The idea of banks using a platform like the Apple App Store to plug in different fintech services as part of their own product suite to customers is where some believe the banking industry is headed.
Of course, others say the hand-wringing involved in getting banks to share data with fintech through application programming interfaces makes such dreams of open banking an unlikely reality anytime soon.
Several startups have emerged to try to tackle this concept over the last few years, but several established players in the past year or so have also launched such platforms, and how successful they are could portend the industry’s appetite for such a model that promises to offer an avenue to deliver products and services quickly and cheaply to consumers.
“Banks that are successful in the future will become platforms,” said Suresh Ramamurthi, chairman and chief technology officer of CBW Bank in Weir, Kan. “But it’s not just about plugging in new technology; it’s transforming your entire culture and processes.”
Last June, CBW published its application programming interfaces to offer a banking-as-a-platform service model. To accomplish this, CBW Bank developed and deployed more than 500 APIs, to provide opportunities for banks, application developers and software engineers to collaborate and deliver products and services. By deploying these APIs, the bank hopes provides connection points into its digital banking platform, giving users access to multiple payment networks and channels and ensuring interoperability between multiple financial institutions, programs, product combinations and accounts.
About 140 companies — mostly fintechs, but some banks — have signed on to become part of the platform, Ramamurthi said. While some banks Ramamurthi has talked with remain opposed to the concept, he said many are interested and see this model as the future, but are hampered by infrastructure that wouldn’t support such a play.
“It’s not as easy to do when you are constrained by legacy technology,” he said.
Ron Shevlin, director of research at Cornerstone Advisors, wrote in a white paper released Thursday about the IT hurdles for the “platformification” of banks.
“Few FIs have the resources to build a platform," he wrote in the paper, which was commissioned by the fintech firm Avoka. "Twenty years ago, when banks and credit unions were told they would need websites and online banking platforms, they said, ‘We don't have the resources to do that.' They were right. The vendor community filled the gap. As it will with a ‘bank-as-a-platform’ capability.”
Indeed, some vendors are offering platform services so their bank customers can have access to such a paltform through technology they are already investing in. The Swiss firm Temenos last year launched Marketplace, a platform built on the Microsoft Azure cloud where its core banking customers can tap into fintech services. Temenos conducted several “innovation jams” over the past year as a way to seek out promising new fintech talent, with an eye towards incorporating some in the marketplace.
“We look at them as value-added solutions to our core,” said Ben Robinson, head of strategy, marketing and innovation at Temenos. “We don’t care if [the fintechs] are slightly competitive, we want to introduce the greatest level of innovation to our customers.”
Robinson said the marketplace serves as a kind of “shop window” for their bank customers, which allows them to plug in services without having to search out new partnerships or potentially acquire new firms.
During a Temenos user conference last month, the company had the finalists of its global “innovation jam” present before a room full of its bank customers in part as a way to promote the concept of the platform.
“We wanted them to know anything they see on stage they can use tomorrow,” Robinson said.
While Temenos’ user base is primarily outside of the U.S., it is making an effort to break into the U.S. market; last year it announced its largest core banking deal here yet with $24.7 billion-asset Commerce Bank in Kansas City, Mo. The company is hoping Marketplace can be a differentiator as it seeks to make more inroads in the U.S.
For fintechs, Robinson says, this platform concept is appealing because “the B-to-C model is very difficult to do, because of the time and money to scale.”
Some fintechs looking to partner with banks also say this model makes that easier.
“It lets you reach banks in an easy way,” said Jake Tyler, CEO of Finn.ai, a Vancouver-based chatbot company that is part of the Temenos lineup. “A lot of banks are thinking about AI and chatbots, and this is a way to get in front of them.”
Last September, London-based core provider Misys unveiled its Platform-as-a-Service (PaaS) strategy, which saw the company open up its FusionFabric platform and core systems to third parties. The goal is to enable banks, fintechs, consultants and even students to develop, deploy and operate apps in the Misys cloud or on-premise.
“We’ve opened up the Misys core system so [third parties] can build on top of that,” said Riteesh Singh, global head of cloud services at Misys. “We’re very interested in bringing banks and fintechs together.”
But the platform isn’t just a venue for fintechs to find banks, he said, but also a way for Misys’ bank customers to sell products they’ve created.
“If a bank wants to monetize their IP, they can put it on the platform for other banks to use,” Singh said.
Misys has been working with “select partners” on the platform, but when it opens commercially at the end of this year, developers from anywhere around the globe will be able to participate, Singh said.
Overall, this is a direction many in the industry see it moving in, said Peter Wannemacher, a senior analyst at Forrester.
“Our research points to a coming open banking revolution,” he said. “We’re bullish on banks' increasingly opening up data to third parties, and the leading banks will have this ecosystem way of thinking.”
Wannemacher said banks are realizing it is easier and more cost-effective for them to plug in third-party services via APIs or allow outside developers access to bank APIs to create new products and services than to develop everything in-house or through acquisitions.
Shevlin wrote in the white paper that consumer demand will ultimately drive the creation of platforms.
“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?” he wrote. He later added: “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 platform.”
Still, Wannemacher said there could be some headwinds facing this trend, notably when it comes to the very largest banks, which may reject using an app-store like platform because “their desire to differentiate is strengthening.”
“If a marketplace or ecosystem allows every bank to choose from the same products, large banks may be less inclined,” he said.
But despite this, Wannemacher said, “decidedly all signs point to more open banking.”
What form such open banking takes may look different than an app store concept, but it will nonetheless mean a more cooperative ecosystem in the financial industry, said Pepe Olalla, head of business development for BBVA Compass, which is one of the few banks to offer an API center for developers.
“We believe in the concept of open banking, and are working to push the industry in that direction, as we believe that is in the best interest of our customers,” Olalla said. "Opening APIs, we think, will lead to products that are better and more tailored to customer needs. What form open banking takes — an app store or something else — remains to be seen, but what is clear is that the industry should agree on a standardized format. Open banking as a concept is, in our view, ultimately good for customers in that it fosters innovation and gives them more opportunities to control their individual financial journey.”