Imagine a bank like the App Store on your iPhone, offering you an infinite variety of innovative apps to manage your finances.
The App Store has not only revolutionized the software industry
With the App Store, Apple has undoubtedly revolutionized the software industry. And subsequently enabled the emergence of countless groundbreaking new business models in several other areas. Many of today’s digital business models would not have been possible without Apple’s App Store.
Before the introduction of the App Store in 2008, the software industry was dominated by a few large companies. With the introduction of the App Store, it became possible for any developer to create new software and make it available to large numbers of people without much effort.
With the App Store, Apple has created a trusted marketplace for all kinds of software and digital business models. Clear guidelines and controls ensure that user privacy is always protected despite the decentralized structure.
Imagine a bank like the App Store on your iPhone
The principle of the App Store could be transferred extraordinarily to banks and insurance companies.
In this scenario banks or insurance companies provide the hardware, the operating system, and the policies including core regulatory functions, the balance sheet, and basic functions. On this platform, any developer can then develop new innovative solutions, which are then made available to customers via an app store.
I’m not talking about a complex and lengthy integration like today’s banking-as-a-service providers. I’m talking about the possibility of thousands of developers, from one-man shops to large studios, easily building new applications for your finances and making them easily available to you through a marketplace.
As a result, an incredible variety of great new applications would emerge around the core banking functions, e.g., budgeting, coupons, cashback, financing, market information, trading algorithms, etc.
Best available services without changing my bank
A good example is the budget function. Categorizing and monitoring my expenses in a “Haushaltsbuch” is a useful addition to online banking. Almost all banks now offer this in some form as part of online banking. However, the user experience of most solutions is mediocre.
There are solid solutions on the market, but as a customer, I am tied to my bank’s solution. If all other services are right, no one would change their bank only because of a single feature like a budgeting tool.
This means that I must often live with mediocre solutions or solutions that do not meet my personal needs. Imagine I could choose from a variety of budgeting solutions in my bank’s “app store” and select the best solution for me and connect it easily with my account without having to change banks.
The largest ecosystem will be the winners
Today, banks and insurance companies desperately resist opening up their platforms. This goes so far that they even sabotage the implementation of existing European law. Behind this is a false fear of losing customers. The opposite would be the case.
I am convinced that a bank or insurance company would massively win market share by opening its platform for complementary third-party offers. The first bank or insurance company that really opens up will create an almost impossible-to-catch competitive advantage and literally sweep the market.
There would be a competition as to who has the best app store, i.e., largest ecosystem. The more third-party offers, the more attractive the financial platform. The game would be won by those financial service providers who make it easiest for third-party providers to connect and thus have the largest and best complementary offering.
Like the introduction of Apple’s App Store, entirely new services and business models would emerge, enhancing traditional banking and insurance products. Increased competition for the best add-on solutions would lead to a further improvement of those solutions offered on the market. It is also economically attractive for third-party providers to build truly outstanding solutions as they can scale across multiple banks or insurance companies.
Why is there no funding for this (yet)?
I can already hear all the objections. Because of data protection, security, and regulation, this would not be possible. All are just lame excuses. Apple has shown how to build a platform that is both open and secure. Even banks and insurance companies now offer apps on Apple’s external platform. So, why shouldn’t it be possible to build secure financial platforms where third-party offerings can be integrated?
The idea and the advantages of this model are obvious. So, why does the App Store Bank not yet exist? It would require an enormous effort to build a complete bank with a technological platform. The incumbent banks and insurance companies would certainly have the resources, but they lack the need to act and the entrepreneurial attitude for such a disruptive approach. But why is there no venture capital for such a superior model?