Driving Growth: How Platform Models Fuel Ecosystem Innovation in Financial Institutions

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The Consumer Financial Protection Bureau’s (CFPB) proposed 1033 rule (which, according to American Banker, received over 11,000 comments before the December 2023 feedback deadline) requires financial institutions to share bank account transaction data with fintechs at a customer's request. This requirement would allow financial institution customers to share their banking data with third parties and give consumers control over their financial data by restricting the data companies can collect, retain and sell. The rule also provides consumers the opportunity to know who has their data and how it is used. This rule creates new possibilities for Open Banking in the US, and it’s a good thing.

Open Banking is not new to the global community. The EU and many LatAm countries, especially Brazil, have already incorporated open finance into banking, insurance and payments. In the US, big banks are moving at full speed and small to mid-sized community banks and credit unions are taking baby steps to incorporate safe, agile, open options for their customers.

Embracing this form of finance requires some knowledge, so first, let's understand the basics of Open Banking. Next, we'll consider its hidden opportunities, especially for community banks and credit unions in the United States, and look at success stories from other countries. Finally, we'll look at predictions for Open Banking in the US in 2024 and why it should matIn the dynamic business landscape, ecosystems have become a pivotal force, reshaping industries and paving the way for innovative business models. But what exactly is a business ecosystem, and how can companies - especially financial institutions traditionally reliant on legacy data - leverage ecosystems to drive growth and innovation?

When discussing business ecosystems, we are exploring the concept of enabling a platform business model. At Sensedia, we define ecosystems as the foundation for a platform business, drawing parallels with renowned entities like Amazon and Netflix. These businesses operate as ecosystems characterized by numerous partners, marketplaces, and intricate complexities that seamlessly translate into a simplified experience for the end consumer.

According to the research and advisory firm Gartner®, “Fintech partnerships are a very potent means for financial services leaders to modernize their infrastructure and deliver cutting-edge products and services.” In its report titled How Financial Services Firms Can Effectively Partner With Fintechs, Gartner states, "Given the constraints that many leaders now face, fintech partnerships are an attractive option to consider. Such partnerships enable leaders to outsource efforts relating to innovation and technology to third parties in a potentially cost-effective manner."

It's exciting to witness traditional industries, such as banks, credit unions and insurance companies, recognizing the potential to adopt a platform business approach. This approach is not merely about technology; it's about empowering partnerships that lead to the creation of products and services that foster loyalty and grow ROI.

The impact of ecosystems extends beyond pleasing consumers. Business ecosystems ignite innovation, creating connections that invite new ideas and solutions. For example, MAG Insurance, a division of Aegon, successfully built an ecosystem of partners that allows the company to deliver new products and services through these partnerships that wouldn't have been possible through MAG alone. By building a user-friendly portal to create a seamless digital sales model, the company meets the needs of both technical and business users - a big win for customer relationships and ROI.

We are witnessing a shift in the US as more companies explore collaboration with FinTech, InsurTech, EdTech, and other cross-tech domains. These companies are leveraging embedded technologies and robust API management platforms, coupled with powerful developer portals. This combination opens avenues for new business models, products and services. And it sustains technological infrastructure, enabling companies to embrace scalable platform strategies that can grow over time.

The shift toward platform businesses doesn't have to be monumental. Companies can take a phased approach, beginning with modernizing legacy applications and environments. Building new applications on top of APIs, a solution that doesn't require an entire overhaul of legacy systems, is a smart move that empowers developers and customers to engage with platforms seamlessly.

Platform businesses are a lot like building shapes with Legos. Implementation involves connecting diverse technologies, systems, data consumers, and partners. As companies scale the platform over time, they better ensure complete data privacy, security, and governance.

The shift to transition to platform businesses is gaining momentum. The platform approach offers the fastest way to grow and innovate without being bogged down by internal constraints or legacy issues that impede progress.

Looking ahead, Sensedia and our clients are gearing up for exciting developments in integration. We're focused on making integrations more accessible and less complex, with a keen eye on multi-gateways for APIs. Easier integrations seamlessly connect to platforms like AWS through a Sensedia multi-gateway and standalone development portal, enhancing the usefulness and scalability of existing systems.

As companies embrace ecosystems, the future promises a seamless blend of growth, innovation, and sustained success in the ever-evolving business ecosystem.

The landscape of platform businesses and embedded technologies continues to expand. Sensedia is poised to bring our years of experience to the US market, accelerating the transformation of businesses into platform powerhouses faster than ever imagined.

Gartner, How Financial Services Firms Can Effectively Partner With Fintechs, 16 August 2022.

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