On 21 September 2021, the European Banking Authority (EBA) published a Report on the use of digital platforms in the EU banking and payments sector with the objective to ensure both regulatory and supervisory framework are technology neutral.
Digital platform is defined in the report as ‘a technical infrastructure that enables at least one financial institution directly (or indirectly using a regulated or unregulated intermediary) to market to customers, and/or conclude with customers’ contracts for financial products and services’.
Are excluded from the scope of this definition, mobile banking apps or online banking tools, platforms used only by (and for) crowdfunding service providers and platforms used only by (and for) P2P lending.
The report provides an overview of the key types of platforms currently observed within the EU banking and payment sector, as well as the potential opportunities and risks.
5 types of platforms are currently observed within the EU banking and payments sector:
Comparators: platforms comparing products by multiple financial institutions
Platforms of financial institutions providing access to third-party product and services
Platforms providing non-financial product and services and with separate banking / payments services
Ecosystems: platforms acting as a single point of entry for a plurality of third-party providers of financial and non-financial services/products
Enablers: platforms operated by large technology companies which offer digital wallet and payment services
The potential opportunities identified by financial institutions and technology companies include:
Customer ‘search for convenience’ that drives the trend toward platformisation
Greater proximity to existing and new customers and the ability to leverage network effects
Leveraging digital platforms to enhance the customer relationship by, for example, facilitating ‘real-time’ 24/7 online service access
Supporting wider shifts in financial institutions’ business strategies and enabling business model transformation
Supporting efficiency of the financial system
Enhancing efficiencies, consistencies and quality of identification and verification processes, mainly at the onboarding stage, through increased automation
Facilitating the identification of products and services based on customer needs, for instance through customer-activated or algorithmic preferencing
Promoting financial inclusion, for example by ‘de-formalising’ the customer’s engagement with an institution
Some challenges identified by these stakeholders relates to (a) customer preferences (some customers prefer in-branch vs telephone banking, customer perceptions about data security and privacy as issues…); (b) cost, talent and access issues (e.g., ‘make vs buy’ dilemma (regarding platform infrastructure); (c) new forms of risk (e.g., reputational and conduct of business risk arising from dependencies on third-party platforms); and (d) regulatory and supervisory challenges (e.g., governance and remuneration rules).