#InnovationInsider with Yves Blavet: the platform economy and the financial industry: What are the challenges? What will shift?

The platform economy has invaded our daily lives over the past 15 years, taking the lead in the world economy ahead of the banking and oil sectors. Some may remember how Apple tried to stop the distribution of Google Maps in its app store by promoting its own application “Maps”, or how LinkedIn had stopped its API from working with Twitter for some time… Withholding clients in a proprietary service ecosystem is at the heart of the business models of today’s most powerful economic players.

Innovation Insider is going out to meet with those who work on Banking-as-a-Service and Banking-as-a-Platform business models and to concretely decipher how Societe Generale is approaching this strategic shift. In this new series of interviews, we will be with Yves Blavet, Open Banking and Platform Economy Leader at Societe Generale, who works with more than 50 experts around the world on the concrete transformation of our business models. In addition, Yves is giving a course at SG on the platform economy and as of this year, he is also teaching the course as part of a master’s programme at the Sorbonne. So, let’s make our first stop with Yves to get up to date on all this innovation lingo and share some examples of strategies, partnerships, and use cases within the Group’s business lines to build the bank of tomorrow!

Yves, what is the platform economy?

For decades, “product-oriented” companies have enjoyed great success simply by pushing their own products via their proprietary distribution channels, in a so-called “pipeline” model. They are now being replaced by “client-oriented” platforms that better meet the needs of clients with fluid digital pathways. They bring more value, not only to consumers but also to the suppliers of the products and services they distribute.

By simplifying the recruitment of new clients, platforms now encompass a growing range of products and gaining a wider audience thanks to a snowball effect, known as the “network effect”.

In the platform economy, which is founded on network effects, there is a strong decorrelation between the production of goods and services on the one hand and distribution on the other.

Having undergone a process of deregulation aimed at dismantling monopolies or oligopolies, several sectors (travel, mobile telephony, energy) are now experiencing profound transformation due to platforms. Most well-established companies in these sectors are ultimately building new distribution models to combat disintermediation through platforms (e.g. SNCF, Accor, Orange, Engie).

And how will the platform economy affect the distribution of financial services?

The two successive European directives on payment services (PSDs) are also intended specifically to disrupt the oligopolies of traditional banks and encourage competition in terms of payments and account management, i.e. in the banks’ core businesses. Although the effects of the second directive (PSD2) may seem modest at this stage, they could eventually transform the banking industry on the retail and SME market. Legislators and regulators will monitor this by continuing the deregulation movement if necessary.

It is likely that banks will face the same challenges as rail operators, airlines and hotel chains, whose proprietary distribution channels have been short-circuited by platforms that meet broader needs, offering their clients a range of options to organise end-to-end travel itineraries and even full holidays.

Just like the above sectors, banking is not an isolated business: financing needs are always linked to a broader project; payments are always the counterparty of an economic transaction; bank accounts are one of the many tools needed to manage a business. In the platform economy, the bank will often be integrated into a more comprehensive user experience (commonly referred to as embedded banking). Some banks, such as DBS in Singapore, are adopting proactive open banking strategies to make the bank both omnipresent and transparent by involving itself in a wide range of ecosystems.

How is Societe Generale making this transition, exactly?

For some time now, Societe Generale Group’s businesses have been shifting more towards open banking. With Fiduceo, Boursorama opened the way very early on for account aggregators on the French market. Our specialised subsidiaries such as Treezor and Moonshot offer banking and insurance APIs to neo-banks and e-commerce sites. Our more traditional business lines such as our Insurance division or ALD, our international vehicle leasing subsidiary, offer their services to third-party distributors. On the investment banking side, we are proud to present our APIs on SG Markets, our unified “Wholesale” platform

Open banking is the opportunity for innovators to develop their new ideas by making them available to as many people as possible, capitalising on the banks’ distribution capacities. Thanks to open banking, we will be able to promote (via open architecture) new forms of financing and more responsible investment, meeting the aspirations of all our clients. We are already doing this with Lumo, a responsible investment platform that has joined the Societe Generale Group.

 What exactly is the “Bank-as-a-Platform” and “Bank-as-a-Service”?

When we talk about “Banking-as-a-Service” (BaaS), we mean the bank’s ability to provide its products and services to third-party distributors (whether financial players or otherwise) so they can seamlessly integrate them within their own clients’ workflows (B2B2C or B2B2B). This ability is based on microservices and/or APIs. BaaS services need to be customisable, mass-producible and rapidly deployable. BaaS is all the more promising because it contributes to platforms whose business model is based on powerful network effects.

Several of Societe Generale group’s business units have developed BaaS capabilities independently of one another. We are now working on the development of commercial synergies and better integration of the model. An initial level of ambition has been defined and the corresponding governance is now in place.

As for “Bank-as-a-platform” (BaaP), this is a somewhat misleading term. In fact, the platform often does not have the status of a bank! It offers a range of services operating in an ecosystem, integrated thanks to consistent digital pathways that meet a uniform family of needs: for example, the management needs of an SME business owner, or those of the individual who embarks on a real estate project. And among the services offered by the platform, there are banking functions (payments, financing, etc.).

The bank itself can assemble this type of service package by expanding its offering beyond its traditional services to better meet the needs of its clients. In France and Eastern Europe, our retail banking networks are introducing this type of model, aimed at young people or SMEs, for example.

In the world of platforms, we no longer think only about our own clients. Once a platform is successful, Societe Generale will consider increasing its audience by opening it to non-clients or even by involving other distributors. This would enable the platform to expand its funding base and increase its negotiating capacity with the partners whose services it distributes.

How does the Innovation Department contribute to the platforms?

The role of the Innovation Department was first to forge its own convictions and then to share them by bringing in to Societe Generale the world’s most renowned specialists in the platform economy. We are raising awareness of the challenges of the platform economy for the company. Today, no longer do any of our businesses neglect the challenges of open banking in their strategic priorities. We are now thinking well beyond the bank’s regulatory obligations under PSD2. We plan to expand the distribution of our products and services through third party distributors. We are considering extending our range of products and services to include third-party offerings, to better meet the expectations of our individual, professional and business clients.

Our department contributes to the flow of information internally, by raising awareness of the initiatives undertaken by our business lines, whether in Retail Banking (particularly in Eastern Europe) or in Corporate and Investment Banking.

We also act as disruptors, agitators of ideas who are constantly presenting innovations and potential new partners for our businesses. By bringing together a few dozen senior managers to reflect on the challenges presented by platforms, we are proud to have built a strong consensus around a retail platform concept that is being launched under the aegis of our Insurance division.

Sometimes we fail when we try to promote new business models, but there is always something we can gain from this. Our collective understanding of the platform universe is clearly improving, and our team is no doubt partly to blame!

What is your vision of the bank in 2025?

It is a bank that is there for its clients, even more than it is today. And therefore, with digitisation, it is clearly an open-architecture bank; this is one of the fundamental priorities for our retail banking strategy.

We are entering the era of embedded banking or the invisible bank, in which the bank supports economic activity where it originates, by providing new payment or financing methods at the very point where the need arises. Bankers will become true partners of their clients’ projects in their entirety, not just providers of funds or means of payment.

In “Bank-as-a-Service” mode, the bank of 2025 will offer its best products and services to as many people as possible, relying on third-party distributors to reach other types of clients. In “Bank-as-a-Platform” mode, it will integrate purely banking services with related offerings, for example management for SMEs, in order to better meet the needs of its clients.

Yves, how can you be contacted?

You can contact me via a platform: LinkedIn! And if you want to know more about the platforms, do as my team does! You don’t have to get on a plane; you can invest in the MOOC “Platform Strategy for Business” offered by Marshall Van Alstyne (MIT & Boston University) and the book “Platform Revolution”, which he published with Geoffrey Parker and Sangeet Choudary. There’s no need to cut down any trees; the electronic version is available on a well-known e-commerce platform… Oh, and the MOOC is provided via the edX platform!

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