The Power of Open Banking
Why the Future Belongs to Platforms

An increasing number of banks wish to use platforms or become platforms themselves, in order to improve their market access in certain segments, increase their reach, or utilise economies of scale. In the deposit business, the platform economy is already improving transactions between banks and their customers – and this is opening up the market to new players.  

The true power of digitalisation is apparent not when companies attempt to give conventional product offers new digital packaging, but rather when they rethink the entire added value chain from scratch and develop new business models. In banking this has been going on for some time in a segment that has not been particularly innovative in recent decades: the deposit business.

Why deposits are so important for banks

At roughly 40 percent of the balance sheet total of European banks, customer deposits are a highly important source of funding. They are particularly stable and have a positive effect on the balance sheet structure and liquidity index figures, such as the short-term Liquidity Coverage Ratio (LCR) or the structural Net Stable Funding Ratio (NSFR).

At the same time, savings deposits account for roughly one third of the total private assets of all customers around the world and are an important anchor product in Germany in particular, through which banks can acquire new customers and strengthen their relationships with existing customers. In this way, they fulfil two functions at once: They are a popular product amongst customers and an important source of funding for the banks.

In the past, it was only possible for banks to collect customer deposits for financing, if they had their own infrastructure and their own customer access, e.g. via a branch network or a broad online customer base, which could therefore act as their own point of sale. On the other hand, banks could only offer their customers savings products, if they were able to place the customer’s money on their own balance sheet without this resulting in high costs or imbalances in their balance sheet structure.

This is where the platform economy has changed the rules of the game for all participants: It allows the separation of the product provider and the financial point of sale. Simply put, this enables banks to choose whether they want to collect deposits for financing or offer deposits as a product, without one being conditional of the other.

Lower interest costs thanks to connection to the platform

With the help of an open banking platform, banks that wish to collect deposits gain access to millions of savers via the many point-of-sale partners connected on the other side, without having to take care of customer acquisitions, account management, customer service, etc., themselves. For the bank, access to additional financing sources is focal – the platform offers this to them in the form of a “Deposits-as-a-Service” proposition. It increases the size of the addressable market for the deposit products of the bank, in doing so reduces their interest costs, and helps them to diversify their funding mix. It is in this way that Creditplus Bank AG (a specialist consumer credit bank belonging to the French Crédit Agricole Group) utilises open banking for its deposit business for example. As a deposit-taking bank, they collect customer money from customers of the direct portal Zinspilot for example, as well as Deutsche Bank, and in doing so enjoy much greater coverage.

Furthermore, the platform economy also breaks down geographic borders in the deposit business. The French Mymoneybank, for example, collects retail deposits in Germany without having to establish its own infrastructure in the country. Via the same platform,  British bank Close Brothers Limited collects deposits from Germany in euros and lists additional products on the interest platform Savedo in Switzerland as a security against Brexit, in order to gain access to deposits from customers situated outside the European Union.

This example clearly shows the efficiency of the platform within the added value chain: Deposit-taking banks reach out to numerous point-of-sale partners in one go. They collect customer money through various partners and from different countries, although they are able to execute all processes in a standardised and uniform manner using the same infrastructure. On the other hand, Point-of-sale partners gain access to a large range of products from numerous banks in different countries via a single source.

Banks are able to develop their own interest marketplace

The use of an open banking platform allows banks to establish themselves as a central financial point of sale for their customers by also offering the deposit products of third banks. This takes place via the existing customer relationship without the customer needing to open an additional account with the third bank. A prominent example of this is Deutsche Bank, which has established its own interest marketplace ZinsMarkt with the help of the Deposit Solutions platform offering third party products to its customers. The bank has successfully utilised this to strengthen customer loyalty and acquire new customers.

Private banks, such as Merck Finck, also satisfy the demand of their customers for interest returns on cash items by offering the deposit products of third banks – in this case controlled by the customer advisor. They also place central importance on comprehensively taking care of all customer needs from a single source.

New market participants gain access to deposit business

However, as a new transaction standard the platform not only enables banks to maximise the benefits of deposits as a customer product or source of finance, it also allows new market players to participate in the deposit business – i.e. those players for whom access was previously structurally barred.

As such, the cooperative banking sector has been using open banking in the deposit business with success for some time now: As a property loan specialist, the Münchener Hypothekenbank was previously unable to market deposit products to private customers and finance itself in this way. Conversely, the credit unions and Raiffeisenbank institutes traditionally had a large inventory of deposits and were frequently unable to compete with the interest rates of other banks – they faced the risk of gradually losing their customers. With the MünchnerHyp as a deposit-taking bank and the credit unions as financial points of sale within a closed system, it is a win-win situation. The credit unions are able to offer their customers the attractive deposit products of MünchnerHyp, whilst MünchnerHyp adds the money to its balance sheet and relieves the burden on the credit unions.

Open banking opens the market to non-banks

Non-banks also gain access to the deposit market. Account information services, comparison portals and ecommerce companies are developing new business models and new customer-centred offerings in order to establish themselves as a central point of contact for all the important financial needs of their customers. They can also offer their customers deposit products for the first time via the connection with the open banking platform, although they are not actually banks themselves.

A new transaction standard for a 50-billion-dollar market

The development of open banking as an industry standard for the global deposit business is just beginning. The worldwide deposit market is worth a staggering 50 billion dollars. However, with almost 100 banks in 18 countries using the Deposit Solutions platform alone, in addition to the other examples cited above, open banking in the deposit business is no longer a niche application. This is underlined by the strong growth and international expansion of the platform. In addition to Europe, it will also be available for use by banks on the US-American market in the future. Given the major advantages for all market participants and the fact that open banking also opens up the deposit market for new providers, the era of platform banking in this important product category is surely finally upon us.