To keep their competitive edge, banks and wealth managers require efficient ways to operate and increasingly turn to SaaS or BPaaS providers offering cloud-based solutions to implement rapid business model shifts. Many are moving to a platform model of operation, and are adopting cloud-based services to achieve their aims.
When competing in today’s platform based economy, banks and wealth managers need to establish a leading position quickly. The challenge is to deliver the expectations of socially connected consumers, by having an agile banking platform that quickly integrates with new groups of service partners, fintechs and 3rd party providers. This often takes banks well beyond their traditional boundaries and areas of expertise.
Banks and wealth managers also need to take a hard look at their business models, especially regarding their management of operations. Most financial institutions will have to boost their cost-income ratios considerably to remain competitive in the modern digital era. Achieving such a financial goal does not typically mean doing the same things better, but it instead requires a substantial rethink of the way banking and wealth management business models are presently structured.
Many banks and wealth managers have also noted that the effort involved in managing back-office operations and IT ties up a personnel and keeps their managers from pursuing more valuable business opportunities. One way to move ahead is to focus heavily on providing excellent front-office services to satisfy their customers. To achieve this banks and wealth managers are taking advantage of recent innovations in cloud banking and automating their business processes.
The rise of platform banking
A platform-based business model has become increasingly popular within the digital economy, and the idea has started to reach the banking and wealth management sector. Clearly, a flexible and open service strategy requires a similarly flexible and open technology platform to support it.
The fullfillment of such a platform driven strategy could be tackled in many ways. Four basic strategies for adopting an open platform could be considered. These are:
Proprietary platforms – a bank or wealth manager creates their own dedicated platform for their own use, with selected fintechs and services.
Licensed platforms – a bank or wealth manager creates their own platform, and licences it to be developed or used by other banks, fintechs or services.
Joint venture platforms – a small number of banks or wealth managers create one platform for use by themselves, again with only a selection of fintechs and services.
Shared platforms – an open platform used by multiple banks and wealth managers, fintechs and service providers.
While the first may provide the appeal of control, only the later provides the flexibility and openess required to truly connect into the digital economy - with the added advantage of cost sharing and service provision from a wide range of providers. Platform banking is rapidly becoming the defacto strategy for the next generation of banks and wealth managers, triggered by the digitisation of consumer interaction and the incursion of new digital-native banking entrants.
Business Process as a Service
In the midst of this platformification of the financial industry, many banks and wealth managers are turning to external providers that offer Business Process as a Service (BPaaS) and Software as a Service (SaaS) cloud-based solutions, to achieve their platform objectives. These solutions typically help banks improve efficiency and service reliability levels by their use of automation and high volume process improvement techniques.
What defines a Business Process as a Service in the banking sector?
First of all, a business process is a step taken activity performed to deliver products or services to customers. Banks have a variety of financial products and services they provide, and each of these has a set of associated business processes (for example, executing and settling an equity order).
A Business Process as a Service (BPaaS) refers to a business process delivered using a cloud service model. Cloud services involve storing and accessing information, software and resources via an on-demand network of shared computing power, instead of a dedicated computer centre. Such cloud services can also include:
Software as a Service (SaaS) - provides applications made available to customers via online internet technology
Platform as a Service (PaaS) - provides software and tools needed for application management, development and deployment
Infrastructure as a Service (IaaS) - provides virtualised computing resources online to host and manage platforms and applications
Characteristics of a good BPaaS
A good Business Process as a Service or BPaaS typically has a number of desirable features that banking IT professionals and managers need to be aware of when considering implementing such a solution in their business. These BPaaS features include:
Founded on other cloud services, such as SaaS, PaaS, and IaaS.
Can usually be configured to conform to a bank’s internal preferences.
Has well-defined APIs to connect to related services.
Can support multiple localisation and utilisation situations - businesses do not always know how they will develop in future.
Very scalable and elastic so that its use can be expanded without limits.
BPaaS banking and wealth management
Few banks or wealth managers are in a position today to invest in developing and managing proprietary systems required to run their back-office operations and, at the same time, compete for client business in their front office.
To stay competitive, banks and wealth managers require faster ways to overcome their competitive challenges, so they often enlist SaaS or BPaas providers. These help them deliver the operational excellence they need quickly by using out-of-the-box software and services to run their core banking operations.
Such platforms can also benefit a bank’s front office by providing integrated digital technology, that deliver a seamless end-to-end experience to customers. They make use of industry standard open application programming interfaces or APIs, which can also allow a bank to control its data and interfaces - connecting it into new ecosystems of apps.
By outsourcing their back-office functions using a top-to-bottom platform solution, banks and wealth managers can keep their competitive edge in today’s digital era and can participate successfully in the data driven platform economy of tomorrow.
Written by Mark Shields
Mark has over 20 year's of experience working with financial technology across the banking, asset management and capital market sectors. He regular writes content for Avaloq's global community of banks and wealth managers, covering technology trends and innovations, to provide insight and provoke new ideas.