Creating digital platforms for the future

ANNERIE VREUGDENHIL

Thank you Juliette.  I am so glad to be here.  It is really an amazing opportunity.  I am Annerie Vreugdenhil and I am the head of ING Neo and the Chief Innovation Officer of ING.

And actually, what I will be talking about today is really very close to my heart.  I have been working in the past couple of years on platforms and creating them and seeing how they work.  We have learned an awful lot and very often, by the way, the hard way.  So I am very happy that I can share some things about platforms with you today.

Everybody is talking about platforms.

So can you still remember that you were in the streets in New York and you were hailing a taxi by lifting your hand?  Can you still remember the last time you were at your local video chain and actually hired a DVD because you wanted to have a movie night with your family?  Can you still remember the last time you were in a book store and actually bought a physical book?  We all know that our behaviour, our customers’ behaviours, have really, really changed.  We are now used to opening our iPhone and pushing the Uber button, hailing an Uber, rather than a taxi, just with one click on a button.

We are so used to the idea that Netflix actually thinks with us and tells us what we will really enjoy for our movie night.  And we are so used to reading a book on a Kindle.

What you see here is really what you would call a paradigm shift; and it is a paradigm shift on two angles.

The first angle is the huge shift from physical to digital; and this obviously has been widely accelerated by Covid‑19.

But the second shift is maybe a little bit less visible, but maybe even more important, and that is the shift from pipeline to platform business models.  And platform business models is what I will be talking to you about today.

But let’s first make sure we have a common understanding of the word “platform”.  So if I look at ING, everybody talks about platforms.  But if you scratch the surface a little bit, actually we come to the conclusion that we often speak about different things.

A platform business model is a model in which you create all kinds of connections between consumers and producers.

So if you look at this slide, you actually see what is happening.  You see that the taxi became an Uber.  The taxi is a pipeline model.  You have one taxi, you see it in front of you or you see it in the street, you hail it and you sit in it.  Uber actually is a different model.  In Uber, there’s drivers who own a car and that is all they need.  They can be an Uber driver and they can actually say: “Now I want to be an Uber driver and this is the moment where I will use the car for myself”.  You see Netflix here, coming from Blockbuster which is a very, very different kind of model.  You also see WeChat and Alibaba.  In the East, many things are happening in this respect and there the interesting part is that those apps really get into the lifestyle of clients.

So with a platform model, you exchange values between consumers and producers.  And this means that a couple of elements are very important.  You have to create network effects and you have to really look at data exchanges.  Data exchanges is a vital element of this and I will come back to this.  Those two are the source of the value of a platform.

And the key thing is that you bring the right product to the right consumer.  So you don’t create a “one size fits all” product that you will sell to whomever might go into your shop and wants to buy it, but it is really relevant and specific to a certain consumer.

And the other interesting element is: consumers and producers on this platform, they actually switch roles.  We all know that you can rent a house if you go on Airbnb and then you are the consumer.  You consume the offer of renting a house; which can very easily switch to becoming a producer, because if you go on holiday and you rent somebody’s house, why let your own house stand idle?  You can also rent out your house, becoming a producer on their platform.

So platform business models is what I will be talking about today and, actually, for a very good reason.  This is a little picture of the companies that had the highest valuations in, at the bottom, 1999 and, at the top, 2019.  And look at what the shift is: very different kinds of companies are now the most valuable companies in the world.

So at the bottom, you see a lot of what are called pipeline businesses.  If you look at Exxon for instance, they are limited in what they sell with the fact that they first have to refine, in a refinery, crude oil to make it into a fuel that then has to go into a vessel and a truck to actually bring it to the consumer.  So they are limited with their number of refineries and their logistical methods.

And now look at the platform models.  They are now way higher valued than the pipeline models.  What makes them so special?  I think the first very important element is what I just alluded to a little bit for Airbnb.  They don’t own their product.  So basically they have the whole world at their fingertips.  Basically every house in the world is potentially their product.

So if you are Airbnb, all the houses in the world are potentially your product.

So this is one of the biggest reasons why those companies are so valuable.  They can very easily scale and they don’t have to own the product.

Now, let’s move to the financial industry.  Also in the financial industry, platform business models and platform businesses are becoming more and more important.  I find this a very interesting picture, which is made by CB Insights and it tells you all the ways Amazon is unbundling a bank.  And you see that with all their services, they are absolutely everywhere.  They are in payments, in lending, in insurance; you name it.  Everywhere where you can think of, they have some angle into it.  And this also explains to you why so many banks and FinTechs are looking at becoming a platform business model.  We simply have to.

So at ING, we have been investing in platforms for several years now and we have learned a lot, as I said at the beginning.

So let me give you some insights with what we learned.  And the first thing we learned is: you have to define your role.  You have to define what you want to be; what kind of platform or what kind of role on a platform do you want to play?  And there are three big roles here. And we actually tried all three and we still work on all three:

1. You can create your own platform. 
2. You can connect to somebody else’s platform. 
3. You can create an independent platform initiative. 

So creating your own platforms.  If you create your own platforms, that sounds relatively easy and I will come back to that.  What you do is you have already your mobile banking app, you have your portals, you have your own digital infrastructure; and to create a platform you actually plug in, through APIs, other companies.  We recently did that for Minna.  Minna is a subscription management app and we offer it now through our banking app in Belgium.  So our customers can use Minna through its ING app.  And we have also similar possibilities for business clients in our business portal.

The second one is connecting to other platforms.  And we also call this capabilities as a service, and this will really work for you as a bank if you have capabilities in which you are very, very good.

And actually they can be very close to home, because one of the things where we are doing this is actually with Amazon in Germany.  So Amazon has this whole platform and also the strong connections to the merchants and, yes, they are starting to lend out money, but you know, actually, lending is something we are really good at.  We have the balance sheet, we have all the expertise, so we have teamed up with Amazon and we basically provide balance sheet lending to their platform; so we bring our capability to their platform.

Also sometimes we develop capabilities that are a little bit newer.  So one of the things that we are also very good at is block chain.  We have a pretty strong block chain team and we have created for ourselves the niche about privacy on the block chain.  So this is about safety for our clients.  And as we speak, we are working on having our first product in this area, you call that a zero knowledge proof, which we will connect to the Corda platform of R3.  So we use an existing platform, link up one of our key capabilities to make the platform stronger, but also obviously to help ourselves creating this service and making sure this service is available to as many clients and potential clients as possible.

And the last possibility is to create independent platforms.  One of our own examples is Yolt.  Yolt is an open banking app in the UK that ING developed and this is a platform in its own right.  So on the one hand it is attracting consumers with their open banking aggregation functionalities; and on the other hand, we have merchants adding to the platforms, so that our consumers can actually use those services from all the merchants on the platform.  So this is a platform in its own right.  So there are three possibilities.  You just have to think about what you want to be and there you go.  Simple, right?

Honestly, we learned a lot about this and there are a lot of things you have to think about.

Let me share with you some of the key learnings and what comes with all those kinds of strategies.

For starters, you have to open up the bank; and we have to do that anyway.  PSD2 regulation, open banking regulation, it already forces us to do that.  So we have all created developer portals.  And when we created our developer portal, we actually came to the conclusion that whole new questions arose, questions that we had to answer again, we had to organise for.

So the first one was: should we have a help desk if people don’t know how to deal with it?  If we need to have a help desk, do we have to call it a customer success team, if that is a more logical term used in the start‑up world?  Who are actually our customers on this platform?  Developers?  We never had developers as a client.  What does that mean?  What is their need from these kinds of products?  Is it a product at all?  How will we manage open banking, a developer portal?  As a product or not?

So those are all kinds of questions that come your way when you branch out from being a traditional bank.  You’d better find solutions.

A platform is really about bringing the right product to the right consumer.

So this is one of the biggest reasons why those companies are so valuable.  They can very easily scale and they don’t have to own the product.

Now, let’s move to the financial industry.  Also in the financial industry, platform business models and platform businesses are becoming more and more important.  I find this a very interesting picture, which is made by CB Insights and it tells you all the ways Amazon is unbundling a bank.  And you see that with all their services, they are absolutely everywhere.  They are in payments, in lending, in insurance; you name it.  Everywhere where you can think of, they have some angle into it.  And this also explains to you why so many banks and FinTechs are looking at becoming a platform business model.  We simply have to.

So at ING, we have been investing in platforms for several years now and we have learned a lot, as I said at the beginning.

And then to benefit from all those network effects and all those consumers, you have to really get your data infrastructure in order because, like I said earlier, a platform is really about bringing the right product to the right consumer.  And for that, you have to understand your customer really, really well; and you have to understand them on an individual level.  So you cannot go to marketing for all, you really have to be completely tailored.  In the end, they are all used to Netflix recommendations.

So you have to have your data infrastructure in place, have access to the data, have the controls, have to bring in data scientists to create the right insights and there is a lot to this.  You can link the right consumer to the right product.

And then you get to the network effects, because that is what you do it for, right?  And we have really learned, this is one of the hardest parts.  What we have learned is that to get network effects, you have to develop the consumer and the producer side simultaneously, because more consumers will attract more producers, who will attract more consumers, and then the flywheel is starting.

So let me explain to you two examples that we are working on; one for consumers, as in retail consumers, and one for businesses.

So DealWise is one of them.  DealWise is a shopping platform where we bring together merchants and consumers.  We offer DealWise via our banking app and bring our clients targeted offers from merchants.

For both, we have, as ING, a very strong client base so it gives us a head start in scaling.  We can scale from our own client base on both sides.  We have started this in Romania and we have recently rolled it out to Germany and Belgium, adding more clients to the DealWise platform, so increasing the attractiveness for the merchants and who wouldn’t want a bank account that brings you tailored offers?  So one of the things we learned here is that we have to also use our own strength.  It is way harder to start a platform from scratch, where you have zero clients on both sides that you can actually use to bring the network effects.  So one of the things we are doing right now is sticking a little bit closer to our own core strength as ING.

CoorpID is another example.  CoorpID is a secure vault in which companies can organise their corporate documents.  They can then share them with everyone who needs it: banks for KYC, tax advisers, auditors, you name it.  And they can all integrate it in their own processes and systems, then encourage their clients to use it because it is easier for them, and then the flywheel starts spinning.

Then the third topic you really have to think about is governance.  As Facebook and Twitter have learned the hard way, you have to curate what is happening on your platform.  So are the values of those companies the same as yours?  Their customer promise, their customer service?  We are used to doing customer due diligence; but on a platform, you also have to look at completely different things.  Supply chains, can they actually deliver?  Are they available 24/7?

We have brought the first elements of platforms or platforms in their own right to the market and we start to see the first little signs of this potential exponential growth.

And don’t forget: banks have a lot going for them.  If only, it is an installed client base that is really strong.  To give you a little example, we have more daily visits on our mobile banking app than we have ING accounts in the Netherlands.  Who can say that?  I am absolutely sure there are people who are on Amazon daily, I am not one of them, but I seriously doubt that they have more daily visits than they have Amazon accounts.

So as a bank, we absolutely have things going for us.  We can make this happen, so let’s go for it.