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Edmund Lawler Aug 26, 2016

The platform dive: The merits and perils of platformification at BAI Beacon

Platformification: Now there’s a mouthful of a word that defines, if you’ll indulge the rhyme, a banking revelation.

For those unfamiliar, the big P occurs when existing banks and financial institutions make a strategic move towards becoming banking platforms—think of Amazon as a retail platform, for example. Yet platformification also has two other possible—and opposite—meanings for banks.

On the one hand, it represents a potential financial godsend for the banking industry. That’s key because interest-income revenue streams have suffered in a post-recession, low-inflation milieu. But platforming could also collapse into a boondoggle, as the industry half-heartedly (or half-mindedly) tries to reinvent its business model, Amazon style.

So platform or flat-form: Which will it be? Ron Shevlin, who will address the risks and rewards of platformification at BAI Beacon, admits he’s still pondering the answer in the countdown to the October conference. To be sure, he allows that “it’s more of a conceptual possibility than it is a probability.”

But in the meantime, stay tuned and read on:  Shevlin’s observations offer, if you will, a platform of informed insight.

A blogger, author and a research director for Cornerstone Advisors, based in Scottsdale, Ariz., Shevlin has spent more than 25 years as a management consultant in financial services, retail, consumer products and manufacturing. In 2014, Bank Innovation ranked him No. 2 on its list of the 30 innovators to watch.

Yet he’s one of the banking industry’s most provocative observers. You might expect as much given that Cornerstone’s “alter ego” website is Gonzo Banker, complete with a skull-and-crossbones logo. Here he outlines how the current state of affairs could lead to a platform run-up, or a walk off the plank.

Q: Why is platformification a key trend in banking?

A: There’s been an explosion in recent years of financial tools and features to help people manage their financial lives. But people don’t really enjoy doing that, so they look to the banks to pull all this together on a single platform—a seamless solution. Consumers don’t have a clue as to who all these FinTech startups are. Are they legit? Have they been vetted? Banks have an opportunity to make it easy for the consumer by providing a wide range of choices, and they can generate fees by matching their consumers with producers of financial products and services.

Q: So who is doing it well?

A: In the United States, no one. The banks that have taken steps toward platformification have made the mistake of only selling their own products and services. But the concept of platformification states that banks will not limit their choices of third-party producers and providers. So there’s this very fundamental difference. Granted, changing your business model is a risky and difficult proposition, regardless of your bank’s size. Banks should not restrict the offerings on their platforms to just their own or their business partners. It needs to be broader and more agnostic—even including your competitor’s products and services much like Amazon does.

Q: How do you see things breaking in terms of platformification?

A: In almost every industry, the existing players respond to genuine external threats more so than they respond to potential internal opportunities. If, for example, Amazon was to get into banking and become successful at deposit gathering, then I think you will see the fire being lit under the banks to counter that threat. But in the absence of a strong external threat, it is probably the experimentation with platformification by some banks that, if successful, will motivate the market to adopt that business model. At its most basic level, platformification is a business model that allows consumers and producers to interact and exchange value.

Q: What do you find most exciting about platformification?

A: It’s the opportunity to expand and diversify revenue streams. Banks have two primary components to income: interest income and non-interest income. In today’s low-rate environment, interest income is absolutely challenged. With regard to non-interest income, especially on the retail side, revenue has been dominated by punitive fees like overdrafts and late fees. That’s a terrible way to grow your business. Platformification is an opportunity to have a deeper relationship with customers: one that’s based on helping them make smart choices about whom they should do business with.

Q. What is the biggest challenge facing the banking industry in terms of platformification?

A: It’s not the technology or the toolkit that enables an exchange on the platform between the consumer and the producer. Any bank can do that with a large enough investment. The real challenge is executing on a new business model concept and changing the cultural norms that exist in most banks. Too many bankers are more interested in building out new branches to extend their geographical reach. If that’s the mindset, then I’d say we’re at least a couple of levels away from achieving platformification. 

Edmund Lawler is a business writer, author of six books and former editor at BtoB Magazine.

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