Banks as platforms

Zac Townsend‘s post on how Standard Treasury aims to turn banks into platforms is intriguing. There’s certainly no lack of ambition in his goal. But I do wonder if he’s setting himself to tilt against the very nature of both banks and platforms. One of the key phrases in Zac’s post is: “allowing developers to think of banks as platforms”. I’ll just unpack that a little. First, platforms, as explicated in Evans & Hagiu’s excellent Invisible Engines. Platforms are multi-sided markets. One side pays for access to the revenue generating customers that an effective platform aggregates by offering free or cheap access. For example, in gaming, game devs pay licenses to platform (console) owners so they can sell to gamers. The console manufactures sell consoles at or even below cost. In financial trading clients pay Bloomberg for access to information & liquidity, and dealers get access to the platform without paying fees to Bloomberg. Famously, Google and Facebook offer services free to consumers to enable them to sell to advertisers. So if banks are going to spend a load of cash adopting Standard Treasury tech so they can become more like real software platforms, who is going to pay?

Let’s bear in mind that banks are already liquidity platforms. They charge fees for access to the liquidity they provide by aggregating client capital. They disguise fees by making some things “free”, and charging for others when they cross sell. If you attempt to commoditise or aggregate by means of a software platform, they lose the cross sell, and so the margins. They will certainly resist that prospect. So, any software platform that integrates banks with with software services needs to offer the prospect of more margin in existing deal flow, or new deal flow to justify the cost of adoption. Judging by Zac’s post, it looks as if he thinks the new deal flow would come from the underbanked via mobile apps. Will that deal flow justify the cost of implementing Standard Treasury tech? I’m sceptical…

Standard Treasury should also be considering the cost of decommissioning those expensive legacy systems. In banking old and new systems tend to run in parallel until all stakeholders are confident that the new systems supports all legacy system functionality. So new tech that promises cost savings tends to cause a cost spike until the old system really has been put to bed. And, believe me, that can be a lengthy and painful process! I have first hand experience of systems that have resisted retirement for decades…