The power of platforms and how banks can become one

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The power of platforms and how banks can become one


This content is contributed or sourced from third parties but has been subject to Finextra editorial review.

When Apple launched its iPhone in 2007, Nokia, Samsung, Motorola, Sony Ericsson and LG were generating 90% of the mobile phone industry’s global profits. By 2015, Apple dominated the industry and the iPhone became one of the most sold devices in history.

How did Apple overtake the world’s top mobile phone manufacturers in less than a decade?

Besides its innovative and sleek design, it was the iPhone’s ability to connect producers with consumers through its App Store. Apple let third-party developers onto its platform to create apps for its users, reaching three billion app downloads by January 2010. And just like that, the iPhone was no longer ‘just a phone’. It was a device that glued together people’s needs for gathering information, entertainment and communication in one digital place.

Pipeline vs platform business models

It’s important to understand the distinction between platforms and conventional, ‘pipeline’ business models. Banks, for example, are pipeline businesses. They provide their own products and services to customers and focus on perfecting their internal processes to build and sell these and attract more customers. But what happens when new entrants come along with even better offerings? Then products become commoditised or obsolete.

While pipeline businesses can be successful, they don’t have long-term disruptive potential. Platforms do. They win by shifting the focus from developing and owning resources to managing them, which is why they can grow fast with incremental costs. Platform businesses revolve around interactions between participants (producers and consumers). The more participants, the higher the value of those interactions for both groups. Think about how Apple connected app developers (producers) with its iPhone users (consumers) through the App Store. This is what we call ‘network effects’ – a phenomenon that is the foundation of platform strategies.  

Where does this leave banks?

With their products completely commoditised, the only way for banks to stand out is through the experience they offer to customers, which is why it should be a mandatory exercise for all banks to invest in platform business models. But first they have to identify the platform ‘play’ they want to pursue.

Build their own platform

To build their own platform, banks have to open up their channels using APIs (application programming interfaces connecting them to third parties) and provide an architecture that makes it easy to onboard producers and enables interactions between players on the platform. ING, for example, has partnered with Minna Technologies, a fintech that allows customers to manage their subscriptions without leaving ING’s app.

Connect to existing platforms

Connecting to existing platforms is another approach banks can pursue to gain access to platforms’ satellite ecosystems where people spend their time online. This option makes sense if the bank has a superior capability that is in high demand and can serve clients on existing platforms. An example is ING’s cooperation with Amazon in providing loans to eligible businesses through Amazon’s seller portal.

Pursue independent platform initiatives

The third approach for banks is to explore innovative initiatives that can become platforms in their own right. Like ING did with CoorpID: a single digital vault to collect, organize and track KYC documents of corporates. It solves a KYC pain by allowing corporates to organize and share their KYC documents securely in one place. Pursuing independent platform initiatives is an opportunity for banks to invest in propositions that go beyond banking, which is crucial if they want to disrupt before being disrupted.

From pipeline to platform

To make these approaches work, banks have to concentrate on the elements that underpin the success of platform strategies: a laser focus on user experience – surprising users with the right offer at the right time; data exchanges between different network participants to tap into the ‘network effects’; and technology – an open architecture that makes it easy to connect with partners (and even competitors).


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This content is contributed or sourced from third parties but has been subject to Finextra editorial review.