreesaccesstomysavingsandpushesbankingtowhereitbelongs,astheenabler ofmedoingsomething,insteadofbeingthefocus.Itisamassivetransformationin howweusebanksandonethatchangeshowusersperceivebanksasanecessityand money’splaceinourlives.“Seamless”isthebestdescription.Moneyandtechnology comingtogethertoformaseamlessintegrationofusingyourmoneysoyoucanlive yourlife.Neverathoughtofhowthemoneywillmove,whereitwillgo,andthe underlyingmechanics.Itsimplyallcombinestohelpgetstuffdone.Thisisbusiness asusualinChina.Researchshowsthat93%ofconsumerswithabankaccountin Chinaalsouseoneormoreofthedigitalpaymentcompanies.Inpracticalterms,it meansthatbankshavebeendrivenoffcentrestagebythesuperapps.ItissodisruptivethatitisnowonderbanksintheWestfinditculturallychallengingtoadopteven themostbasicofopenbankingtechniques,likebuildingopenAPIs,forfearthatit willleaddownasimilarpathofdisenfranchisement.
Mostofusdonotwakeupinthemorningandsay,“Iwanttovisitmybank toseewhat’sup.”Instead,weuseittobuyahouseorsendmoney.Thebankisa meanstoanend,usuallyavaguelyunpleasantdiversionrequiredforustogetto ourgoal.Nowimaginethatthebankisnolongeranecessarystoponthepathto achievingagoal.Carsalesshowrooms’in-housefinancingprogrammesrealisedthis yearsagowithsign-nowanddriveawayprogrammes,whichsoughttoreducethe effortofgettingacarloan.Thesellersrealizedthatcheckingratesandgoingtothe banktosignthedocumentswerelikelytokillasale,sotheydidanend-runaround theprocesstokeepcustomersonsite.Carcompaniestookmuchoftheautofinancing businessawayfrombanks,sowhybanksremainblindtotheirownexpendabilityis amysterytome.Therehavecertainlybeenplentyofdigitaldisruptersoverturning
otherindustries,likeUber,Airbnb,orSquare.Anditisnotlikethebankscannothire andnurturedigitaltalent.Itsimplycomesdowntovision(orthelackthereof).
Imagineaworldwhereyourmoneyisavailableonamobile-baseddigitalpaymentplatformthataddressesallofyourlifeactivities.Secureandconvenientbecause itusesfacialrecognitiontounlockpayment,acceptednationallyandusedtopaybills largeandsmall,allfromasingleplatform.Thisisnotjustbuyingacoffeeusing AppleorGooglePay,butapaymentsystemthatcutsacrossallofyourlife,including yourinternetpresence,yourlocalshops,rent,mortgage,insurance,investments,and personalcashtransfers.Pressabuttononyourphone,clickbuy,facialrecognition confirms,anddone.Younevergotothebank,nevergotoyourbank’swebsiteor app,meanwhile,youknowthatyourmoneyissecure.Thisdreamwasmaderealby thedigitalpaymentplatforms,whichturnedChina“cashless”andisamodelforthe West’sdevelopmentofplatformsthatcanmake bankinganafterthought
NOTE
1.ThisisanexcerptfromChapter16of[1].
CLARITYONREINVENTINGBANKING Dr.EfiPylarinou.founderofEfiPylarinouAdvisory& GlobalFintechInfluencer
Innovationandtransformationareamulti-dimensionalduo whoseimpact remainspartlyunpredictable.Thelast10yearsofthisduo’seffectonfinancialserviceshaveresultedinashiftawayfromtheingrainedcultureandvaluesofanindustry thathasbeen nativelyoffer-driven,regulated,andnon-transparent.
PaoloSironihasfocusedontheintersectionofbusinessesinfinancialservices, thedeploymentofexponentialtechnologies,andtheunderpinningnewtheoretical frameworksthatcanhelpusmakesenseofthedynamicimpactoftheduo.Using hisFinancialMarketTransparency(FMT),hestressestheimportanceofbuilding businessesthatuseexponentialtechnologiestoreducethepainfulexperiencesof financialuncertainty.Feelinguncomfortablewithuncertainty,andstrivingtodeal withit,areadeeplyrootedhumancondition.Theoreticalframeworksthatincorporate financialuncertaintyintheirconsiderationsandtheirpotentialbusinesspropositions aretheonlyonesthatcanleadtosuccessfulbusinesses.
Inthisbook,PaoloSironiguidesustounderstandtheexponentialimportanceof ashiftfromanoffer-drivenbusinesstoademand-drivenbusiness,whileatthesame time,leveragingopennesscombinedwithamindsetthatditchestheindustrial-era thinkingofsellingproducts.Hebuildsaninvaluablequadrant––theBankingReinventionQuadrant(BRQ)––thatcaptureshowaregulated,idiosyncraticindustrywith asymmetriesofinformationbetweenthemanufacturers,thedistributorsoffinancial servicesandtheconsumers;caninnovateandtransformandinwhichways.
TheBankingReinventionQuadrant(BRQ)introducesthe conceptofoutcomes whicharebrilliantlyjuxtaposedwithoutputs.Inaworldinwhichproductmargins areshrinkingatanacceleratedpace,focusingonoutcomesistheonlywaytobuilda human-centricrelationshipanduseitasthefoundationoftheservicesoffered.Ironically,theincreaseddisintermediationandthereadilyavailableuseofexponential technologiesandconnectednesshavealsoresultedintheriseoftheimportanceof thehumanrelationship.
TheBankingReinventionQuadrant(BRQ)captureshowfinancialuncertainty andhumanrelationshipsarefoundationalincreatingsustainable,high-value businesspropositions.Thetwomainplatformmodelsthathaveemergedfrom variousregionalfinancialservicesinnovationsandtransformations—Banking-as-aPlatform and Banking-as-a-Service—fitnaturallyintotheBRQasthetwomain waystounlockvalueforconsumersinasustainablefashion.
Thinkofaworlddesignedinsuchawaythattransparencyisthegovernance mechanism,opennessistheenginetomakeadvicescalable,contextual,andinfull alignmentwithwhatPaoloSironidefinesasConsciousBanking.
ThistimePaoloSironihaswrittentheTAOforBanking(Transparency,Advice, andOpenness),atextthatwillsurelybecomeaclassic.
DIGITALPLATFORMSAREEATINGBANKING RonShevlin,DirectorofResearchforCornerstoneAdvisors, andSeniorContributorforForbes
Iaskedaroomfullofbankersrecentlywhattheythoughtwhentheyheardthe word“platform.”Themostfrequentresponseswere“onlinebanking,”“mobilebanking,”and“lending.”Oneguysaid,“Shoes.”Veryfunny,Mr.SaturdayNightFever. Interestingly,noonesaid,“Amazon.”Whiletheterm“platform”iswidelyusedin theindustryasatechnologyconstruct,thereisanother(non-footwear)useofthe word––asabusinessmodel.Andplatformbusinessmodelsaretakingoverbanking.
WHATISAPLATFORM? Despitetherecentspateofbooksonthetopic,theplatformbusinessmodelishardly new.PlatformStrategydefinesaplatformasa“Plug-and-playbusinessmodel thatallowsmultipleprovidersandconsumerstoconnect,interact,andcreateand exchangevalue.”
MarkBonchekandSangeetPaulChoudarydescribethreethingsacompanymust dotobeaplatform[4].First,beamagnet.Aplatformmustattracttherightproviders (thosewiththemostdesirableproductsandservices)andtherightconsumers(those whotheproviderswanttodobusinesswith).Second,actasamatchmaker.Aplatform requiresamechanismformatchingconsumerstotherightproviders,andforenabling providerstoreachtherightconsumerswhocometotheplatform.Third,provide atoolkit.Thetoolkitiswhatenablesproviderstoeasilypluginto(andoutof)the platform,andtointegratewithconsumers.
Thereare(atleast)fourtypesofdigitalplatformstakingoverthebanking world:
■ MegabankAPItoolkits.BBVA,CapitalOne,Citibank,DeutscheBank,HSBC, andWellsFargoallhavesomeformofdeveloperhub,portal,orexchangethat enablesthird-partyappstoaccess,integrate,and/orextractdataaboutthebank’s customerbase.Whilea“toolkit”isacriticalcomponentofaplatformstrategy, themegabanks’effortsaretoonarrowlyfocusedonthetechnologysideofthe cointoqualifyasatrueplatform.Themindsetstillseemstobe“ifenabling third-partiestointeract,integrate,andengageourclientbaseenablesustosell moreofwhatwealreadysell,we’reallforit.”
■ Marketplaceplatforms.Intheirearliestincarnations,marketplacelenderslike ProsperandLendingClubcouldnotreallybeconsideredplatformsbecausethey lackedthetoolkitforintegration.Thatischanging.Aslendingmarketplaces hitspeedbumpsintheirevolution,somehaveturnedtoaplatformstrategy.
Kabbage,forexample,re-brandeditselfasKabbagePlatform,thesmallbusinesslendingmarketplacethatoffersfinancialinstitutionsprocessingcapabilities andaccesstonon-traditionaldatasourcesforunderwriting.Thefirm’stoolkit includesintegratingdatafromavarietyofsourcesincludingEbay,Etsy,Amazon, andPayPal.
■ Analyticsplatforms.Analyticsplatformsareemergingontwofronts:(1)usecasespecificplatformslikeNICEX-Sight,whichitdescribesasa“cloud-based FinancialCrimeRiskManagementPlatform-as-a-Service,”enablingfinancial institutionstomanageandusedatafrommultiplesources,and(2)genericplatformslikethosefromTrellancewhoseCUAnalyticsPlatformis“acollaborative ecosystemthatwillcreatecommunitiesofusers,datascientists,andapplication developers.”
■ Coreintegrationplatforms.Thereisanemergingsetofplayersinthefintech vendorspacethatmightbethoughtofas“coreintegrationplatforms.”These providersenablefinancialinstitutionstobetterintegrateancillarysystemswith theircores.
IMPLICATIONSOFTHEPLATFORMIFISATIONOFBANKING Afewthoughtsonthisplatformifisationofbanking.First, opendoesnotmean platform.Afirmcannotpursueaplatformstrategyandnotbe“open”butitcan be“open”andnotpursueaplatformstrategy.Simplyprovidingafacilitytoshare datadoesnotmakeacompanyaplatform.Second, platformswillchangetheway banksacquireanddeploytechnology.Whilemuchoftheattentionisonplatforms likeAmazonwhereconsumersarebuyers,manyoftheexamplesofplatformifisation listedherearethosewithbanksasbuyers.Platformswillchangetraditionalsoftware salesapproaches,makingvendorperformancemanagementacriticalITskill.Third, there’sadownsidetoplatformifisation.Over-personalisationandunintendedconsequencesofdatasharingaretworisksofplatformifisation.Inareportentitled“Five FearsAboutMassPredictivePersonalisationinanAgeofSurveillanceCapitalism,” KarenYeungwrote:“Personalisationpracticesfosterandexacerbatetheasymmetry ofpowerbetweenprofilersandthosetowhompersonalisedservicesareprovided, therebyincreasingtheopportunitiesfortheformertoexploitthelatter”[5].
BANKING-AS-A-SERVICEISTHENATURAL,LOGICAL,AND EVENINEVITABLEEVOLUTIONOFOPENBANKING SimonParis,CEOofFinastra,NEDatEverbridge,andNEDat
Bankingas-a-Service(BaaS)isthenatural,logical,andeveninevitableevolutionofOpenBanking.BaaSbringstheemphasisoffinancialservicesbacktothe service––byunequivocallyputtingthecustomerattheheartofthepropositionand enablingbankingservicestobedigitallyassembledaroundthemandforthem,in whichevercustomerjourneytheyarein,wherevertheychoose. Bankingwillgoto meetthecustomerwheretheyare!
Whilesomemayseethisasathreat,themoreprogressiveunderstandtherelevance,scale,andgrowthopportunitiestobecapturedbyfocusingonthecustomerin theirjourney,contextualorconscious.Letusnotforgetthattheindustryhasalready reachedaninflectionpointinwhichthemarketcapitalisationofthetoppaymentfirms noweclipsesthatofthebiggestbankingnames.Themarketcontinuestoshift,and thehockeypuckismovingtoBaaS.
Thewinnerswillbetheinstitutionsthattakeacustomer-obsessedapproachto optimisingandfacilitatingconsumptionoftheirservices,seamlesslyandsecurely. Forthis,banksmustbalancetwothings.First,thattheirservicesaredesignedto maximisevaluetothecustomerjourneyandtheirdesiredoutcomes,and,second, thattheycanactwithagilitytomeetthecustomerswheretheyareandwhenthe bankingservicesareneeded.
Itcanbeeasy,butitwouldalsobewrong,toconsiderBankingas-a-Service assimplyembeddingaserviceintoa(normally)consumerproposition;theabundanceofopportunityisevengreaterintherealmofcorporateandinstitutional banking.Embracing“X-as-a-Service”wouldallownewvaluecreation,suchasofferingservicesincludingTreasury-as-a-Service,CashManagement-as-a-ServiceorForeignExchange-as-a-Servicetoextendreachandrelevance,whileempoweringavast raftofsmallerbanks,neo,digital,challengers,andsoon,throughtheprovisionof economiesofscale.
JoiningtheBaaSrevolutionisnotjustabouthavingthecorrecttechstack.It requiresagenuinelycollaborativeandopenmindset,andaskillsetthattranscends productandtechnology,butcanspanthevectorsofengineering,growthhacking, customer-centricity,newmonetisationmodels,andultimatelythenewroleoforchestration.Withoutfocusingsingularlyontheoutcomeofdrivingconsumptionatthe optimumpositionintheuserjourney,somebanksmaymissthemyriadopportunitiesthatthismarketshiftwillbringabout.However,fromourvantagepoint,weare greatlyencouragedtoseethatthejourneytowardBaaShasalreadybegun...
THEBANKINGINDUSTRY’S CINEMAPARADISO MOMENT TheodoraLau,founderofUnconventionalVenturesand co-authorof BeyondGood
Weliveintheageofdata.Wearesurroundedbyzettabytesofitwitheveryclick andeveryscroll.Almosteveryaspectofourdailyexperienceisshapedbyit,inwhat wecalltheexperienceeconomy.Withsomanybusinessesallvyingforalimitedpool oftime,attention,andmoney,thewinnersarethosewhocanorchestratememorable momentsfortheircustomersandcreateconnectionsthatmatter.
TRAVELINGDOWNMEMORYLANE TheItalianmovie, CinemaParadiso, directedbyGiuseppeTornatore,illustratedthat pointinquiteaheartwarmingway.Themovierecalledthechildhoodmemoriesof afilmdirectorinthemoviehouseCinemaParadisoinGiancaldo,Sicily,andhis friendshipwiththeprojectionist.Withthepassageoftime,andperhapstheironyofit all,themovietheatrewasdemolishedtomakewayforaparkinglot.Butthememories livedoninafilmreelleftbyhisfriendashewentontobecomeasuccessfuldirector.
Aswereflectuponhowourownlivedexperiencesandthingsthathaveplayed pivotalrolesinourlives,especiallyinthepasttwoyears,whatdoweremember?And howhastheglobalcrisisacceleratednotonlybusinessmodeltransformationbutalso shapedourperceptiononwhatweneedandwhat matters?
Muchlikehowtheentertainmentindustryisreshapingthemovie-goingculture, beyondjustsellinganadmissiontickettothetheatre,whatisthebankingindustry’s CinemaParadiso moment–togobeyondsellingabankingproduct?
SHAREPROSPERITYSHAPEDBYDATA Nothingillustratedthepowerofdataandtechnologymorevividlythanthe COVID-19pandemic.Manyofushaveadoptedtonewwaysofworkingand learningcollaboratively––onalargescaleandaroundtheworld.Businesseshave creatednewwaystoservetheircustomers,fromcurb-sidepickuptodigitalbanking toolsandmorewidespreaduseoftechnologyincallcentres.
Beyondacceleratingtransformationfor survival reasons,thecrisishasalsoillustratedthepowerofout-of-the-boxthinkingandtheneedforcollaborationwithother players.Insteadof“one-size-fits-all,”businessesareincreasinglyrecognisingthe needtoprovidemorepersonalisedexperiences,poweredbyanecosystemofpartners.Withthehelpofadvancedtechnologiessuchasartificialintelligence,financial
institutionsnowhavetheabilitytogetatrue360-degreeviewofconsumerfinances, whichwillallowthemnotonlytogleamvaluableinsightsontheoverallfinancial well-beingwiththecollateddata,butprovideactionableguidancetowardasustainablefuturepath.
Andthereissomuchmorethatcanbedone,acrossallcustomertouchpointsand duringtheentirelifetimeofthecustomer,beyondonboardingandlifeevents,witha holisticexperiencethattrulyalignswiththecustomers’valuesandneeds.
Are-imaginedfutureoffinancialservices,powerednotby transactions, but byemotionalconnectionstoward outcomes, isnotunattainable.Whilethedawnof theInternetandthesmartphoneerahasdrivenmuchofthelastwaveofinnovation, artificialintelligenceandbigdatawillenablethenext.Aswerebuildfromthecrisis, wemustensurethatwedosoresponsibly,andwithequityandhumanityinthecentre ofitall.
Ourcollectivefuture–andoursharedprosperity–dependonit.
JAMIEDIMONMIGHTWANTTOTURNTOPAOLO FORALITTLEGUIDANCE MarieWalker,co-founderofOpenFutureWorld
WatchingPaologivetheopeningaddressatthe2021OpenBankingWorld Congresswasabittersweetexperience.Ashesharedafascinatingpreviewofthe insightsin BanksandFintechonPlatformEconomies:ContextualandConscious Banking,Icouldn’thelpthinkingthathemightbeanessentialacttofollow.
Digitisationandopenbankingaredisruptingtheglobalfinancialservicesindustry.Theworldwherebankscouldexpecttopushproductsontocaptivecustomers isfastdisappearing,tobereplacedbyopenecosystemsanddramaticallyimproved customerexperiences.Newplayersandpartnershipsareemerging,whiletheshadow ofbigtechlooms...
Howshouldbanks,fintech,regulators,andotherstakeholdersreact?Different countriesandorganisationsarefollowingdifferentopenbankingandopenfinance models.Europeanregulationisoftencontrastedwiththemarket-ledapproachfavored bytheUS––butsomeofthemostinteresting(andunder-reported)innovationiscomingfromChina.
ThisisthebookI’vebeenwaitingforsincefirstbecomingawareofPaolo’s ground-breakingworkinternationally,andalsoinChinawheremostofthefintech revolutionistakingplace.Paolohasthehappyknackofbeingabletotakethefundamentaldriversofchangeandweavethemtogetherintoapracticalframeworkfor futurestrategies.Whilemanyofusarestillgettingtogripswithhowplatformmodels canbeappliedinthefinancialservicessector,theconceptsofContextualBankingandConsciousBankingofferamuchricherpictureofembeddedbankingand platformisation.
Asanobserveroftheglobalopenbankingandopenfinancemovement,itiseasy togetcaughtupintheexcitementofthelatestlaunchorpartnership.Paoloputsthe day-to-daynoiseinawidercontext,helpingusunderstandwhereallthisistaking us.IhavewatchedPaolo’spresentationmorethanonce––thisisabookthatwillbe worthreadingandre-reading.
IfJamieDimonisindeed“scaredshitless”aboutthefintechthreat,hemightwant toturntoPaoloforalittleguidance.
Excitingtimes!
