Platformization

Why Platformization Should Be a Top Priority Right Now

We don’t know exactly what the financial world will look like after the COVID-19 crisis. So far, the impact on banks and insurers appears to be limited. But the pandemic is certainly accelerating the trend toward digitalization in financial services. Thijs Venneman of Turner’s wonders how this will affect the business models of banks and insurers. Is the platform model truly poised for a breakthrough in the financial sector?

Why is this a top priority right now?

We don’t know exactly what the financial world will look like after the COVID-19 crisis. Banks seem to have enough reserves to weather this crisis, and the impact on insurers also appears to have been limited so far. But at the same time, we’re seeing that the pandemic is further accelerating the existing trend toward digitization. Image-based banking, digital signatures, smart AI tools, online advice, and self-service via chatbots: these are all measures that are being implemented more quickly due to “social distancing” and the “lockdown.” But how does this affect the business models of banks and insurers? Is there even a role for everyone in serving customers directly? Or will this crisis give rise to other opportunities for growth? Will the platform model experience a BREAKTHROUGH in the financial sector?

What Happened After the Previous Crisis

After the 2007–2008 financial crisis, we saw online platforms such as Amazon, Airbnb, Uber, and Alibaba experience a surge in growth. Within a few years, they had completely turned the balance of power in their respective sectors upside down. But even now, despite the current economic headwinds during this crisis, they continue to grow. This is mainly because online platforms are extremely scalable. At its core, a platform connects buyers and sellers without having to provide the goods or services itself. And with today’s technology, they can do so extremely efficiently, intelligently, and effectively. Is this also a viable model for organizations in the financial sector?

Is it the financial sector's turn now?

In our study,“Platformization of the Financial Sector: A Matter of Time,” we conclude that the shift toward online platforms is inevitable and that every financial service provider faces a choice. Do you want to become a platform organization yourself, acting as a connector between supply and demand? Or will you CHOOSE a different role on someone else’s financial platform? Research firm Forrester also reached this conclusion in a recent study of banks. Will you CHOOSE to serve customers with a broad range of offerings, or will you pursue a niche role within the ecosystem? The firm expects that banks will only remain successful if they integrate products “under the hood” and make them available to customers through a single, seamless user experience. Banks will need to carefully manage the trust they’ve earned, be selective in choosing collaboration partners, and choose the right “battlefield.” So, thinking about platforms and their application to Financial services is in full swing. But what about the implementation?

The Signs in the Netherlands

The shift toward platforms doesn’t seem to be happening very quickly in the financial sector yet, but appearances can be deceiving. We’re seeing more and more examples of platforms that are driving fundamental renewal in the financial sector. For example, many new entrants are choosing the platform model. Consider the well-known Funding Circle, which directly connects institutional investors with small business owners, as well as the lesser-known Dynamic Credit, which uses a platform to connect homebuyers with institutional investors. Another recent and very commendable example is Buddy Payment, which uses an app to keep vulnerable people out of debt counseling by connecting them directly to banks and municipalities via a platform.

In China, the time has already come

However, these developments pale in comparison to the colossal financial ecosystems we are seeing emerge in China. The mobile payment apps from Ant Financial (part of the aforementioned Alibaba) and WeChat —originally e-commerce and social media apps—have revolutionized this region by adopting a platform model that focuses entirely on customer needs. And this goes far beyond just mobile payments. The 1 billion (!) users can also take out loans, open savings accounts, purchase insurance, and make investments.

Financial institutions in the Netherlands are hesitant

Financial institutions in the Netherlands should therefore brace themselves. Our survey of 25 Dutch banks, insurers, and other financial service providers also shows that a large majority (92%) considers the shift to a platform model to be inevitable. According to some, this model is even the superior business model. And although everyone indicates that their organization needs to address the issue, 78% of Dutch financial institutions have not yet made a clear decision. “We need to do something about it, but we haven’t gotten any further than a few experiments and partnerships”—that’s what we often hear.

Time to choose—and take action

Even after this crisis, the future of financial services will continue to rest on trust. But since the last crisis, online platforms have been playing an increasingly significant role in the financial lives of consumers and small and medium-sized enterprises. Because of their extreme scalability, these platforms have the potential to completely upend the balance of power. Of course, it is encouraging that Dutch banks and insurers recognize the importance of online platforms. However, it is also concerning that very few financial institutions have made a clear choice and are actively implementing it, especially in this era of accelerated digitization. If banks or insurers do not actively assume the role of a platform themselves, they run a real risk of eventually playing a supporting role as a provider on someone else’s platform. This may be good for their “license to operate,” but it comes with no customer contact of their own and under the other party’s terms. Then they truly become that “dumb pipe,” which in Het Financieele Dagblad had already been predicted.

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