The last year has brought many changes, including the large and rapid shift towards digital which has also seen banks accelerate their transition to the cloud. This shift has been a good thing, as the cloud has many benefits – from lower total cost of ownership to easier access to innovation that will help banks provide superior customer experiences, not to mention the added bonus of all security and infrastructure management being managed by the cloud provider.

Perhaps most importantly, the cloud prepares banks for the future. Banks based on the cloud can more easily connect to third party platforms through open APIs, enabling them to tap the expertise fintechs and opening up a world of new opportunities. This has never been more important as banks of all sizes compete for the attention of increasingly digitally savvy customers.

How to approach transformation?

Even before the pandemic, banks were already facing fierce, increasing competition from non-bank players such as fintechs, big techs and other third parties. Add to this the acceleration towards digital caused by the pandemic, and we have an environment for banking that necessitates a solid strategy for digital transformation.

One way some large banks are opening the door to the future is by building their own platforms to facilitate Banking-as-a-Service (Baas). This approach sees banks opening up to give third parties access to data via APIs, which enables the development of innovative new products and services that they can also leverage. But the challenge for any bank in building a proprietary platform is made more complex by the need to ensure integration and interoperability with existing legacy systems, while also simultaneously creating a more flexible DevOps based architecture. This is both expensive and time consuming.

Fortunately for banks that want to avoid this level of investment, it is possible to connect to existing third-party platforms such as Finastra’s FusionFabric.cloud. Finastra’s platform for innovation frees banks from the burden of managing and running the platform themselves – allowing them to focus on what really matters: delivering a great banking experience to customers.

FusionFabric.cloud connects banks and fintechs in a way which benefits everyone. Fintechs gain access to a huge market, whilst banks are able to access and deploy innovative apps from fintechs that have been tested and, in many cases, pre-integrated with the core banking systems they are already using. This enables faster implementation, meaning banks can respond to demand and offer reliable new services more quickly.

Thanks that embrace the platform approach and open up to third party collaboration through BaaS also open the door to another exciting business model, embedded banking. Whereas traditional banking involves a customer seeking out a bank to interact with its services, embedded banking involves a non-bank player, such as a ride-sharing operator or online retailer, embedding financial services directly into their customer journey. This means a customer buying a car through an app, for instance, could apply for finance with the app, smoothing out the process by providing the necessary financial service when and where the customer needs it. This area is exciting because it offers the potential for banks to reach new audiences and achieve scale, without the investment normally required to acquire new customers.

The level of competition for customers’ attention has never been higher. Incumbent banks are now having to fend off competition from neobanks, and the industry is seeing more and more non-bank entrants taking market share in specific areas such as payments and lending. It is therefore imperative that banks adopt a platform-based approach to maximise the opportunities available to them.

To explore this topic in more detail Finastra has commissioned research with Aite Group on the Pathways to Competitive Advantage in the Era of Digital Transformation. We will also be sharing the key findings during a panel session, Accelerating through change – technology as a catalyst for open innovation, at Finastra Universe APAC on March 3 – register now to watch the session live at 12pm, or on-demand until April 2.