0. Platform Delusion
Before I get into my article, I highly recommend everyone that are keen on subject of "platform" to read "The Platform Delusion" book. Many think that they understand the secrets to the success of the biggest tech companies: Facebook, Amazon, Apple, Netflix, and Google. It's the platform economy, or network effects, or some other magical power that makes their ultimate world domination inevitable. Investment banker and professor Jonathan Knee argues that the truth is much more complicated but entrepreneurs and investors can understand what makes the giants work, and learn the keys to lasting success in the digital economy.
1. What's Platform in Technology Context?
There are divergent and many new meanings, however these are what I find practical:
Platform in technology context:
A platform is a group of technology solutions that are used as a base upon which other experiences, process or systems are developed.
Banking platforms in meaning of technology context will:
- Adopt a new way of working, a new operating model which includes concepts like spotify model and platform engineering squads.
- Detail way of working for engineers including gitops, git flows, built-in quality processes, etc.
- A brand new generation of architects (the ones that can code, not BSing on diagrams/powerpoints) who have different ways of thinking
- Adoption of Micro-frontend architecture and macro/micro-services architecture
- API mediation layer (at least restful) and DataSecOps
- FinOps
- Adoption of kafka
- Org chart sucks but needed, so a chart that enables platformization.
- Adopt Pace-layered architecture, read more in my other article.
2. What's Platform in Business Context?
In a business context, here's my favorite:
A platform is a plug-and-play business model that allows multiple participants (producers and consumers) to connect to it, interact with each other and create and exchange value.
There are three important components of this definition:
- Business Model. First and foremost, a platform is a type of business model.
- Plug & Play. A platform must enable participants to easily engage—and disengage (which partnerships typically don't).
- Create and exchange of value. One plus one has to equal more than two, or there's no need for the platform.
In HBR's view, the success of a platform strategy is determined by three factors:
- Connection: how easily others can plug into the platform to share and transact
- Gravity: how well the platform attracts participants, both producers and consumers
- Flow: how well the platform fosters the exchange and co-creation of value
Banking platforms in meaning of business context will:
- Give consumers choice, but spare them the additional work of duplicate data entry, integration, and paying multiple providers
- Create new revenue streams for banks, as third-party providers share revenue for using the platform
- Offer opportunities for fintech startups to achieve scale by reducing acquisition costs through platform participation
To successfully execute a platform strategy, a company must:
- Become a magnet. Without the ability to attract a meaningful number of the "right" participants, a platform cannot succeed. Simply having a lot of producers and consumers is no guarantee of success. The platform must attract the right producers (those with the most desirable products and services) and the right consumers (those with whom the producers in the platform want to do business).
- Act as a matchmaker. A platform requires a mechanism for matching consumers to the right producers, and for enabling producers to reach the right consumers who come to the platform. At its most basic level, a search engine can be a matchmaking mechanism.
- Offer a toolkit. The toolkit is what enables producers (and consumers) to easily plug-and-play. This is why application program interfaces (APIs) are so critical to firms pursuing platform strategies.
3. What’s driving the Platformization?
One reason is that technological developments (Internet, mobile, blockchain, ML, etc.) have enabled banks to become platforms. But technological change—by itself—is not the reason. There are two other contributing factors:
- Consumer demand. For as important as money is to us, most of us hate managing it. And so we haven't. What's truly different about the younger generation is their involvement with managing their financial lives. This gives rise to interest in, and demand for, a wide range of tools and features to help manage one's financial lives. Tools and features that a single bank would be hard-pressed to develop, launch, support and make profitable.
- Economics. Banking's traditional business model is eroding. Interest rates are at red oceans now, lending opportunities are being attacked by newcomers, the ability to raise interest rates on credit cards has been regulated away, fewer consumers revolve their card balances anyway, and making money through overdraft fees is hardly a longterm strategy. In short, banks must explore new business models.
As a result of technological, demographic and economic changes, there is a proliferation of new banking capabilities that are being developed to change the way we secure and protect accounts and money, move money, and improve the performance of our accounts and money.
This proliferation of new capabilities—and companies—begs an important question: Who is going to pull this all together in a coherent, cohesive way for consumers, and perhaps more importantly, for specific consumer segments?
The answer is an organization with a platform-based business model.
Consumers don't know many of today’s fintechs, and they likely don't care to know. Consumers don't want to have to work to find out what companies do, if they're any good, and if they're safe to do business with. They want someone or something to make it all easy for them.
They want a Platformized Bank.
