Introduction
Traditionally, banks have attracted all kinds of consumers, and acted as consumer magnet, but remained the provider of these services themselves. An upcoming trend is the rise of the Banking-as-a-Platform (BaaP) business model (Hamerlinck, 2015). In this business model, participants can engage with each other in a ‘Plug-and-Play’ way and collectively create value. A variety of service providers can each fulfill differentiated needs of individual consumers.
Banks should change their business model because their traditional way of doing business is eroding (Shevlin, 2016). Interest rates are historically low, consumer confidence in banks has declined and banks have been forced to fire employees and close physical banks, which also has its effect on customer satisfaction.
We compared ‘traditional’ business models of banks with Banking-as-a-Platform in four sections; 1) two-sided markets, 2) ‘network value versus privacy concerns dilemma’, 3) interoperability with established rival platforms and 4) how they deal with online banking.
‘Traditional’ banks
The bank industry is a two-sided market with deposited savings and issued loans. It has same-side effects, because when for instance the number of end-users, who are saving money grows, a higher amount will be available for other end-users to lend. The network value grows with the bank as an intermediary with the presence of a cross-sided market. The growing network does not distress the users with privacy concerns.
Traditional banks in the Dutch market are interoperable with each other and most business models before 2015 have chosen not to develop a cooperative structure within their business model.
Currently, most users are dissatisfied about the way banks deals with online banking. User friendliness is low because of the costliness of the use of internet banking (Consumentenbond, 2015).
Banking-as-a-Platform (BaaP)
Banking-as-a-platform is a two-sided market with cross-side benefits for end-users and supply-side users. When there are more end-users there will be a greater incentive for supply-side users to create applications. BaaP should set up a safe environment where privacy will be protected before they can create value as a platform, this is a costly operation.
Another weakness of BaaP’s is the need for an infrastructure to other BaaP’s so the end-user can transfer money. All services from a BaaP are provided through the internet, which makes a BaaP more flexible and agile. Another strength of a BaaP are the low operational costs, because there is almost no need for a physical location.
Analysis
When comparing these two banking business models, we notice three important things.
First, a traditional banking model has a high networking value versus low privacy concerns. BaaP model had both high networking value and high privacy concerns. BaaPs have to create a low cost privacy network to turn their weakness into a strength. Second, traditional banks have problems with user friendliness and customer satisfaction. To cover the gap with BaaP’s they have to invest in internet banking. Finally, BaaP’s don’t bear the cost of a physical location and therefore the operational costs are significantly lower than the costs of a traditional bank.
Group 61- Video: https://www.youtube.com/watch?v=5GWOiobDpZY
References
- Brear & Bouvier (2016) ‘Exploring Banking as a Platform (BaaP) Model’ The Financial Brand, 4 March 2016
- Consumentenbond (2015) ‘Bankenmonitor’ Retrieved on 19 September 2016 from https://www.consumentenbond.nl/betaalrekening/bankenmonitor
- Hamerlinck, L. (2015) ‘Bank as a Platform: voorbij PSD2’ ABN AMRO, 22 October 2015
- Shevlin, R. (2016) ‘The Platformification of Banking’ The Financial Brand, 19 July 2016
