The Banking as a Platform Model: A Driving Force for Innovation and Collaboration

When you add the suffix “as a platform” to a term or concept, it implies that the subject in question can either be used as a foundation for creating new systems, services and applications or that it can be integrated with existing solutions — or both.

To put it differently, the expression “as a platform” pertains to a business model in which numerous organizations are not required to develop new products or services from the ground up but can instead build upon an already established IT infrastructure.

So, what happens when you add the phrase “as a platform” to the word “banking”? What does this hybrid signify? And — more importantly — why does it spark the interest of today’s banks and fintech companies?

Read more: What is branchless banking?

What is Banking as a Platform (BaaP)?

Banking as a platform means transforming banks into ecosystems that offer not only financial services but also products and applications from third-party providers. Banks create digital infrastructures that allow external entities like fintech companies to add their services, thereby enhancing customer experiences. This model promotes innovation, collaboration, and a broader range of services for customers.

To be more specific, in the “Banking as a Platform” model, banks create a modern digital finance transformation to which external parties such as fintech companies or non-banking organizations can contribute by adding their unique offerings and technological innovations. The “outsiders” can also build upon a bank’s IT infrastructure and deliver tailored experiences that are in line with the evolving needs of both their and the bank’s customers.

This concept signifies a big shift in the way banks operate, embracing openness, interoperability and collaboration to help create a dynamic business environment that benefits both the banking industry and its customers.

Read more: Cloud computing in banking 

Banking as a Platform – how does it work?

When a bank adopts the “Banking as a Platform” model, it intentionally develops a flexible IT infrastructure that enables third-party organizations to use and modify its existing systems and capabilities.

The key aspects of building such an environment are standardized interfaces and application programming interfaces (APIs) that ensure smooth communication and data exchange between different participants.

APIs offer advantages that are evident across a broad range of industries and serve as a crucial element in BaaP as they enable developers to build upon existing platforms and integrate their applications or services with other systems.

Read also: Practical Applications of Cloud Computing in Banking

Benefits of using such a solution

With the help of the services offered by Banking as a Platform providers, banks and other financial institutions can build a vast and interconnected network of customer experiences that set their brand apart from the competition.

The adoption of the Banking as a Platform model can also help reduce costs. This is achieved by transferring all maintenance responsibilities to a software development for financial services company, which relieves banks of the burden of managing the underlying technology. In other words, it means that banks can use the technology but they don’t need to worry about taking care of it.

Of course, all customer relationships are formed directly between a bank and its clients. The outside contributors, such as fintech companies, work diligently behind the scenes, providing a wide range of services that seamlessly integrate into the platform. Their expertise and innovative solutions contribute to the platform becoming more robust, dynamic and customer-centric.

And so, through close collaboration, financial institutions and their external partners can develop a digital banking platform that offers banking and non-banking services to a broad customer base. And that’s a win-win situation for all parties involved.

Read more: Banking software development

Banking as a Platform vs Banking as a Service — what’s the difference?

Although they are sometimes wrongfully treated as synonyms, Banking as a Platform and Banking as a Service (BaaS) are two distinct concepts within the financial industry. Both of them have gained significant attention in recent years but each refers to a different approach to delivering banking services. Understanding the difference between the two is crucial.

As explained earlier, Banking as a Platform involves creating a comprehensive digital infrastructure that enables organizations to offer their services through just one platform. The platform serves as a centralized hub where banks and fintech companies can integrate their services to give customers access to a wide range of banking and non-banking services through a single interface.

Meanwhile, Banking as a Service revolves around the provision of banking-related services by one financial institution to another, typically through an API. In this model, a bank with established infrastructure and regulatory compliance offers its services (e.g., payment processing, account management and compliance functionalities) to third-party entities. These entities can be, for example, ecommerce platforms, or even other banks.

Despite the differences between them, both models are aimed at fostering innovation, improving customer experiences and expanding the reach of banking services.

Banking as a Platform is not open banking

Another term that is sometimes mistaken for carrying the same meaning as Banking as a Platform is open banking, which again, as in the case of BaaS, is a completely different construct from BaaP.

Open banking empowers banks to share customer data with authorized third-party providers via standardized interfaces such as APIs. The reason behind this is that using APIs ensures secure data exchange between banks and external organizations such as fintech startups or other financial institutions.

As you can see, open banking is about emphasizing data transparency and empowering customers to share their information only with trusted third parties. Despite the use of APIs, open banking has nothing to do with Banking as a Platform and vice versa. Each of these concepts serves a different purpose — although implementing them together can probably lead to the best results.

Read also: AI in Banking: Trends, Examples, Benefits and Challenges

Examples worth knowing

If you open your banking app on your smartphone right now, you will probably see a few examples of platform banking there. How so? Take a look at these functionalities:

• Purchasing tickets for a bus, train or plane
• Making donations to charities
• Buying tickets for events (concerts, sports matches, etc.)
• Purchasing vouchers
• Paying taxes
• Starting a business
• Buying gift cards

Does any of the above look familiar? If so, know that it’s not common for banks to provide you with such services. Your bank is most probably collaborating with various third parties to offer you these extra functionalities.

As mentioned before, customers don’t know that there are other parties involved. As far as they are concerned, they are just using the bank’s mobile application — and this is exactly what makes the BaaP model so special: it turns banks into something greater than financial institutions. It enables them to become a brand that can help its customers in many ways — and that’s why they keep coming back.

Read more: Omnichannel banking

Finance taken to the next level

As a bank or financial institution, you can create new, exciting, never-before-seen customer experiences simply by adopting the Banking as a Platform model. By collaborating with fintech innovators, you can use their cutting-edge solutions to enhance your offerings and make your product portfolio one-of-a-kind. Many companies provide Banking as a Platform services these days — all it takes is to find the right partners for your organization. 

So, don’t miss out on the opportunity — embrace Banking as a Platform approach and position yourself as a leader in the digital age. To say that your customers will appreciate it would be an understatement.