The future belongs to platforms

If you look at the rapid growth of platforms over the last three years, one thing quickly becomes clear: the future belongs to the platforms. This is no longer a platitude, but an everyday occurrence, both in e-commerce (with e.g. Amazon, Zalando, Otto or Wayfair), in transportation (with e.g. Uber, Free Now or Flixbus), in services (such as Helpling, Fivver or MyHammer) but also in stationary trade (e.g. various shop-in-shop concepts) and even in financial services (see Check 24 or Deposit Solutions), platform-driven models are dominating more and more markets.

Although the growing number of platforms offers customers a high degree of diversity and choice, it also means that platform operators are facing increasingly fierce competition between providers. Dawanda, Allyouneed, GartenXXL, and Ciao, for example, were forced to close down between 2014 and 2019.

Financial services are growth drivers and anchor of stability

Financial services seem to be an essential way to make them more attractive for dealers and at the same time to retain them in the long term. For example, a platform can enable its dealers to grow by issuing loans, make life easier by taking care of accounting and tax returns or provide security by arranging insurance. At the same time, switching from one platform to another is much more difficult when vendors are in a real ecosystem through these offerings. What was previously just a sales channel is suddenly a large part of the whole business, on the revenue, cost and financing side.

We took a closer look at four examples from the ecommerce, transport and payment industries to see what a successful integration of financial services can look like with platforms:

  • Payment

    All successful e-commerce platforms already process payment for their merchants, but many are increasingly offering added value. For example, eBay is currently successively launching its payment solution in more and more countries, which also offers new payment methods and a uniform settlement with interim financing. Payment providers such as Stripe and Adyen have grown up through their marketplace solutions, and individual payment methods such as Ratepay or Paydirekt also have corresponding solutions.
Why platforms are already the better banks
  • financial solutions

    The BigTech Amazon in cooperation with the ING Bank recently ventured a first attempt. Since July, Amazon has been arranging loans from ING to selected Amazon sellers in a pilot phase. This involves loans between 10,000 and 750,000 euros with terms of up to three years.

Although these partnerships are still very rare, we see an increasing trend here – not least driven by FinTechs such as Banxware, which enables platforms and non-banks to offer financial products of all kinds to their customers.

  • Bank accounts and credit cards

While issuing credit cards (mostly with appropriately licensed partners) has long been an attractive source of revenue for end customers of many platforms in Germany and internationally, issuing to merchants is even rarer. Virtual accounts are often already managed by larger licensed platforms and can thus be relatively easily expanded into a value-added service.

  • Insurance

    In cooperation with the insurance company AXA, the transport company Uber offers its partners a so-called partner protection. In this way, Uber provides cover for licensed partner drivers against the costs of life-changing events.

    Four starting points for offering customers central added value as a platform with the help of integrated financial services and thus securing their competitive position in the market. Although the focus is on financial products, banks act as pure infrastructure and are completely invisible to the customer.

And the banks and FinTechs are then superfluous?

Financial services are particularly complex and represent a central challenge for the sales and marketing platforms. Competencies in regulatory and compliance matters as well as in many cases (especially in lending) high capital requirements are necessary.

“Competencies in regulatory and compliance and high capital requirements are necessary.”

While some platforms develop these skills in-house and establish their own financial subsidiaries, many also partner with corresponding open banks, insurance companies or FinTechs. Especially the latter often see themselves as intermediaries between high-tech platform companies and the no less complex banking world.

While embedded finance is already a common term in the USA and China, we are certain that the trend will conquer the German platform market in 2021!