Platformification in Financial Services: Strategies, Case Studies, and Key Technologies

Episode #8 June 15, 2024

This episode delves into platformification in banking and insurance, starting with an introduction to its impact on financial services. It examines competitive advantages and business model shifts, featuring case studies on LendKey and Finastra's strategies. Discusses disruption and success stories in traditional banking and insurance, highlighting the role of partnerships and key technologies. Explores orchestrator and enabler strategies through examples like Alipay, Wakam, Stripe, and Planck. Concludes with an analysis of the challenges and opportunities in platformification, wrapping up with final thoughts.

Chapters:

0:00

Introduction to platformification in banking and insurance

2:02

Competitive advantage and business model shifts in financial services

4:14

Case studies: LendKey and Finastra's strategies in platformification

5:51

Disruption and success stories in traditional banking and insurance

9:32

The role of partnerships and key technologies in platformification

11:47

Orchestrator and enabler strategies: Alipay, Wakam, Stripe, Planck

14:47

Challenges and opportunities in platformification

15:32

Conclusion and closing remarks

Key Points:

Platformification enables financial institutions to offer a wider range of services through interconnected digital platforms, improving customer engagement and satisfaction.
The shift towards platform-based business models encourages collaboration between traditional banks, insurers, and fintech startups, fostering innovation and personalized service offerings.
Financial institutions must strategically decide between being orchestrators, managing the ecosystem, or enablers, providing specialized services, to effectively navigate the evolving financial landscape.

Transcript:

Welcome to Beyond Tech Frontiers, the podcast where we delve deep into the mechanics of disruptive innovation, market trends, the future of work, and ethical tech. I am your host, Sabine VanderLinden. Today, we are focusing on a topic revolutionizing the financial services sector: Platformification in banking and insurance. This is Episode 8, 'Platformification Progress in Banking & Insurance: Bringing Financial Institutions to the New World.'

Platformification is a trend shaping and impacting the financial services sector. This means banks as much as insurance companies. It involves creating a digital platform where various services can be accessed and integrated, offering a seamless user experience. While the business model of platformification has been around for a long time, its application in the financial services sector is relatively new.

The concept of platformification in banking, for instance, started gaining traction around 2016. Predictions were made that it would become a significant trend in the industry. However, implementing and adopting platformification in banking has been slower than expected. The same can be said for insurance. Despite growing interest in the concept, many financial institutions have struggled to transition fully to a platform-based business model.

In recent years, there have been increased efforts to invest in ecosystem development, including open banking compliance and data exchange, with the goal of leveraging the benefits of platformification. This shift towards collaborative business models is seen as a key strategy for financial institutions to adapt to changing customer needs and stay competitive in the rapidly evolving fintech landscape. Think about super apps like Uber or Grab.

Financial institutions can stay competitive by adopting a platformification mindset and providing a wide range of innovative services, thereby increasing customer engagement. The shift towards these digital platforms allows traditional banks and insurance firms to adapt to changing market demands. Through platformification, new tech ventures can offer a range of services under one roof, simplifying processes for users.

This transformation is not just about technology; it is also about changing business models to be more collaborative and customer-centric. Businesses must decide whether to be orchestrators — leading the ecosystem and managing the platform — or enablers, providing specialized services within another’s framework or capability. This choice will shape their strategy and impact their success in the evolving financial landscape.

So, what exactly is platformification? It involves using technology to create interconnected systems. These systems allow banks, insurers, and other financial institutions to offer a broader range of services through open APIs and other innovations. Platformification impacts traditional banking and creates new business models.

To put it simply, platformification is the shift from standalone services to interconnected platforms. In finance, banks and insurers use technology to create ecosystems that connect various services using open APIs. This allows financial institutions to integrate third-party services seamlessly.

For example, a banking app might offer checking accounts and loans, insurance, and investment options from different providers. New business models emerge from this integration. Instead of just providing one service, banks become hubs for multiple financial products. This model can increase customer engagement and loyalty by offering a one-stop shop for financial needs.

Let us look at LendKey, an American financial institution that became an alternative lending platform-based service in 2009. LendKey bundles various companies’ services together to create a seamless customer experience. It is a lending platform for student and home loans financed by local community lenders like credit unions and community banks. In student loans, the company also looks after refinancing existing loans, while in home loans, it offers home improvement loans and energy efficiency improvement loans. The company also offers white-label turnkey platform solutions for “Lending-as-a-service” for online lenders’ underwriting and digital servicing of the loan. LendKey has raised forty-two million dollars to date.

Another example is Finastra, an alternative lending company that helps financial institutions adopt a platform-based approach. Finastra enables them to consume apps and functionality as a service from fintech and other providers, thereby increasing innovation and customer satisfaction via API-enabled AI-based solutions. This online platform offers a comprehensive portfolio of end-to-end loan management software, commercial, consumer and mortgage lending, payments solutions, treasury and capital markets solutions, universal banking, corporate and commercial banking solutions, investment management solutions, and banking-as-a-service solutions.

The rise of platformification is disrupting traditional banking. Traditional banks face competition from fintech companies that are quick to adopt new technologies. Open banking initiatives force banks to share customer data with third parties. This increases competition but also offers more choices to consumers. Banks need to innovate rapidly to keep up.

In the case of insurance, open insurance is an extension of the open banking concept, focusing on the insurance sector. It involves the secure sharing of insurance-related data, empowering customers to access comprehensive views of their policies, coverage, and claims history. Open insurance enables the secure sharing of insurance data between providers, fostering transparency and interoperability.

Open insurance promotes collaboration between insurers and insurtech startups, leading to the development of innovative insurance products and personalized services. Legacy systems can make it hard for traditional banks and insurers to adapt. They need to invest in new technologies and APIs to stay competitive. Adopting a platform-based approach will likely help. It allows them to offer innovative services without completely overhauling their systems.

Overall, platformification encourages banks and insurers to move beyond their legacy business models. It helps them become more innovative and responsive to customer needs while expanding their service offerings through partnerships and integrations.

Platformification is transforming the financial services sector by enabling businesses to collaborate more effectively, expand services, and innovate with new technologies. Companies like Revolut and Citi are prime examples of this shift. Platformification enables financial institutions to collaborate more effectively by integrating third-party services through open APIs, creating a seamless customer experience.

It drives innovation by providing access to new technologies and enabling the development of new products and services. It also prioritizes the customer experience, allowing financial institutions to tailor their services to meet specific customer needs and preferences. Finally, it promotes competition by enabling smaller financial institutions to compete with larger players through access to innovative technologies and services.

Revolut began as a digital challenger bank and has rapidly expanded into a comprehensive financial platform. It offers services ranging from currency exchange to cryptocurrency trading. By leveraging platformification, Revolut has integrated various third-party services, allowing users to access a suite of financial tools in one place. This approach has enabled Revolut to scale quickly and meet diverse customer needs.

Citi has adopted a different approach to platformification by focusing on partnerships and innovation. Citi’s global platform connects clients with a broad range of financial products and services. Citi enhances its technology infrastructure through collaboration with fintech companies and offers advanced capabilities like data sharing and AI-driven insights. This strategy helps Citi remain competitive and provide differentiated services tailored to customer needs.

Successful platformification relies heavily on building strong partnerships. Financial institutions can offer a wider range of services by working with fintech startups and tech firms. For example, banks can integrate services like payment processing, lending, and insurance using cloud technology and APIs. This increases their service offerings without significant internal development costs.

Collaboration between banks and tech companies drives innovation, convenience, and hyper-personalization to meet customer needs effectively. Partnerships allow banks to quickly deploy new capabilities and create more efficient and user-friendly ecosystems. This approach attracts more customers and helps retain them by providing seamless access to the financial services they actually need.

Several technologies are at the forefront of platformification. Cloud computing provides the necessary infrastructure for scalability and flexibility, enabling financial institutions to adopt and integrate new services quickly. Blockchain enhances transaction security and transparency, making it a valuable tool for decentralized finance platforms and data sharing.

Machine learning analyzes vast amounts of data, providing insights that help improve customer experiences and operational efficiency. Combined with artificial intelligence, this technology enables financial institutions to understand segment needs, offer personalized services, detect fraud more effectively, and manage risks better. Thus, it is essential for the digital transformation of financial institutions.

When considering the platformification of their enterprise, businesses must make strategic decisions that impact revenue, risk, and growth. The choice between being an orchestrator or enabler shapes the direction and priorities of the organization.

Orchestrators build and control the platforms that connect various service providers and customers. By doing so, they position themselves at the center of the ecosystem, managing interactions and enhancing customer experience.

Let us take Ant Financial’s Alipay as an example of an orchestrator in the financial services sector. Alipay has built a comprehensive platform that connects various service providers and customers, positioning itself at the center of the ecosystem. Alipay’s platform integrates multiple financial services, including payments, lending, insurance, and investments, enhancing the overall customer experience.

Alipay generates revenue through transaction fees, partnerships, and commissions on financial products sold through its platform. The platform’s scale and reach provide a higher revenue growth potential than traditional financial institutions.

Wakam is another prime example of an orchestrator in insurance. Wakam has built a comprehensive platform that connects various service providers. Wakam’s platform leverages advanced technologies like AI and blockchain to ensure secure and reliable transactions. Wakam has successfully integrated over one hundred insurance companies, facilitating seamless interactions and transactions.

On the other hand, enablers support the platforms by providing essential services or technologies that enhance functionality. These businesses specialize in particular areas, such as fintech solutions or fraud detection.

Stripe is a prime example of an enabler in the financial services sector. Stripe provides essential payment processing and fraud detection technologies that enhance the functionality of various platforms, including e-commerce sites, marketplaces, and financial institutions.

Stripe’s model is built around providing specialized services that cater to the unique needs of multiple sectors. By focusing on payment processing, fraud detection, and financial infrastructure, Stripe enables businesses to streamline their operations and improve efficiency. This specialization allows companies to concentrate on their core business while leveraging Stripe’s expertise in payments and financial technology.

Planck is an enabler model that excels in providing specialized services tailored for commercial insurers. Focusing on data and analytics, Planck offers a unique value proposition that sets it apart from other commercial line underwriting providers. Its approach leverages responsible generative AI.

Planck’s enabler model prioritizes customer experience, ensuring that insurance companies can provide their customers with seamless, personalized interactions. By leveraging Planck’s data and analytics capabilities, insurance companies can better understand their customers’ needs and optimize their underwriting portfolio, improving the underwriters' satisfaction.

Whether orchestrators or enablers, companies in finance and supporting financial institutions must consider several factors. Some of the challenges they face include navigating diverse regulations across regions, monitoring and mitigating risks, especially fraud, and shifting from traditional models to agile and innovative approaches.

On the flip side, there are opportunities for revenue growth through innovative financial products and services aligned to customer needs. Better financial management with advanced fintech tools and improved customer experience by integrating seamless services and highly personalized offerings are some of the benefits.

By carefully considering these aspects, businesses can decide whether to be orchestrators or enablers, tailoring strategies to align with their strengths and market goals.

That is all for today’s episode of Beyond Tech Frontiers. I hope you found our exploration of platformification in banking and insurance enlightening. Remember, the financial landscape is evolving, and staying informed is key to navigating these changes. I am Sabine VanderLinden, and I look forward to having you join me in our next episode. Until then, stay curious and keep innovating!