The newest technological developments, changing customer wishes and PSD2.0 regulations force banks to change the way they do business. The so called open banking ecosystem offers many opportunities, but it requires a radical shift in capabilities and strategy. Participating in the world of platforms needs good considerations, and one of these considerations is which role to play. At this moment, we see most banks moving to prepare itself for complying to the PSD2.0 regulation. Banks are increasingly launching developer portals to be able to innovate faster. Some banks are even ahead of the game and opened up many API’s (beyond the mandatory AIS and PIS APIs) for third parties or invested in FinTechs to take steps in open banking. So, some banks are more proactive than others, but for each bank time is now to think about its position and role in the open banking ecosystem. In this blog, the thoughtful consideration on each role in open banking ecosystem will be elaborated.
In the open banking ecosystem, we distinguish six different roles. One player can take several roles in one open banking platform, but each of these roles needs careful consideration: 1. Platform sponsor, which is the owner of the platform and takes care of the funding and defines the basic architecture; 2. Platform manager, which manages the platform and facilitates the frictionless interaction of players in the platform; 3. Complementor, which develops a complementary functionality on the infrastructure of the platform, 4. Producer, which offers financial services and products on a platform. 5. Consumer, which consumes products that are offered on the platform. 6. Regulator, which regulates the financial industry and open banking platform. This last role will not be elaborated on in this blog, since the player of this role is fixed. We do mention it since it is part of the open banking ecosystem.
The platform sponsor funds the platform, defines the level of openness and the design and has control over the rules of participation, architectural standards, level of technology integration, etc. The platform sponsor has legal control over technology and IP and is in control of the hardware and operating system bundle that constitutes the platform. In fact, the platform sponsor ‘owns’ the platform, but has no direct contact with users as the platform manager is responsible for daily operations.
A good example of a platform sponsor is PayPal, which offers payment services as its core business as its core business and owns payment platform Venmo which offers the service for sharing payments with a group of people. Another example is the platform we.trade, which enables easy international trading and is owned by Rabobank, Deutsche Bank, HSBC, Societé General, UniCredit, KBC and Natixis. In this case a consortium of players is platform sponsor of the we.trade platform.
For the successful execution of a marketplace banking strategy, the sponsor will require ‘match-making’ capabilities to help consumers find the right producers – and vice versa. In huge marketplaces where platform sponsors (being the traditional bank) integrate other financial services into their platform, this could mean that existing banks may be inclined to push their own proprietary products and services.
Smaller banks could participate as vendors within the marketplace platform of a larger bank. In addition, it may be feasible for smaller banks to pursue a marketplace banking strategy if it is focused on a specific consumer segment with unique needs. We should expect marketplace banking to develop and segment itself further based on, for example, size, geography, type of service or type of customers (both retail and business).
In our last blog, we discussed the ‘inbound’ and the ‘outbound’ play in open banking. We described that the ‘outbound play’ is about ‘opening up’ to third parties or developers, upon customer consent, whilst the ‘inbound play’ is about leveraging products and services of third parties that banks usually do not possess themselves. If we look at the platform roles, being the platform sponsor entails both the ‘inbound’ and the ‘outbound’ play, as banks could decide both to incorporate services beyond their own offerings into the platform they control, as well as ‘opening up’ their infrastructure to third parties that could enrich the IP on the platform. An example is Funding Options. This platform will enable customers to compare what’s on offer and allow ING to make alternative sources of financing available to them quicker than before and beyond their own offering, through the use of incoming APIs.
The platform manager does the tactical and operational management of the platform. There are many examples of this role in open banking ecosystem: the UK challenger banks Revolut or Starling Bank, which combine their own offering of a payment account with additional financial services from other players. Other B2B examples are the SME lending platform managers FinCompare, or Kabbage, which facilitate the matchmaking between small and medium businesses and corporate lenders. Facilitating flawless user interaction, community management, installing the right controls to the platform, and developing the right algorithms, are responsibilities of the platform manager. Their activities should be executed in line with the policies and standards as developed by the platform sponsor. The platform managers’ capabilities are more technical than those of traditional banks. Therefore, the platform manager is a tech company in the financial sector instead of a financial company with digital distribution channels. This is why incumbent banks like ABN AMRO place their open banking initiatives such as New10 or Tikkie outside of their business, or radically change their organization culture and capabilities like BBvA did.
In addition to sponsoring or managing the platform, in the open banking ecosystem you can play a role in someone else’s platform as well. As financial service provider, this can be done in the role of complementor or producer. The complementor develops a complementary functionality on the infrastructure of the platform. They are dependent on the platform and cannot easily implement the same functionality of another platform. Mainly fintechs take this role, for example is the fintech Peaks, which developed an investment app on the infrastructure of the Rabobank platform enabling Rabobank clients to set aside their spare change from their daily payments for investments.
As in the Netherlands the PSD2.0 regulation has not yet been enforced, the banking networks are still somewhat restricted. Since Rabobank invested in Peaks, Peaks can plug and play on the Rabobank platform. Besides Peaks, external developers on the Rabobank developer portal, for instance, are also seen as complementors. Rabobank itself fulfills both the role of a platform manager (as it determines who could join the portal and manage daily operations) and the role of the platform sponsor (as it owns the portal).
As producer in open banking, you offer financial services on someone else’s platform. At UK challenger banks this is happening already. At many EU countries, PSD2.0 regulations have been introduced and banks in these countries have opened up their platforms. One example is the producer Yolt; Yolt provides overview and insights into individuals bank accounts and promises a new approach to financial management. Yolt is owned by ING in the Netherlands, and can currently be used at any bank account in the UK and Italy.
In the most basic form of a platform, there is a platform manager which facilitates the interaction between customer and producer. In open banking, the customer could be you and me, holding a bank account and choosing services offered by producers on the platform, but it could also be the bank leveraging services being offered by others. Open banking offers a lot of value for businesses as well. Open banking makes processes transparent and more easily executed.
Take ABN AMRO, for example, they have launched their API developer portal. By doing so, we believe ABN AMRO has become an ‘innovation platform’, as it has opened up its infrastructure for external developers and because there are same-side network effects as developers attract developers.
If – this is why it is a fictional case – ABN AMRO decides to launch an app through which it facilitates the developers of complementary offerings to interact with its customers directly (on the platform), ABN AMRO could then become a marketplace. In that case ABN AMRO would be facing a new challenge to manage cross-side network effects, core interactions and matching mechanisms.
A subsequent step could be to create an ecosystem in which both complementors and competitors could offer their products and services on the platform. By doing so, we believe ABN AMRO could become an ‘open bank’. A new challenge will then be to manage the right level of openness and curation. If ABN AMRO indeed desires to become a marketplace platform, ABN AMRO will leverage the control of data and will go beyond banking only.
This fictional case will be illustrated in the figure below.
Being the sponsor or manager of a platform puts banks in the middle of the ecosystem and gives them control, but it also demands new capabilities and a strong dedication. As platform manager, the wins as well as the losses will be substantial. In the producer role, banks will have to commit to the rules set by another platform manager, but a new distribution channel can be leveraged and the risks are lower. Next to that, being the complementor to a third-party platform offers great opportunities of innovation, while using a third-party infrastructure and data.
To conclude, open banking provides many opportunities for banks. Many banks are taking their first steps in the open banking ecosystems by investing in fintech parties (e.g. Rabobank investing in Peaks) or developing additional services to offer to customers (e.g. ING developing Yolt), not just from the customers of its own bank. A clear strategy will help in the decision what role to take. The basis will be the bank’s core capabilities and ambitions. However, to be a true open banking player, additional capabilities will have to be developed as well. Technological capabilities are key to take a role in open banking.