In recent years, platforms have experienced enormous growth and have established themselves as the future of certain industries. Whether in e-commerce with companies like Amazon, Zalando, or Wayfair, in transportation with Uber, Free Now, or Flixbus, in the service sector with Helpling, Fivver, or MyHammer, or even in traditional retail with shop-in-shop concepts – wherever you look – platform-driven models dominate the market.The increasing number of platforms offers customers a wide variety and choice, but it also presents platform operators with increasingly fierce competition among themselves. In recent years, well-known marketplaces like Dawanda, Allyouneed, GartenXXL, Plus.de, or Ciao had to close because they couldn't withstand the competitive pressure.
One significant driver for growth and stability for platforms is financial services. They enable platforms to be more attractive to merchants and retain them in the long term. Platforms can offer their merchants loans, help with accounting and tax filing, or facilitate insurance services, for example. As a result, platforms become an integral part of their merchants' businesses, making it difficult to switch to another platform. What used to be just a distribution channel suddenly becomes a crucial part of the business on the revenue, cost, and financing side.
We have examined four examples from different industries to illustrate what successful integrations of financial services can look like on platforms.
Successful e-commerce platforms already take care of payment management for their merchants. However, it's not just about payment processing but also about providing added value. An example is eBay, which has introduced its own payment solution that offers new payment methods and a unified billing system with interim financing. Payment providers like Stripe and Adyen have also been successful through their marketplace solutions.
In the financing sector, the BigTech company Amazon has taken a first step in cooperation with ING Bank. Amazon has been facilitating loans from ING to selected Amazon sellers for some time. These are loans ranging from €10,000 to €750,000 with terms of up to three years. This trend of collaboration between platforms and banks or FinTech companies is increasing, supported by FinTechs like Banxware, which help platforms and non-banks offer financial products.
While issuing credit cards for end customers is already an attractive source of revenue for many platforms, issuing credit cards for merchants is less common. Some larger platforms already offer virtual accounts that can be easily expanded into value-added services.
An example of insurance integration is the partnership between transportation company Uber and insurance company AXA. Uber offers its partner drivers partner protection that safeguards them against the costs of life-changing events.
These examples demonstrate how platforms can provide significant value to their customers and strengthen their competitive position through the integration of financial services. Banks and FinTech companies often act as invisible infrastructure in this process. However, financial services possess special complexity and pose challenges for platforms. Competencies in regulation, compliance, and capital requirements are necessary. Some platforms develop these competencies internally and establish their own financial subsidiaries, while others form partnerships with banks, insurance companies, and FinTech firms. In particular, FinTech companies often see themselves as intermediaries between highly technological platform companies and the complex banking world.
Although the term "embedded finance" is already familiar in the US and China, this trend is also making its way into the German platform market. This illustrates that platforms are the future of banking. Banks and FinTech companies continue to play an important role but often operate in the background as infrastructure providers. Platforms are increasingly taking on the role of customer caretakers and offering comprehensive financial services.
Overall, platforms are already better banks today. They offer their customers a wide range of services and enable easy integration of financial products. However, banks are not becoming obsolete; instead, they enter into partnerships with platforms to contribute their expertise. The trend of "embedded finance" will continue to shape the German market and profoundly transform the financial landscape.
