Digital Banks – Providing Banking Platform as Service
Blog: End to End BPM
During the course of last two weeks, I was involved with a series of workshops with the IT department of a bank that operates in more than 30 countries. The workshops objective was to define a digital banking transformation roadmap.
During many years, for those that are involved in BPM projects have discussed the meaning of what is the definition of end-to end processes. One of the classic examples in the banking industry is when the account opening process ends. It ends when the account number is created or it ends when all the channels which the customer can consume financial services and execute operations are available and operative?
Today, opening a bank account trough a friction-less process is not a common desire. The wish of any customer that belong to retail banking is how it can construct the Bank of Me, how it can incorporate using the bank mobile app making transactions with 3rd parties, like a youngster paying the school fees, do social banking (transfers, borrowing from Facebook friends). Corporate banking, oriented to trading operations, which to integrate supply chain operations between, customers, suppliers, road haulage companies, combining the flow of documents, status of merchandise movement and money transfers.
Five years ago, under the new e-CMR regulation, there was the possibility in road freight to eliminate the famous paper based system (that still exists) and exchange information digitally between all the involved stakeholders – buyer, seller, transport company and banks [1]. The CMR is a document that underpins the legal transport contract between a seller, a transport company and a buyer. It ensures the goods were shipped and received accordingly, on which banks rely to wire the money between the involved trading parties. Without such a document, financial transactions are halted, supply chain document reconciliation is blocked, as well as financial close activities. Now, that piece of document travels physically in the truck. Some long haul trucks return to logistics head quarters every 15 days – because they need to optimise cargo utilisation, a key KPI for business viability – this means only when the physical CMR arrives to the logistics back office, payment processes between buyer and seller can start (digital copies are ignored, due fraud and contractual implications between the parties involved). In such kind of transactions there is room for optimisation and automation, but unless companies do not embrace the concept of open systems architecture is very unlikely that operations will suffer from the tangled syndrome.
The era of Open Socio-technical Systems
Fred Emery defined and evolved the concept [2] and defined such kind of systems as:
“Is a purposeful system composed of an interrelated social component (people, culture, norms,) and technical component (technology, tools, materials) which is embedded in a greater context, an environment, which the system is influenced by and also influences.”
Later, Merrelyn Emery [3] evolved the concept to “Socioecological” means:
“people-in-environments,” which is expressed by the concept of the open system […] expresses the transaction of system and environment, all components of which are governed by laws which are able to be known. “
Gartner [4] defines in the Magic Quadrant for Enterprise Integration Platform as a Service:
“integration platform as a service (iPaaS) is a cloud service that provides a platform to support application, data and process integration projects, usually involving a combination of cloud-based applications and data sources, APIs [5] and on-premises systems”.
Gartner single focus in the technical platform enablement plays the de-stratification of the Open Socio-technical Systems that goes against experimentation, multiplicity and intense social human interaction and important component of Open systems. When designing IT strategy, the peril for the CIO and the IT teams is to overdose the enterprise with integration technology and superpower the enterprise service bus, over-dosing on too much de-stratification decoupled from the new business models and human relationship management of digital banking.
Providing Banking Platform as Service
Exposing the Banking Platform As a Service – BPAaS, allows banking services to talk to other services. In this sense, leveraging on API allows you to open up data and functionality to other developers, to other businesses or even between departments and locations within the bank. It is increasingly the way in which banks exchange data, services and complex resources, both internally, externally with partners, and openly with the public.
BPAaS, can provide a common root so that transactions can flow from wherever they originate: mobile apps, integrations with clients, the client’s website or physical devices. All mapped into a strong ecosystems of partners that repurpose, resell and re-bundle assets to reach new customer segments – like the millennials – that the bank could never have reached alone.
Imagine for example, you want to offer a mortgage service coming from a real estate website or you want to open the possibility to customers subscribe financial products from 3rd party, like Brokers or the case were the bank can outsource loan services to partners keeping costs low. Providing the banking platform allows customers and partners to integrate them as a self-service adapted to their particular needs or bringing the reality of the Bank of Me.
Regulation want banks to embrace open ecosystems
The UK regulator, issued a report [6] that sates in the remedies section:
“mobile banking tools have been rapidly adopted, and a growing financial technology (‘FinTech’) sector is developing and applying new tools. Application programming interfaces (APIs) will allow publicly available data and customers’ own data to be shared with trusted third parties, and ‘open standard’ APIs can be particularly powerful (with necessary safeguards for security and privacy) in opening up new customer information and advice services.”
CMA states clearly about the importance of:
“development and implementation of an open API banking standard has the greatest potential to transform competition in retail banking markets […] by making it much easier for both personal customers and SMEs to compare what is offered by different banks and by paving the way to the development of new business models offering innovative services to customers.[…] APIs may also be used, with the customer’s informed consent, to share securely their transaction history to enable access to tailored current account comparisons and other services.”
As I pointed before in this post, banks can offer for example, in the retail segment, custom services like automated financial management based on your spending patterns, risk appetite and the phase of your personal life – before entering into labour market, in labour market, retirement – this is just a matter how soon banks want to enter in this new kind of business models before they are expelled from the market.
From a strategic point of view, some banks consider the remedy with a very strong dose or as a threat to their outdated business models. In my experience dealing with CIO’s and CEO’s from different banks is clear that the younger generations are much more prepared or already sparked business model transformation and look to this more as an opportunity. The generational gap – a self-acquired soft skill – can play a key role how the organisation perceives the way forward.
References:
[1] Unfortunately, due protective measures related with entry in force of the regulation, most countries in European Union delayed the application of the new regulation, meaning that a cargo travelling from Portugal to Germany will only benefit from the electronic act when enters in Germany, meaning that all way down the road the paper document should exist to present to customs and other government authorities. In other terms, the digitalisation of the process is impracticable, an outcome that is still a reality.
[2] Magic Quadrant for Enterprise Integration Platform as a Service, Worldwide, 2016. […] “Integration PaaS delivers some combination of the capabilities typically found in enterprise service buses, data integration tools, B2B gateways, managed file transfer products and API management platforms. IT departments, line-of-business developers, mobile application development teams, application teams and even business users (aka “citizen integrators”) leverage these capabilities to develop, execute and manage integration interfaces (or “integration flows”).”
[3] Emery, Fred E. “Characteristics of socio-technical systems”, in Design of Jobs: selected readings, Davis, L. E. And Taylor, J.C. (Eds.), Penguin Books, ASIN: B013KQY62S
[4] Merrelyn Emery “The current version of Emery’s Open System Theory” Systemic Practice and Action Research.
[5] Application Programming Interface
[6] CMA – Retail banking market investigation. Summary of final report. August 2016
Filed under: API, BANKS, Complex Adaptive Systems, Cybernetics, Enterprise Architecture 
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