Banks have until 2027 to decide whether to become customer-focused platforms or efficient product providers, as the industry moves toward a split that will reshape margins, customer relationships, and the economics of banking
The banking sector is approaching a critical juncture that will force institutions to choose between two fundamentally different business models: becoming a customer-facing platform or operating as a behind-the-scenes product provider, often referred to as a "pipe." This decision, which must be made within the next five years, will determine not only how banks interact with customers but also how they generate revenue and manage costs in an increasingly digital financial landscape.
Platforms are designed to own the customer relationship, orchestrating a seamless journey across multiple financial needs and providers. In contrast, pipes focus on delivering regulated products-such as accounts, payments, and compliance-at scale, often invisibly, to the platforms that interface directly with end users. While many banks believe they can pursue a hybrid approach, industry evidence suggests that failing to make a clear choice typically results in defaulting to the pipe model, often without a deliberate strategy or adequate investment.
Why the Middle Ground Is Disappearing
At the heart of this shift is the recognition that true transformation in banking is not about incremental improvement but about fundamentally changing the way value is delivered. Platforms benefit from higher margins, richer data, and customer loyalty, while pipes face relentless cost pressure and diminishing visibility. This pattern has already played out in sectors like utilities and telecommunications, where infrastructure providers have become commoditized and largely invisible to end users.
Recent developments in artificial intelligence, data integration, and programmable money are accelerating this divergence. As AI agents increasingly act on behalf of customers, value accrues to those who control the orchestration layer-the platform-while pipes are relegated to supplying the underlying products. Attempting to straddle both models often leads to inefficiencies, as banks incur the costs of platform development without achieving the scale or customer engagement needed to realize its benefits.
Investment Patterns and Strategic Drift
Industry analysis indicates that only a small minority of banks are making the sustained investments required to build true platforms. These institutions align their technology, data architecture, and leadership focus toward managing the entire customer journey. The majority, however, continue to allocate resources to maintaining legacy product silos, even as they promote a platform narrative in public communications. This disconnect between stated ambition and actual investment is a key reason why many banks are drifting toward the pipe model by default.
For example, banks may launch innovation labs or pilot digital marketplaces, but if the bulk of their spending remains tied to traditional product maintenance, the underlying business model remains unchanged. This strategic drift can leave banks vulnerable to disruption by more focused competitors and new entrants that are clear about their chosen path.
Data, Deadlines, and Industry Implications
According to industry forecasts, banks have until the end of 2027 to make a definitive choice, with full execution expected by 2032. The consequences of this decision are significant: platforms can expect to capture stronger margins and deeper customer relationships, while pipes must compete on efficiency and reliability, often with little brand recognition. This timeline is supported by the rapid pace of technological change and the growing influence of digital platforms in financial services.
In 2025, global banking revenues from platform-based services are projected to grow at twice the rate of traditional product revenues, according to data from leading industry analysts. Meanwhile, the cost-to-income ratio for banks operating as pipes is expected to tighten further, with margins compressed by increased competition and regulatory demands. These trends mirror developments in other sectors, where infrastructure providers have seen their share of value creation decline over time.
The urgency of this decision is underscored by recent moves in the broader financial technology sector. For instance, major payment networks and market operators are investing heavily in platform capabilities, as seen in recent deals such as Visa's planned acquisition of BioCatch and TMX Group's investment in MEMX, which highlight the industry's pivot toward customer-centric platforms and advanced compliance solutions. More details on these strategic shifts can be found in this analysis of recent fintech acquisitions and investments.
Understanding the Platform-Pipe Distinction
The distinction between platforms and pipes is not merely academic. Platforms act as the primary point of contact for customers, integrating products and services from multiple providers to deliver a unified experience. Pipes, on the other hand, supply the regulated infrastructure-such as payment rails, compliance systems, and account management-that enables platforms to function. The economics of each model are fundamentally different, with platforms enjoying network effects and data-driven advantages, while pipes must focus on operational excellence and cost control.
For banks, the practical test is straightforward: when a customer need spans multiple products-such as buying a home or starting a business-who owns the end-to-end journey, and where is the investment directed? If the answer is unclear or the investment remains siloed, the institution is likely operating as a pipe, regardless of its stated ambitions.
As the banking industry approaches this inflection point, the ability to make a clear, strategic choice will separate those institutions that thrive in the new landscape from those that struggle to remain relevant. The next five years will be decisive in shaping the future structure of banking and the distribution of value across the sector.
The platform-versus-pipe debate highlights a broader trend in financial services: the growing importance of orchestration and customer experience in determining where value is captured. As digital platforms become the primary interface for financial products, the underlying infrastructure becomes increasingly commoditized. Banks and payment providers must therefore decide whether to invest in owning the customer relationship or focus on delivering the most efficient and reliable products to those who do. This distinction will shape not only business models but also the competitive dynamics of the industry for years to come.
