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Platform Banking: Revolutionizing Financial Services in Digital Age

Platform Banking: Revolutionizing Financial Services in Digital Age
Alex Malyshev
Platform Banking: Revolutionizing Financial Services in Digital Age

Welcome to the future of financial services, where innovation and collaboration create a seamless banking experience – the era of banking as a platform. But what exactly is platform banking, and how does it differ from a traditional one?

In this article, we will delve into the essence of the platform banking, uncovering its core principles, key features, and transformative impact on the financial industry. 

Understanding what is platform banking

Platform banking goes beyond the traditional model and transforms banks into dynamic ecosystems where different financial services seamlessly merge. It promotes a shift toward customer-centricity that focuses on understanding and meeting individual needs and preferences.

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What is platform banking?

Platform banking, also known as banking as a service (BaaS) or banking platform as a service, is an innovative approach to banking that leverages technology, APIs (application programming interfaces), and open architecture to create a connected ecosystem of financial services. 

In this model, a bank transforms into a platform that offers a wide range of financial products and services through a unified interface and collaborates with various fintech companies, developers, and partners.

The concept of banking platform as a service goes beyond traditional banking services and aims to provide customers with a seamless, integrated experience that meets their diverse financial needs. It enables financial institutions to expand their offerings beyond core banking services and bring together various value-added services such as payments, lending, investments, and more under one roof.

Watch this video to learn more about what is platform banking system:

 

Through APIs, platform banking facilitates secure and controlled access to a bank’s data and functionality and enables third-party developers to integrate their applications and services with the bank’s platform. 

This integration fosters collaboration between banks and fintech companies, leading to greater innovation, customer-centric solutions, and a competitive advantage in the financial services market.

Traditional banking vs platform banking

Traditional banking and bank as a platform are two different systems in the financial industry, each with its own characteristics, advantages, and challenges.

Traditional banking involves the provision of basic financial services, such as deposit-taking, lending, and other related services, by banks and financial institutions directly to their customers. 

In traditional banking, customers deal with physical bank branches. These often have well-established branches and may also offer services through ATMs and online banking platforms.

The difference between traditional and platform banking 

Platform Banking: Revolutionizing Financial Services in Digital Age

Source: Sitech

While traditional banking was the dominant model for many years, the rise of digital technologies and changing customer preferences have driven the evolution of banking toward more innovative and customer-centric models, such as platform banking. 

Platform banking is an innovative and transformative digital marketplace, seamlessly operated via user-friendly apps or state-of-the-art software and owned by either a traditional bank or a non-bank.

Platform Banking: Revolutionizing Financial Services in Digital Age

This platform goes beyond traditional banking to offer a wide range of banking and non-banking services, all conveniently accessible in one integrated space. With a focus on customer-centricity and technological advancement, the banking platform as a service redefines the way financial services are delivered and creates a truly connected and personalized banking experience for users.

The key differences between traditional and platform banking are explained below.

AspectTraditional bankingPlatform banking
Business modelVertical business modelCollaborative business model
Customer experienceLimited offerings from the bank directlyA wider range of specialized services from third-party partners
Innovation and flexibilityLimited adoption of new technologies and innovationsEmbraces innovation and agility through collaborations with fintech
Financial inclusionMay struggle to cater to underserved populationsFosters financial inclusion through partnerships with fintech
Revenue streamsPrimarily from core banking productsDiversified revenue streams through third-party collaborations
Competition and collaborationCompetes with other banks and financial institutionsEncourages collaboration with fintech startups and industry players

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Platform banking vs banking as a service 

Platform banking creates a unified ecosystem of diverse financial and non-financial services, while Banking as a Service enables third-party companies to offer banking services through their applications or platforms by leveraging existing banking infrastructure.

The main differences between banking as a service and platform banking are explained below.

AspectPlatform bankingBanking as a service (BaaS)
DefinitionA digital marketplace offering diverse financial and non-financial services through a unified interface, collaborating with third-party partners.Banks provide their banking infrastructure and services to third-party companies for integration into their own applications.
Scope of servicesOffers a wide range of financial and non-financial products, such as payments, lending, investments, insurance, etc.Focuses specifically on core banking functionalities, like account creation, transaction processing, card issuance, and payment processing.
OwnershipOperated and owned by either traditional banks or non-bank entities.Provided by banks or financial institutions who own and maintain the banking infrastructure and APIs.
Integration approachVarious services from multiple third-party providers are integrated into a single platform.Third-party companies integrate the provided banking services into their applications or platforms using APIs.
Target audienceCaters to end customers seeking a comprehensive and integrated banking experience.Targets companies and businesses looking to enhance their product offerings by integrating banking services into their applications.
Key focusCreating a holistic and customer-centric banking experience through a diverse ecosystem of services.Enabling third-party companies to offer banking features to their customers without building the infrastructure themselves.
Application scopeExtends beyond core banking services to value-added financial and non-financial services.Focused on core banking functionalities to enhance the offerings of third-party applications.
Example use caseA bank transforming into a digital marketplace offering banking and non-banking services through a unified interface.A fintech company integrating payment processing and account creation services from a bank into its mobile app.

The rise of platform banking

The rapid digitization of the financial sector, changing customer expectations, and the explosion of fintech startups have driven the adoption of banking platform as a service. 

In a connected world, consumers demand more than transactions; they crave seamless, personalized experiences – a demand that banking platforms are enthusiastically meeting.

According to a report by Grand View Research, the global digital banking platform market is expected to grow at a CAGR of 20.5% from 2022 to 2030.

Platform Banking: Revolutionizing Financial Services in Digital Age

Source: Grand View Research

One such success story is the transformation of XYZ Bank into a “banking platform” by opening its APIs to third-party developers and entering into strategic partnerships. As a result, XYZ Bank saw an increase in its customer base, successfully entered new markets, and ultimately increased its profits.

The impact of the platform banking has been nothing short of revolutionary. Traditional banks are now forced to innovate, partner with fintech startups, and redesign their offerings. This disruption fosters healthy competition that ultimately benefits consumers through a wealth of innovative services and competitive pricing.

Read this article to explore the best online banking platforms.

Benefits of platform banking

Platform banking offers numerous benefits that are revolutionizing the way financial services are delivered and experienced. Let’s take a look at the key benefits that make bank as a platform a game-changer in the financial industry:

Enhanced customer experience

Platform banking puts the customer at the center of the financial ecosystem. By providing a single interface to access a wide range of financial services, customers enjoy a seamless and personalized experience. The platform’s data-driven insights enable tailored recommendations and solutions that ensure customers’ needs are met efficiently and effectively.

Improved financial accessibility

Platform banking opens the doors to financial services for underserved and unbanked populations. By partnering with fintech companies that specialize in niche areas such as microfinance or digital wallets, banks can offer targeted solutions for specific customer segments to promote financial inclusion.

Diversified revenue streams for FinTech companies

Through collaborations and partnerships, banks can expand their service offerings beyond traditional banking products. By integrating third-party fintech services, banks can create new revenue streams and offer a broader range of solutions to their customers. For fintech companies, platform banking provides access to a larger customer base and the resources of established financial institutions.

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Cost-effective solution

Platform banking can be a cost-effective approach for banks. By leveraging the expertise of external partners, banks can avoid the costs associated with developing all services in-house. This cost efficiency leads to better pricing for customers and a competitive advantage in the marketplace.

Increased scalability and flexibility

The modular architecture of platform banking enables scalability and adaptability. Banks can add or remove services based on market needs and customer preferences. This flexibility ensures that platform banking remains relevant and responsive to changing trends and customer needs.

With their numerous benefits, banking as-a platforms are reshaping the future of financial services, driving positive change and providing convenience and accessibility to customers worldwide.

Check this article to get information about APIs in banking.

Key challenges and risks of platform banking

While platform banking offers numerous benefits, it also brings with it a number of challenges and risks that financial institutions must overcome to ensure successful implementation. Below, we address the key challenges and risks associated with platform banking:

Operational complexity. Managing a diverse ecosystem of partners and services requires effective coordination and collaboration. Banks must invest in robust operational processes, relationship management, and support systems to ensure seamless communication and a consistent customer experience across the platform.

Regulatory compliance and governance. The interconnected nature of platform banking raises complex regulatory issues. Banks must comply with various financial regulations, data protection laws, and industry standards when working with external partners. Compliance in multiple jurisdictions can be challenging and requires continuous monitoring and adherence to changing regulatory requirements.

Integration issues. Integrating different systems, APIs, and services from different partners can be a technical challenge. Banks need to ensure seamless interoperability to provide a smooth experience for their customers. Compatibility issues, different data formats, and API discrepancies can arise and must be resolved to enable efficient collaboration.

While platform banking offers new opportunities for financial institutions and customers, overcoming these challenges and mitigating risks is essential for a successful and sustainable implementation. Through proactive risk management, collaboration with trusted partners, and a strong commitment to data security and compliance, banks can realize the full potential of banking platform as a service while protecting the trust and loyalty of their customers.

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Future outlook of banking as a platform

The future outlook for banking as a platform is nothing short of revolutionary, with the potential for “banking platform as a service” (BPaaS) taking center stage. BPaaS will enable financial institutions to transform into agile and modular platforms that offer a wide range of services via open APIs. This seamless integration will foster collaboration with fintech startups and other industry players, leading to a rich ecosystem of interconnected financial solutions.

In addition, new and emerging technologies such as blockchain, artificial intelligence, and decentralized finance (DeFi) will play a critical role in shaping the future of the platform banking. These innovations will enable faster, more secure, and highly personalized financial experiences for customers.

Predictions for the evolution of platform banking over the next decade point to increased financial inclusion, a rise in sustainable financial offerings, and a shift toward customer-centric and user-friendly interfaces. As the regulatory framework adapts to the growing importance of banking as a platform, consumers can look forward to a future where financial services are connected, accessible, and tailored to their individual needs.

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  • Roles and permissions management

Manage back-office access efficiently by adjusting role permissions or creating new ones to ensure secure and organized operations.

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Conclusion

Platform banking is revolutionizing the financial services landscape and unleashing the power of connected financial services like never before. This innovative approach is transforming traditional banks into dynamic ecosystems where customers can seamlessly access a wide range of financial products and services.

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Platform Banking: Revolutionizing Financial Services in Digital Age

FAQ

What is platform banking?

Platform banking, also known as "Banking as a Service" (BaaS) or "Banking Platform as a Service," is an innovative approach to banking that leverages technology, APIs , and open architecture to create an interconnected ecosystem of financial services.
In this model, a bank transforms itself into a platform that offers a wide range of financial products and services through a unified interface, collaborating with various third-party fintech companies, developers, and partners.

How does platform banking differ from traditional banking?

Traditional banking platform as a service involves the provision of basic financial services directly by banks to their customers. In contrast, platform banking goes beyond traditional services and offers a wide spectrum of both banking and non-banking services, all accessible in one integrated space.
Platform banking embraces collaboration with fintech startups and other industry players to deliver a wider range of specialized services, fostering innovation and flexibility.

What are the key benefits of platform banking?

Platform banking offers several advantages, including: enhanced customer experience through personalized and seamless services; improved financial accessibility, promoting financial inclusion for underserved populations; cost-effectiveness and increased scalability and flexibility to adapt to changing market demands.

How does a banking platform as a service work?

A banking platform as a service operates similarly to other software as a service platforms, but it is designed specifically for the banking industry.

So, the banking platform as a service provides banks with a complete suite of digital banking services that can be accessed through a single platform.

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