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As the fintech industry grows, more opportunities and business models continue to emerge. Just in the way that digital platforms are poised to dramatically alter normal business models, customer behavior, pricing, and competitive structure, they are also playing a role in banking.
Platformification, as it is called, offers customers more services, unique customer experiences, and a slew of benefits, including convenience, greater choice, and often better pricing.
When it comes to platform banking, banks and financial institutions must embrace certain digital trends to succeed, grow, and differentiate in the platform banking competitive marketplace.
Platform banking is a digital marketplace operated on an app or software and owned by a bank or non-bank entity to provide banking and non-banking services. Platform banking is not open banking, although the two can work hand-in-hand to enable and amplify each other.
In fact, many banking platforms will use the open banking operational model. This means that the banking platform uses open APIs that enable third-party developers to build applications and services around the financial institution. In a way, open banking allows for more platform banks to exist since they can be built with more collaboration with the remote banking community.
Platform banking is similar to a digital bank. Most consumers are used to platform payments for sending and receiving money; however, platform banking expands the offerings to that which traditional financial institutions can offer.
From home mortgages to car loans, corporate banking, business loans, and more, banks, financial institutions, and credit unions can use a digital marketplace to provide more financial products: loan origination, help match up customers with appropriate homeowners insurance programs or home maintenance services, for example, all without leaving the platform (or perhaps until the purchase is made).
This makes it far easier for traditional banks to partner up with other organizations to provide unique and custom banking products to their customers. All in all, digital banking services generate more revenue and create a better customer experience.
While we’ve seen a growth in online payments software, platform banking is still on the rise. An article from Deloitte in 2019 even said that some still see platform banking as far-fetched. However, those in the fintech industry know that platform banking has expanded beyond that.
Now, more and more businesses are moving to digital marketplaces to expand their services, and a traditional bank or non bank entity that provides financial services should do so as well.
Users seem to be more interested in the digital experience, especially when it comes to retail banking. Younger consumers, in particular, are leaning heavily into these business models as it simplifies purchase options and consumer decision-making complexity.
Fintech companies who want to provide a banking service should consider a digital banking solution for more customer engagement, improved transaction types, and improved customer insight.
Platform banking is a model that banks are well positioned for, but non-bank entities can use platform banking services to position their business as a viable technology. They can easily integrate with a core banking operational model to offer banking services for consumers.
A fintech company can easily develop an app for financial services and then partner with a bank to expand its financial services. Or, they can partner with Sila to tap into select platform banking features like virtual accounts and the ability to send Automated Clearing House (ACH) payments.
A digital banking platform, in the end, is a great way to grow a business model and to expand current offerings for an improved custom relationship. With a sound technology infrastructure in place, you’ll find that expanding your business model to the platform economy to include banking options makes sense.
Platform banking requires a financial services infrastructure, typically software with open API connections, to operate. WIth Sila, you can build an app structure like this upon which to build your business. And by partnering with the right service provider, like Sila, you are well on your way to developing your app today and expanding upon it tomorrow.
Of course, regulators have raised concerns with digital banking in the past; and as services are being developed, more compliance concerns arise. Sharing sensitive banking data online has always been a concern, and this is the biggest challenge facing platform banking today. To properly share personal data integral to banking platforms, there must be a level of security, encryption, and storage protection in place.
Third-party relationships also pose a risk to high-security banking businesses, so information misuse, theft, system failures, legal disputes, regulatory noncompliance, and business disruptions are all likely to occur.
Online banks must also be prepared for new changes with compliance regulations. While things like anti money laundering (AML) laws and Know Your Customer (KYC) most definitely must exist within these operational environments, how they are applied and their ongoing monitoring statuses might continue to change. So any nonbank entity using the platform banking model should be prepared for these regulatory impacts.
Additionally, some businesses may find that the implementation of platform banking is akin to a revolution of business strategy. When before the strategy was predictable, it is not unprecedented.
However, businesses should keep in mind that the growth of platform banking is part of the digital transformation and is unstoppable. Both banks and nonbanks entities will be looking to add platform banking as a primary product or to complement existing businesses, and doing so properly and with the right integration protocols, will make this endeavor a success.
When starting a digital platform for banking, be sure to invest in the right technology infrastructure.
With Sila, you gain access to some of the most powerful financial technology on the market, and access to ACH payment transactions, KYC and Know Your Business (KYB) APIs, and smart contract technology for automation financial features.
See today how you can grow your product with Sila, and expand your product offerings with Sila’s fintech marketplace!