I’ve spent a lot of this week talking about marketplaces. We have a growing number of financial marketplaces appearing. Lending marketplaces, credit marketplaces, payments marketplaces and more. A marketplace is the bazaar. Market stall holders gather to meet with prospective clients, and the digital version of the marketplace is the focal point for many FinTech start-ups, as they can create stalls here that become major technology businesses like Stripe and Square. For the banks, they have to think different. Banks have the regulatory licence to be marketplace owners. They can create the spaces for the new players and start-ups to move in. As a marketplace owner, the bank does not provide all the products and does not run the stalls. It just owns the space where a stall holder offers their goods and services. They can charge a fee for the market stallholder to be in their space. It’s a good space to be.
Over time, as banks open source their operations to move to the microservices architecture, they will recognise that the primary opportunity today, thanks to their licence, is to create the FinTech marketplaces and own them. Lots of partners sell services in their market to the banks’ customers and, equally, the bank can sell lots of services to the market stallholders and their customers. It’s a win:win.
The thing is that hardly any banks see the world this way today. Most of the banks I meet are locked into internal structures that are proprietary and legacy. They want to keep it that way. They want their customers locked into an end-to-end delivery of mediocre digital services in a monolith structure. They want to lock out any third parties, most of who are not trusted even if the regulator says so.
These banks in this unimaginative camp are the ones who will fail. You cannot have a propriety, vertically integrated player in an open marketplace of platforms linked through APIs in a value exchange ecosystem. What it means is that the banks who offer marketplaces will attract many different players to operate in their space. The banks who try to lock out the third parties and play by themselves will do just that. They will just be playing with themselves. Over time, demand will naturally evolve to open markets based upon plug-and-play structures of interoperability. An old legacy proprietary player who does not offer platforms that work in open markets will wither and die.
Right now, there are few players in the open bazaar of financial marketplaces offering a level playing field of platforms and interoperability. I can name only a couple of banks, specifically PrivatBank and Saxo Bank. I can name more new entrant banks who are in this space, such as Fidor TecS and Solaris Bank. Then there are the FinTech start-ups moving into this area, such as Thought Machine and Leveris. These are all players who are building technology marketplaces to provide interoperable apps, analytics, APIs and more as platforms for both the bank and third parties who engage in their communities. They are different. They understand the orchestra and how to be a conductor.
Then I go to some of the more traditional institutions, and they huff and they puff and they frown and they sigh and they say: “this is not for us”. They have 1000s of developers and they want to keep their customers locked in to their legacy ways. Hmmmm ….
I go their management team and explain this idea and they throw me out. Their management team are bankers, trained in compliance and audit and risk and accounts. They can see that this idea will wipe out profitable product and revenue streams and give opportunity to others – third parties – to steal their customer relationships.
Then I huff and puff and frown and sigh and say: “does any of this bank’s management team have a clue about technology?”
“Yes”, someone usually pipes up. “I have an iPhone”. The management team laugh and I’m gently shown the exit.
I don’t care. It’s their loss. For a bank that has zero technology vision, has zero understanding of microservices architecture, has zero appetite for open sourcing and has zero knowledge of platforms and marketplaces has zero future.