As the banking sector digitizes, the banking experience and operating model are more aligned than ever with other industries and customer expectations.
Platform banking is a technologically enabled integration of traditional and digital banking, fintech, and third parties that transforms the traditional banking paradigm into a customer-centric one.
Here, we discuss our view on microservices-based banking architecture and how institutions should open up to explore prospects presented by the platform banking phenomena by taking a purposeful approach.
Before delving more into how platform banking might revolutionize banking business models, it is critical to distinguish between open banking and platform banking.
Open Banking vs Platform Banking
When a bank shares client data with third parties via APIs at the request of a customer, this is referred to as open banking.
Other, less secure techniques of data exchange, such as screen scraping, CSV files, or OCR-readable statements, are not used in open banking. There are two kinds of open APIs: read access, which simply allows you to see account information, and write access, which allows you to make payments.
Customers control the data they create, and they have the authority to direct banks to share it with those they trust, according to the principle of open banking.
While open banking was intended to provide consumers more options, it may wind up making customers better grasp and appreciate the value of one of their most valuable assets: their data.
Platform banking, on the other hand, is a digital marketplace that is owned and maintained by a bank or another third party and provides banking and nonbanking services.
Customer data is only shared with their agreement, just as it is with open banking.
Furthermore, platform banking necessitates safe data communication via APIs. Platform banking is based on the idea that banks can better service their consumers, build greater trust, and keep the customer connection. Platform banking is enabled and amplified by open banking.
Traditional vs Platform Banking
A variety of events and developments are propelling the banking industry toward platform banking. Banks will need to examine near-term and long-term business goals and select the best platform banking strategy in order to prepare for and capitalize on platform banking prospects.
Banks will gravitate toward one of three platform strategies based on their business, organizational, and technological maturity and goals:
- Merchant or marketplace owner
- Marketplace partner
- Utility provider
Each of the aforementioned 3 platform strategies necessitates a different level of commitment and will have a different level of revolutionary impact.
Banks may be better served in the new ecosystem by pursuing either a marketplace owner or a marketplace partner role; becoming a utility provider is unlikely to be a viable business model, as it relegates banks to a mere service provider with low margins and no control over the customer relationship.
Platform Banking and Micro Services
Platform banking requires a foundation based on micro-services architecture.
Most banks will need to significantly reengineer their present core banking application architecture and infrastructure in order to successfully implement platform banking standards.
It will also advocate for a company-wide shift to microservices-based design. A microservices-based design enables efficient and rapid integration with third parties, which may become the platform banking ecosystem's primary competitive differentiation.
The method and amount of technological transformation necessary to support any of the platform banking business models will be heavily influenced by a bank's present core banking architecture.
- Legacy core banking systems: Banks with outdated core banking systems, monolithic apps with many point-to-point connectors, and batch processing may adapt in stages while limiting risk by taking a strategic strategy with short- and long-term goals.
- Modern core systems: Because of their mature IT organizations, banks with contemporary cores, often with service-oriented and mature API-based architectures, may convert using a big-bank approach.
Regardless of a bank's technological starting point, developing a microservices-based architecture is a vital enabler for platform banking since it provides for more integration flexibility and the quick supply and consumption of new services.
Transitioning to a genuine microservices-based architecture, like with any large-scale technology transformation efforts, necessitates considerable commitment in both resources and time.
The path to platform banking and a microservices-based architecture includes two critical steps: determining business and product strategy and technological preparedness.
Based on the business model, product and service roadmap, and technological readiness, banks can begin their platform banking journey in stages with short-term and long-term objectives.
Banks with a forward-thinking product strategy, mature application design, and scalable technological infrastructure may move quickly toward the long-term aim of establishing a microservices-based architecture.
Digital Transformation Journey to Platform Banking
While the journey to platform banking is difficult, it provides banks with the capacity to build and penetrate new markets, as well as construct new business models to facilitate growth. Assuming a leadership or active position in the platform banking industry would not only generate new income streams, but will also improve client experience and operational efficiency.
With platform banking becoming a question of 'when' rather than 'if,' banks must act now.
Sitech has deep expertise in enabling banks embark on a seamless journey towards full digital transformation which takes into account a bank's existing technological environment as well as its planned future environment, enabling financial institutions to build the foundation in a manageable, yet significant, manner.