Banks Embrace the Digital Age to Become Financial Service Aggregators and Platforms

Jim McCarthy, CEO of Thredd, said in a recent interview that banks have to break down their walled gardens to give customers what they truly want.

“Most of the world has become digital first,” he said of financial services firms in general. “And the front ends look somewhat familiar.”

Banking is heavily regulated, McCarthy said, adding that the underlying banking services have to be presented differently these days to serve the needs of consumers and enterprise clients.

In doing so, they can take a cue from the neobanks, or from Square Cash, born from the desire to solve underserved needs, creating their own two-sided networks that became banks, of sorts.

“There’s a whole cottage industry in the money movement space of interesting companies that are connecting wallets” and forming new networks, he said.

The banks have got to play some catch up, as they’re competing with Apple Pay circa 10 years ago, when the world is moving on to directory services, risk and authentication.

What the Clients Need

What banking clients are looking for, he said, is a continuum of financial services, with payments at the center of it all. Banks may be looking for a tech “layer” on top of what they already offer — or there will be the emergence of orchestrated layers that bring disparate banking relationships to one accessible point of interaction — and give banks ancillary revenue streams. At a high level, he said, banks can offer clients digital accounts and dashboards for all the things they want — from managing physical and virtual cards, subscriptions and everything else.

The conversation between Webster and McCarthy came as part of the latest installment of the “What’s Next in Payments” series focused on answering the question, “What is a bank?”

Banks, he said, are tasked with thinking about how to expand their networks, and how they can move beyond the walled gardens that have taken decades to cultivate. The challenge is that banks have seldom been first movers, and have traditionally tread with caution into new spaces and new endeavors. But there are glimmers of that expansion. McCarthy noted that, in one example, a Thredd client, Treezor — a banking-as-a-service firm — is owned by Societe Generale.

The model, he said, is akin to “an affiliate that relies on the mothership for compliance and for the balance sheet. But they are taking modern APIs and exposing them to bring on FinTechs.”

Against that backdrop, banks can become an open platform to aggregate a slew of different activities, products and solutions. Compliance is the anchor here, helping traditional FIs grow their businesses, beyond the confines of being focused on products, of simply focusing on being the primary bank where people deposit their paychecks.

Asked by Webster how generative AI (GenAI) can help banks accelerate down the path toward creating a layer that aggregates those different relationships, McCarthy said that AI and open banking can offer the tools to give rise to digital front doors to bring those disparate banking relationships together.

In doing so, they’ll streamline the complexity of unbundled banking relationships, where mortgages are in one place, credit cards from different issuers are in another, and money is deposited and bills paid from yet another account. Aggregation, McCarthy said, can prove especially useful when it comes time to pull months’ worth of financial data together to apply for, say, a mortgage.

“AI and tokenization can abstract and pull all this data together without having to give the keys to some third party,” he said.

Looking ahead, he said, for the banks, “it will be an evolution. They still continue to invest, heavily, in digital, better experiences. And their incumbent position is not to be discounted. They have a lot of assets and technological resources.”