Importantly, the shift to the cloud also opens up new opportunities in terms of facilitating the rise of platforms and the use of open APIs, helping to increase collaboration between banks and other third parties. This is imperative for banks today as they adjust to an increasingly competitive landscape and open up their services to allow customers to benefit from Open Banking and the type of digital-first experiences fintechs can provide.
How to approach transformation?
If banks haven’t already decided on a strategy for how to keep pace with technology innovation, this should be a priority. Competition, not just from other banks but from fintechs, big techs and other third parties, is increasing. Those that hesitate risk being left behind.
Some of the largest banks have already embarked on building their own platforms to facilitate innovation – taking a ‘Bank as a Platform’ approach. In this way a bank exposes its infrastructure through APIs to fintechs and developers, inviting them to develop products and services for customers. In this way banks can more easily leverage external expertise to launch new services. But the challenge for any bank in building a proprietary platform is made more complex by the need to ensure integration and interoperability with existing legacy systems, while also simultaneously creating a more flexible DevOps based architecture. Such an approach requires significant investment of time and resources.
But not every bank needs to build its own platform – particularly when they can easily connect to an existing third-party platform for open innovation like Finastra’s FusionFabric.cloud. A third-party platform frees the bank from the overhead of needing to manage and run the platform itself – allowing it to focus on what really matters: delivering a great banking experience to customers.
The best third-party platforms bring banks and fintechs together in a model that benefits all – allowing banks to access and deploy innovative apps from fintechs that have been tested and, in many cases, pre-integrated with the core banking systems they are already using. As a result, bank customers can quickly start to benefit from new apps and functionality that banks incorporate as part of their offerings.
A platform-based approach that facilitates collaboration through APIs, also allows banks to tap into the growing Bank-as-a-Service (BaaS) marketplace. This involves banks exposing specific back-end services via APIs to non-banks, enabling these third parties to offer such services to customers. A BaaS approach can allow banks to reach new audiences and achieve scale.
Another area of growth is embedded finance whereby a non-bank player such as a ride-sharing operator, or online retailer can embed financial services, such as payments, directly into their service so that customers no longer need to navigate away from an app to pay. Other examples include embedded lending and embedded insurance. Lending could involve buy-now pay-later finance for retail transactions or embedded mortgage provision through real-estate agents.
Adopting a platform-based approach opens a range of opportunities for banks today. With banks and fintechs competing alongside big techs for who will own the customer relationship. This battle is set to intensify.
To explore this topic in more detail Finastra has commissioned research with Aite Group on the Pathways to Competitive Advantage in the Era of Digital Transformation. We will be discussing the key findings during our panel session “Accelerating through change – technology as a catalyst for open innovation” at Finastra Universe on March 2 – register now to take part in the session and access the report.