The rise of the marketplace

Article

The rise of marketplace platforms

Open banking is not a tech game, it’s a business game where the platform rules need to be played.

For many years now, open platforms have underpinned the success of players like eBay, Amazon, Etsy and Alibaba as they are meeting customer expectations for a one-stop shop, convenience and can offer new and targeted products making life easier.

Banks also have seen the added value of participating in the platform revolution but despite this, regulation rather than strategic intent has been the key driver for the banking industry to open up, with in first instance PSD2 dictating the need and providing the framework balancing security versus convenience. This in turn has led to a next step of Open Banking initiatives, but these are mainly focused on the necessary technological infrastructure (like e.g. API’s) for opening up.

However, creating a successful banking platform will require more than simply having in place the necessary technological infrastructure. Banks need to become or participate in platforms and extend their services and monetize their core banking capabilities. So despite the current focus on Open Banking, also this is a “means”, not yet an “end”.

 

So PSD2 has been a stepping stone towards Open Banking, which in turn we foresee is merely a stepping stone to participate in the platform revolution.

Different types of platforms

Platforms are often not well defined and vary widely. Below, we briefly outline (non-exhaustive) three platform models we see most in the market:

  1. Banking as-an Open Platform
    Offer a plug and play business model, allowing third parties (e.g. competitors, developer communities) to connect, develop and assume control of customer interfaces, interact and exchange value.
  2. Banking Platform as-a Complement
    Third parties will enhance their value proposition by integrating value-add banking services (e.g. transaction banking, e-ID, credit scoring, AML/KYC), enhancing customer data analytics (e.g. customer behaviours and insights) and accessing customer communities (e.g. cross-selling) held by connected banks.
  3. Banking Platform as-a Marketplace
    Banks will develop marketplaces supplementing their own core value proposition with products and services of their choosing, which are likely to be sourced from financial and non-financial service provider third parties.

Although all 3 platform models can have valid business logic, the “platform as a marketplace” model solves a key concern of banks around disintermediation, since clients still enter the platform primarily via the banking interface. Marketplace platforms provide the bank the added benefit of controlling and owning the customer data as well as its partnerships. But it is the most complex as well to get right as well.

Key success factors of platform as a marketplace

There are some key principles what it takes to build a great market-place platform. The key is to already take this into account whilst transforming to an Open Bank to ensure a smooth transition thereafter towards a market place platform.

  1. Navigation
    Help the customer navigate the marketplace. For this, you have to know the customer and what he wants to offer a personalised experience. This is where data comes in, as via data you know the customer, what he likes and why he is visiting the platform.

    Example is YouTube, who owns the data and therefore knows you and recommends exactly what you are looking for, without you having to search all the available content.

    In the financial sector, there are currently limited examples, potentially meaning that the platforms are not yet sizeable enough to require the personalised navigation, or potentially that the data is not harvest optimally. 
  2. Reach
    For a market place, size does matter. The more both supply and demand are linked to the platform, the stronger and more diverse the client proposition is becoming (but also making the platform more difficult to navigate – see previous point). As size matters, this adds importance to time-to-market, as platforms tend to become a “winner takes all” game.

    Example is AirBnB, which owns a great deal to its size – if there is a lot of supply, there will be a lot of demand and in turn a lot of supply. In the financial industry, crowd funding platforms like Gofundme and kickstarter and exchanges like e.g. CurrencyFair are clear examples. In the corporate space, Taulia is an interesting example in Supply Chain Finance.
  3. Convenience
    Clients require convenience and therefore a seamless combination of the individual elements into a tailor-made customer journey becomes key.

    A great example here is Uber and how they solved paying for its service. A customer uses Uber to get from A to B, not to make a payment. Therefore they integrated payments seamlessly into the customer journey, by making you think about paying only once – upon subscription when you register your credit card.

    In the financial world, aggregators like Yolt are good examples of this, bringing together data but in the end helping with services like payments, tax and budgeting in a seamless way.
  4. Trust
    It takes time for a customer to feel confident to use a marketplace, also due to sometimes unclear liabilities, but this is an important condition to start attracting new customers. Therefore brand is an important success factor, especially a brand consumers recognise and trust. Of course this is where banks are strongly positioned and this makes banks attractive partners. When setting up a marketplace under a new brand, this is something to take into consideration.

    Non-banks are also seeing this and are using especially the feedback function for this. At e.g. Uber you can rate the service and AirBnB takes it one step further, with supply and demand both being able to rate each other. These reviews are key in building trust for these newcomers. 
 

Conclusion

Platforms are a very successful business model with platform as a market place potentially the most attractive type. Banks need to participate in that revolution and with PSDII being a first step (main focus on regulation), opening themselves up is a key move in the right direction, but is still often technology focused and does not yet bring them to the end game.

This means that when making design decisions in these Open Banking programs, keep the longer term and above key success factors in mind and realize that Open banking is not a tech game, it’s a business game where the platform rules need to be played.

More information

Deloitte has a strong track record in the payments industry and is a frontrunner in handling regulatory and strategic issues of our clients in a robust but efficient way.

Want to discuss the potential of platforms on your organization? Please contact: Edgar Mendelsohn or Roeland Assenberg van Eysden via the contact details you'll find below.
 

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