In October 2018, Gartner predicted that digitalization will make most heritage financial firms irrelevant by 2030.
It stated that “80% of heritage financial services firms will go out of business, become commoditized or exist only formally but not competing effectively. These firms will struggle for relevance as global digital platforms, fintech companies and other non-traditional players gain greater market share, using technology to change the economics and business models of the industry.”
Less than a year before the above prediction by Gartner, Chris Skinner, an author and commentator argued that banks haven’t succumbed to the Bill Gates’ banking prediction of 1994. He noted that US banks, for instance, have steadily grown in revenue, valuation and number of branches. All this continues to happen despite the entry of technology companies offering traditional financial services using slightly less banking-like approaches.
One of Skinner’s notable observation is that banking services can be delivered as a service, following the concept of Software as a Service. VentureSkies formalised the definition to mean “an end-to-end process ensuring the overall execution of a financial service provided over the web. The service is available on demand.”
On 18 March 2020, SC Ventures, the innovation arm of Standard Chartered Bank launched nexus – “a market-first platform to connect community builders such as start-ups, investors and accelerators to the Bank”.
The bank claimed that through nexus, digital platforms and ecosystems like e-commerce, social media or ride hailing companies, will be able to offer loans, credit cards and savings accounts co-created with the bank to their customers under their own brand name.
One of the first such efforts to ride on nexus, is a major e-commerce platform in Indonesia to be launched in 2021, subject to regulatory approvals.
The bank intends to further roll out the service to markets in Asia, Africa and the Middle East with the right regulatory frameworks and established digital platforms.
Bill Winters, group chief executive of Standard Chartered Bank (SCB) said: “nexus is potentially transformational for the bank and our customers. We will actively partner with leading consumer platforms in our markets to enable convenient access to financial services to millions of new, tech-savvy customers. We are starting with Indonesia, as part of our strategy to grow digitally and expand our business in this important, fast growing market.”
Michael Araneta, associate vice president, IDC Financial Insights, noted that the banking industry has moved towards the concept of platforms. He cautioned, however, that for these to succeed, there needs to be an integration of technology capabilities and business models.
In reviewing SCB’s nexus, he described two approaches taken by the bank.
“First is a technology platform to allow third party organizations to integrate with Nexus. This would be done through what we believe is an open architecture that SCB is building. This would probably be done through a standardized API exchange – so that data and functionality can be exchanged between SCB and participants of this platform (Nexus). From this sense, SCB is the provider of the technology – ensuring security, reliability, availability of the platform itself,” commented Araneta.
He alluded to the second part of what SCB’s nexus strategy as creating a business platform.
“SCB believes that it can create a critical mass of participants of the platform that can offer services for a critical mass of users. SCB provides clout but also legitimacy for this business platform. With SCB spearheading this business platform, the terms of use, operating models, business models can be set easily – allowing participation to happen fast, and because of that, hopefully scale,” he commented.
Ganesh Vasudevan, research director at IDC Financial Insights, was clear in that platformification is not unique to SCB. He cited the launch of key regulatory changes by Indonesia’s Financial Services Authority, which are aimed to accelerate the digitalization of banking customer on-boarding.
“With banks now permitted to engage third party service providers to conduct their face-to-face on-boarding verification, banking as a service platform could provide required agility and flexibility to engage with third party partners for banking services. Further Bank Indonesia’s emphasis on open partner API; with focus on consumer consent, dispute resolution and API life cycle management; is expected to be better served through a platform ecosystem,” he opined.
Forrester analyst Meng Liu concerned with Vasudevan with regards to SCB’s BaaS plan. He called on platforms like those of Alibaba and Tencent, as well as efforts by mega banks in China to create their own e-Commerce or partner with others. However, he conceded that these banks have yet to succeed.
He attributes the failure of such effort due in part to a lack of intimate relationship with customers – something held closely by brands and retailers.
“It is hard for banks to initiate an eCommerce platform to win customer trust and boost transactions. Collaborating with existing eCommerce players is an approach and I won’t be surprised if other mega banks are also adopting the same approaches to partner with an eCommerce player to provide BaaS like SCB does,” he added.
He believes that SCB’s success will depend on how effective it collaborates partners within the ecosystem it aims to build around nexus.
He alludes to the success of platforms like Alipay and Grab to condition customers to expect many choices, enabling them to select the services they wish to use from a vast variety of suppliers.
“Organizations based on platform business models typically compete on the strength of their ecosystems, not on features, and the value that is created on them. Focus on technologies like APIs and mini-programmes to ensure open interfaces and interoperability as well as AI to provide better matching. Helping your partners within your platform win magnifies your own achievement — and your success depends on this ability to maximize the ecosystem,” he suggested.
While SCB has indicated that its ambitions to expand nexus across the region will depend on the regulatory environment, Forrester’s Liu is less concerned on this front.
“I don’t think regulators will put strict regulation on these banks’ platforms like SCB’s before their platforms gain scalability. Since banks overall have higher compliance and security requirement than tech firms and brands, they can potentially get more preference from regulators rather than concerns,” he concluded.
