What does the future look like once we have a Fintech Platform?
The possible future of financial products and services for Users, Banks, and Developers.
In our last two articles, we've focused on unpacking the current state of affairs for financial technology. In Everything is Fintech, so now what? we discussed the modularization of financial infrastructure, the explosion of new fintech products, and the resulting complexity we have to deal with as consumers. We used Why haven't we arrived at the AWS Era for Fintech? as an opportunity to analyze the technical architecture of the Fintech ecosystem, with Cloud Computing as the foil, to identify what key elements we still need to build.
While everything is becoming Fintech but we don't have a true Fintech platform yet, what happens when we do? More specifically:
- Who benefits from a Fintech Platform?
- What does the future look like for each of those stakeholders?
- How do we get there?
This article explores that possible future as we see it, with a Fintech platform in place. By the way, that future is almost here!
A platform facilitates the exchanges between two or more independent parties. For financial platforms, who are they? In its simplest form, a Fintech Platform includes:
- One party who uses Fintech products
- A second party who builds the Tech for those products
- A third party who provides the core Financial elements for the banking system to function
Users: Consumers and Businesses who utilize financial products and services through the platform – includes at-large individuals, small businesses, and large enterprises
Banks: Defined broadly as the providers of financial products and services themselves – includes traditional banks who hold deposits, neobanks, vertical banks, and companies that offer applications that interact with your finances
Developers: Builders of financial products and services, or the infrastructure that supports them - includes engineering and product talent at-large, within startups, or in-house at Banks
Mapping these stakeholders to the technology stack today, each exists at a specific layer. Users at the top layer in this diagram, Banks at the foundational layer, and Developers in between. Existing in this stack, layers communicate with adjacent layers. Consumers use Fintech Apps built by Developers who integrate with the lower layers such as Infrastructure, which is itself built by Developers, and the financial products provided by Banks.
The evolution of this stack has enabled the explosion of new apps and products for consumers and businesses alike. But note the chasm that Developers have to cross to engage the adjacent layers, and conversely the same that Banks have to cross! We are missing a layer that directly impacts those two stakeholders. Enter a Fintech Platform:
With this Fintech platform in place, the technology stack is complete such that: Developers can deal directly with the appropriate level of abstraction within the stack; Banks can flexibly engage various levels up the stack to Infrastructure or the Platform directly; Users get to use all of the improved and entirely new products that are created as a result. Conceptually this would make the stack architecturally complete, but what does that really mean for each stakeholder?
What does the future look like for me?
Having all of the technical pieces in place and completing the technology stack, a radically new and better future should not only be possible, but plausible. And for that platform to succeed, it needs to empower all stakeholders that participate in it.
So what does this platform mean for me if I am a stakeholder? How does this change the job I want to be done? How do I benefit?
Here are specific examples of that future that get us the most excited (written in the voice of each stakeholder):
As a User, I have a ton of options for which financial product, service, or app to use for my finances. Signing up for a new online savings account is as easy as ever. There are hundreds of finance apps in the App Store to choose from. I can link apps and subscriptions to autopay from my checking account and make a purchase from Instagram in a couple of clicks. If I were to map all of the accounts I have and how my money moves around, it might look like this:
But my "financial graph" is complex and my accounts don't work well together, especially when they are at different Banks. As a system, I don't have a good way to manage it all. Presently, if I sign up for a new account with Marcus, I have to set up any transfers or integrations with my other accounts individually and manually.
In the future, I can connect my new account just once to the platform and start to use it instantly with any function the platform offers. I have increased liquidity for sending money to the specific accounts I want and I can now more effectively manage all of my accounts in concert.
As a User, I can now use any account at whichever Bank I prefer and apply all of the capabilities for monitoring balances or transferring funds that the platform offers. I can leverage the platform’s routing logic to route my cash to the best place. My money is safe but I can more effectively deploy it so that it can grow or be used most efficiently.
Consequently, the platform grows as the network of accounts connected to it expands. And it becomes smarter and more efficient for the User as more data and funds flow through it.
As a Bank, we operate within the broader financial system and we have both the regulatory capture and infrastructure in place to provide financial products and services. We have capital on our balance sheet and the staff and systems in place to manage the accounts that our Users have with us.
'Citigroup is very conscious around not being the dumb utility,' Citigroup’s chief executive, Michael Corbat, said at an industry event late last year, speaking of its new partnership with Google on consumer checking accounts. He said the company is intent on 'not giving away unconsciously the client-customer ownership that’s there.'
Presently, we have to keep up with the technology expectations of our Users. With all of the new Fintech products emerging, those goalposts continue to move. We have to build the majority of our technology in-house, maintain our regulatory position, and provide attractive banking products and services – all at the same time.
In the future, we won't have to build and maintain all of the technology to facilitate the movement of money ourselves. Our Users can use the traditional transfer options we build, or through the platform, our Users can automatically send funds to their account that we maintain. Our Users can connect their other accounts to us through the platform, and the platform routes the money to our Users’ accounts.
As a bank, we can focus on the bank products such that we attract deposits, and a larger portion of them because of the increased efficiency the platform enables, while outsourcing the technical and risk overhead back to the platform. As a result, we can maintain the direct relationship with our Users, establish a closer connection to the broader financial graph of our Users, and increase the ratio of revenue to cost of capital.
Consequently, the platform increases the value of connection for Banks as more of their Users facilitate transfers onto their balance sheets, while reducing deposit churn to external white-labeled accounts.
As a Developer, I have more APIs and Infrastructure-as-a-Service options than ever before. I can build products and services that I couldn't before, but it is still a painful process. There may be months of work just to check the boxes with the compliance or business development team at my Bank partner or with my IaaS integration before I can even start developing.
A big hurdle to (the proliferation of Vertical Banks) today is that the banking-as-a-service platforms that exist are so intensive to integrate with, that for most companies..., it’s still too expensive to run this experiment; they can't even get a prototype up during a hack week because they need a whole BD team to go negotiate with most BAAS platforms prior to issuing an instrument.
Presently, I have to manage this part of the process for each of the individual APIs or Banks with which my product interfaces. If I am building a product that includes a white-labeled account like a debit card or checking account, I not only do I have to manage the upfront cost but also the commitments I make to set up the program with my partner makes my business model and integration difficult to change over time.
In the future, I can integrate with the platform and I now have the choice as to how closely to integrate with Bank or IaaS partners. Because of the abstracted elements and virtualized systems on the platform, in the same way that I can with AWS, I can spin up a storage service (Amazon S3) or compute instance (Amazon EC2) in minutes.
As a developer, I can access the functionality of the platform, specifically Storage and Compute, at a cost that is an order of magnitude cheaper. Without all the business development legwork, I can start building immediately (and that's what I love to do!). I can launch a prototype interfacing with my User's bank account but without necessarily even having to move money in or out of my User's existing bank account.
Consequently, the platform embeds power laws into its growth, scaling with Developers as they succeed. And the platform elements get even cheaper for Developers in turn.
How do we get there?
The above examples are few in number but show how the job-to-be-done for each stakeholder is achieved and more. But what needs to happen for that Fintech platform to really empower Users, Banks, and Developers? Using the evolution of AWS again as a guide, we believe we need three key developments:
1. Build the technical elements
There are missing core technical elements, or "primitives", that are still needed in order for a platform layer to even exist within the technical stack. As an ecosystem, we have good modularization of services, but we still need better abstracted elements and virtualized systems. In the language of AWS, that's Storage (S3) and Compute (EC2). For Fintech the equivalent is Virtualized Accounts and Routines that respectively store partitioned funds and logically execute flows of funds. Additionally, any integration with and the deployment of these primitives need to be as easy as possible for both Banks and Developers. AWS shines in the ease of onboarding and set up.
2. Achieve operational excellence and scalability
Mapping, interfacing with, and automating the financial network is a tough technical challenge. If the platform that enables all the benefits above is to come to fruition, it needs to operate universally, programmatically, and automatically across all configurations of the financial graph and it needs to scale effectively. For Fintech, that also includes regulation and compliance – Know Your Customer, Anti-Money Laundering, Fraud Prevention, and Risk Mitigation must be foundational to functionality. A platform that interfaces with Banks and IaaS providers, and exposes functionality to Developers can only succeed with operational excellence. AWS had Amazon.com as both a sandbox for testing and a first and best client to push its technology.
3. Demonstrate alignment and increased value over time for each stakeholder
A platform needs buy-in from all stakeholders, and over time should demonstrate increased value to each in a win-win-win scenario. Users being able to bank where they want and manage all of their finances in concert, Banks being able to keep the relationship they have with their Users while also growing revenue, and Developers being able to build quickly and cheaply with added experimentation would be just some of the demonstrable effects of a Fintech platform. If each stakeholder is provided a solution that meets their expectations for both the plain job-to-be-done and the reason they have that need in the first place, the win-win-win alignment should also equate to both alignment from a utility perspective and the increased value returned to each stakeholder.
Consider potential sets of customers who are being overserved for a particular aspect of a job-to-be-done that they have, while simultaneously being underserved for a higher-order aspect of that job: the reason why they have that need in the first place. It’s a potent mix: a set of customers who know what they want and don’t need to be educated about it, and who have a compelling and urgent reason to abandon their existing solution to adopt a new one beyond just price. This is an explosive combination.
At Astra, we are working hard to create this exact platform for financial technology. We have built the technical elements and are launching more week-by-week. The Astra mobile app is our first and best client, forging the robustness of our infrastructure as we scale through accelerating growth while we develop our own operational excellence. And as our platform evolves, we are developing stronger relationships with our current partners and looking to work more closely with all Users, Banks, and Developers.
The future of Fintech is bright. A Fintech platform will empower a whole range of new and innovative financial products and services. And that platform will be powered by Astra!