Plat formication of Banking: Incumbent Banks versus Challengers in the UK Presented by: Prof. Ozcan Date: 27 March 2020 Platforms Leverage Network Externalities - Network externalities (or network effects) (Katz and Shapiro, 1994) - Common in telecommunication networks (e.g. telephone, fax networks) - The value of the fax is subject to how many people have fax-machines! - Are incumbents and new born platforms on the same boat… • In building a platform? • In filling it with complementors? Research Questions - What opportunities and challenges do incumbents and new players experience in platform formation? - How do these influence their strategic choices around platform ownership and openness? THE STUDY - Data collection since Sept 2016 - Interviews with over 100 key stakeholders in the UK and EU: • Incumbents banks • Challenger banks • Fintechs • Plus various industry experts, regulators What Does Open Banking Mean For Banking? - - Incumbent (Bank) Platforms • Self-built platforms • Outsourced platforms New Entrant Platforms • Self built platforms Platform Formation and Openness - - Established Bank? • How do I build a platform? • Which complementors do I allow? Challenger? • How do I grow the platform? • How much do I offer myself? What Does This Mean For A Fintech Hoping To Sell Services To A Bank? - If you can't make it, buy it? • Two-sided platform connecting banks with FinTechs • Managed by the FinTech, but white-labelled Openness Of Platforms For Licensing - Platform w/o fintechs: Build Your Own • Helps incumbents to switch to platforms, higher control over data, but more difficult to do and danger of ending up w/ closed platform - Platform w/fintechs: • "Choose Category" Policy Helps incumbents to switch to platforms, but danger of ending up w/ closed platforms, and lower control over data - Platform w/fintechs: "All or Nothing" Policy • Great for large entrants from other industries Challenges For Challengers - Customer Acquisition - Is acquiring enough? Solutions - Change business model → from B2C to B2B - Turn it into a 3-sided platform - Grow internationally to reach critical mass Platform Openness (Supply-Side, I.E. Amount Of Competitive Content On The Platform) - - - - New Entrants Licensing Platforms (Amazon, Google?) • Trusted Brand • Fast Market Entry Fintech Start-Ups • Cheaper, more user- friendly services • Customer Trust Resources for Tech Intl Growth Incumbents w/ Outsourced Platforms • Trusted Brand Resources for Tech Intl and Reg Experience • Fast Offering Culture as Roadblock 'Closed' Platforms Incumbent Banks • Trusted Brand Resources for Tech Intl and Reg Experience • IT Silos Cultural Silos Reg. Unevenness Take-Aways - Turf wars between firms can keep platforms from emerging - Not only power struggles, but also IT structures & regulation can get in the way - Regulators can invite big tech platforms in while trying to energize incumbents