Mercator Blog

Adoption of Banking as a Platform Frees Financial Institutions to Individualize Banking Service Delivery in Concert With Fintechs
Date: August 15, 2017
Joseph Walent
Associate Director, Customer Interaction Advisory Service
Today, consumer and small business oriented commercial banks, credit unions, and thrifts (referred to collectively in this document as financial institutions, or FIs) need to balance the positive aspects and perception of their stability and conservatism with the contrary demand for accessibility and flexibility by implementing digital technology and individualization. Banking as a platform (BaaP) is an approach that can fulfill these two disparate requirements. It reduces banking to its essential mission—secure asset and liability retention and transaction execution and recording in service of the banking customer. The ideal described in the following quote defining the concept “platform” provides the central rationale for adopting a platform approach.
  
The shift to platform-oriented architecture is taking place across industries, and its facilitators are riding high. Bringing together the two sides of a transaction is the service model that is resonating with the public these days. Uber, Airbnb, and even Amazon have captured market share by efficiently bringing consumers and service providers together.

Financial institutions have an opportunity to take on a similar role, acting as the facilitator of customer engagement and keeper of transaction records with impeccable data assurance. Banking as a platform frees FIs to increase the breadth and depth of their portfolio of products and services through internal innovation, purchase of solutions, and partnerships with third-party providers.

The digital banking platform may be produced internally, as in the case of national and super-national FIs such as Chase and Citibank, or the platform may be supplied by a company that implements and maintains it. This model is employed by regional and pan-community FIs and provided by financial IT systems companies such as D3 Banking. Alternatively, a platform may be part and parcel of a more comprehensive operational agreement, as in the case of subregional and community FIs supported by Jack Henry and FIS.

The commoditization of basic banking services now underway requires that financial institutions differentiate themselves if they wish to engage with consumers and grow their business. In the early days of automobiles, most people who were able to purchase vehicles were limited to few if any options, or as Henry Ford is claimed to have said about the Model T, “You can have any color as long as it’s black.” The same limitations were true in banking. Today, however, the leverage of banking as a platform, or BaaP, enables FIs to go beyond a one-size-fits all-approach. Mercator Advisory Group anticipates that as this approach matures, there will be a reimagining of what it is to be a financial institution and what value FI delivers to consumers.

The Mercator Advisory Group research report, Banking as a Platform: API Technology Presents Opportunity to Financial Institutions, examines the use of the platform approach for financial institutions to achieve flexibility and agility in leveraging the expansive change being driven by technological innovation across industries. Banking as a platform enables FIs to better balance continued reliance and tried and true processing systems with nimble adoption of technologically enabled avenues of direct interaction with consumers.