Without question, Open Banking has escalated the pace of digital disruption of the banking industry. Banks who have invested vast sums of money over many years into critical infrastructure are now mandated to make these systems freely available to their competition who seek to disintermediate them from their customers. In this article we explore how assimilating technology such as Request to Pay from partners makes more sense than persisting to build more infrastructure.
The digital platform based business model
Digital platforms are one of the hottest business topics in 2021. Tech startups are including the phrase in investor decks, and mature corporates are booking COVID safe offsiters to decide on the implications for their business models.
The simplest way to describe this new digital paradigm is to pull out some examples—airbnb, Uber, JustEats… app platforms that bring access to services the provider doesn’t own. Yet this new layer in markets builds a new community-centric place to go for the offerings they focus on. As EY puts it in a recent report, “In the digital economy, you can become a driver without owning a taxi, a hotelier without owning a hotel, or a bookseller without owning a bookstore.”
What customers value is the interface providers offer that make for painless access to the unique experiences they’re hunting for. How it works is pure hygiene. Market watchers suggest, digital platforms signal the death of the vertically integrated business model—where the banking value chain stretches from production to sales, distribution and servicing.
Platform choices in the financial services industry
Adopting a platform-based model can be difficult for mature organisations, particularly with so much technical capability internally. Financial services firms have become app innovation factories in their own right over the past decade. In 2016, the Chief Exec of Barclays, Jes Staley, famously described Barclays as a technology company with a balance sheet and regulators, arguing that, ‘having the right technology in place is a critical obligation for Barclays.’
Digital teams will instinctively look upon new digital trends with wide eyes, anticipating another opportunity to show their steel and bring value to their internal stakeholders. Tech leaders want to ‘go build’—it’s how their DNA works. But, sometimes this decision happens inside the IT cell without the organization fully considering the commercial implications of such a decision.
In a digital age, some IT choices aren’t just tech decisions—they form part of the customer value an organisation serves up.
As Finbarr Joy, a Technology Advisor to the Financial Services industry and Non Executive Director of Answer Pay puts it, ”We all get excited by the challenge of innovation. But isolated innovation projects can quickly become a distraction. The pressure is on for IT leaders to ace their core business outcomes, and new infrastructure can burn time and resources and create future legacy issues”
The need for speed
While in-house resources for digital transformation have grown considerably over the last few years, demand for digitisation and re-platforming has grown significantly faster in the financial services industry. One reason for this has been the long tail of legacy systems refreshes and upgrades to core banking systems that have plagued finance houses. These back end changes are essential but, if done right, are invisible to the customer. However, creating new innovative experiences shouldn’t fall by the wayside or you will begin to lose customers.
Instead of persisting with infrastructure builds, assimilate FinTechs who can enable new experiences that you as a bank control, that differentiate you versus your competition. An example of this can be seen with a Request to Pay service enabled by Answer Pay.
We all make bill payments and some of us also request bill payments, they are essential to our lives. Request to Pay digitises the bill payment initiation process in banking applications. As these payments are recurring, require security and customer trust so they align very well with the goal of creating better customer experiences with secure banking apps.
As standards are published the immediate compulsion may be to simply build the infrastructure to a Request to Pay API standard. Fight that urge! A lesson from Open Banking is that the standard in APIs is variation, with no one provider having the same specification. Change is a constant with APIs evolving to better suit the needs of participants over time and you can see what might have started off as a simple project becomes complex quickly. Instead partner with a FinTech such as Answer Pay to get the service without building the infrastructure.
Resources can then be invested into creating compelling customer experiences that drive customer engagement using Request to Pay as the hook. You can for example imagine a banking app that then combines einvoicing, personal finance management and lending services with Request to Pay alongside core account management.
By assimilating FinTech partnerships such as those for Request to Pay banks can choose to play the role of Amazon, Uber, Borg for financial services. Persist with self build and it may be difficult to expand past single vertically integrated services that others provide the interface to.