Technology makes it possible, PSD2 accelerates it, and consumers are demanding more and more from their banks - the move towards Marketplace Banking is happening rapidly. At Five Degrees we believe the banking industry is embracing this more interconnected model where banks will use the services of their competitors to fill gaps in their offerings and also provide their own services to third parties, banks, fintechs and non-banks.
In this 5 From Five Degrees blog, Five Degrees CCO, Peter-Jan van de Venn outlines some of the vital issues for parties that want to achieve Marketplace Banking success.
Go for technical flexibility
Very obvious, but therefore also a key requirement. Make sure you have the right technology to fully unlock the potential of the marketplace eco-system. You need to have a digital banking platform, that orchestrates processes and data between your channels, the marketplace eco-system and your own product systems. Your systems need to allow you to easily connect, but also disconnect and replace connections to other players in a marketplace environment. Agility is crucial to cope with the ever-changing demands of your clients and partners.
Mindset is the key
As a Marketplace Bank, you have to realise that you are effectively connecting customers to your competitors, but you are doing this because otherwise customers might go to the competition anyway, and it is preferable that they do it within your platform. This way you retain visibility of these clients and the possibility to provide them with additional services in the future. Making these decisions forces you to be realistic about your strengths and weaknesses. Which of these products are worth exposing to the wider market and which products do you want to use from other parties?
Marketplace banking is not just for banks
The great thing about banks' open API is that non-banks can use banking services from Marketplace Banks. This is especially interesting for parties that have large communities and can be a distributor of financial services towards this community. Marketplace Banking is also interesting for companies looking to provide non-transactional services that are related to banking services. A great example of this is the pocket money app Otly, which uses API from the Dutch challenger bank Bunq to trigger real transactions when giving pocket money to your kids. Before connecting to Bunq, Otly was acting in a closed circuit between parents and kids, but now there’s real money transferred when receiving or spending.
Focus on your strength
There are many different roles in a Marketplace Banking environment. As a traditional bank you will have to consider whether your strength is in products or distribution. Some banks are fully focused on products and have a very efficient environment that easily allows them to provide these products to others. If distribution is not your strength, you might want to focus on just providing product services to others. Marketplace Banking also opens opportunities for new players that we refer to as Financial Distribution Platforms. These are parties that focus exclusively on client engagement and satisfaction without having their own financial services products. They will connect to the product players outlined above.
Rethink your business model
When providing your banking services to external parties, you need to have a clear view on the business model behind it. You might act as just a ‘product factory’ for clients of another party. In that case, how much is client onboarding worth? Should you provide them with a one-time fee or a percentage of your profit from each client? Depending on your role in the marketplace eco-system you can also consider models that are based on non-traditional revenue streams, such as pay-per-API-call.
To learn more on how to become a Marketplace Bank read our whitepaper.