Platform economy takes centre stage in Africa’s banking sector
The platform economy in Africa has gained further relevance amid the COVID-19 crisis, enabling banks to offer innovative products and services in an era of converged industries and increasing competition.
This is according to a research report, The Power of the Platform Economy for Financial Services, compiled by platform economy expert Sangeet Paul Choudary, in collaboration with Standard Bank.
The report looks at the fast-growing platform economy, in which value-creating interactions are facilitated by digital intermediaries. It unpacks the new opportunities presented by the platform economy for financial services institutions, helping them tap into non-traditional revenue streams, while meeting customer needs.
Banks are aggressively repositioning their business models for a platform-based economy by supplementing their products and services with those of third-party service providers, in an effort to strengthen their value proposition.
As financial products become increasingly commoditised, this approach provides banks, investment firms and insurers with an opportunity to re-establish their customer relationships, to offer clients a fully integrated host of non-financial products from third-party service providers.
According to the report, the COVID-19 crisis has given the platform economy an adrenalin shot in the arm, leading to the trend increasingly disrupting the financial services industry and the ecosystems that underpin it – in turn, shaping how financial products are distributed and how customers are served.
In the financial services industry, the increased adoption of contactless payments and online shopping creates such an opportunity, notes the report.
“There can be no doubt that the platform economy is here and changing the rules of the game. However, to succeed, it requires strong partnerships to be established at various levels of the value chain,” says Margaret Nienaber, chief executive of client solutions at Standard Bank Group.
“To get this right, we need to future-proof our workforce with hard skills such as data science and behavioural economics and capability, and therefore organisations must actively develop and partner to leverage the requisite skills to make the platform economy a success across Africa.”
The one-stop shop “platform-as-a-marketplace” service, accessed through the financial institutions’ banking interface, is highly dependent on how banks leverage data analytics to better understand each customer, notes the report.
There are already numerous examples of ecosystems curated by SA’s big-four banks. Nedbank, for example, introduced its marketplace, the Nedbank Avo super-app, on its digital platform to offer customers a range of online products and services, including online shopping and grocery orders, and a directory listing of home repair and services merchants.
Absa, First National Bank and Standard Bank also offer similar services on their apps through third-party partnerships.
To fully develop, Africa’s platform economy requires broad interventions, including the standardisation of identity management, continent-wide interoperability and the creation of single markets, and the development of non-traditional digital infrastructure, notes the report.
Banking on innovation
Given Africa’s large unbanked population, open banking enabled by emerging technologies could facilitate financial inclusion in a platform-based future, notes the report.
“The adoption of cloud and blockchain technologies, together with rapid improvements in artificial intelligence, is fundamentally reshaping the infrastructure of the financial services industry. In addition to market forces, regulatory forces are pushing the industry towards open banking.”
The report highlights four common types of strategies pursued by financial services firms in the platform economy:
- Transforming into a platform business to unlock new growth opportunities.
- Partnering with other incumbent firms to collectively meet the needs of clients.
- Developing capabilities that other platforms need that can be licensed as a service across ecosystems.
- Defending an existing value chain position and continuing to build scale as a product provider.
“The platform economy in financial services has been shaped by regulation and innovation in other markets across the world. In 2020, the pandemic initially stalled big-tech regulation, but 2021 is the year when regulation takes centre stage,” says Choudary.
“The platform economy’s rise is being powered by three key factors: technological and regulatory forces driving a shift in industry economics, market behaviours, and in infrastructural technologies.”