In today’s open banking economy, this piece situates an analogy between the varying levels of acceptance by the market players.
Open banking is the sharing and leveraging of customer-permissioned data by banks with third party developers and firms to build applications and services, including for example those that provide real-time payments, greater financial transparency options for account holders, marketing and cross-selling opportunities.
While open banking allows third parties to develop better personal finance management applications, it places pressure on incumbents to improve their own offerings. Open banking services cultivate competition in the banking industry – forcing existing players to either enhance their financial services or partner with Fintechs.
A quick roundup of three prominent banking organizations, will help draw our attention to the current seriousness attached to Open Banking.
BBVA: In 2018, BBVA launched its BaaS platform, Open Platform, in the US. Open Platform utilizes APIs that allow third parties to offer customers financial products without needing to provide a full suite of banking services.
HSBC: HSBC launched its Connected Money app in May 2018 in response to the UK’s open banking regulations that attempt to place more control of financial data into the hands of consumers. Connected Money allows customers to view various bank accounts as well as loans, mortgages, and credit cards, in one place.
Barclays: Barclays claims to be the first UK bank to enable account aggregation inside its mobile banking app. Its open banking feature allows customers to view their account with other banks within Barclays’ mobile app.
Open banking has the potential to increase revenue streams while expanding customer reach for financial institutions. It creates revenue-sharing ecosystems, where incumbents give customers access to third-party-developed services while profiting from a subscription or referral basis.
Led by the PSD2 legislation in the EU and the UK, few markets have already taken the lead by creating and passing their own open banking regulation.
At the same time, there are a growing number of markets where – even absent of regulation – open banking is taking hold. These markets, in Australia, Canada, New Zealand, Mexico, Argentina, Nigeria, Hong Kong, Japan and Taiwan, for example, are also moving in the Open banking direction.
Understanding the rapid uptake of open banking approaches and models, is only a matter of time, as financial organizations, decipher its unparalleled customer value. We see quite a few firms in advanced stages of testing, prototyping new use cases, and operating models that leverage application programming interfaces (API’s).
A key part of the present Open banking narrative hinges on the ubiquity of API’s.
What are API’s and why are they important?
APIs are a set of codes and protocols that decide how different software components should interact – they essentially allow different applications to communicate with one another.
APIs are necessary for the functionality of Banking-as-a-Service (BaaS) – a key component of open banking. BaaS is an end-to-end process that connects Fintechs and other third parties to banks’ systems directly through the use of APIs.
So be it, comparison services, know-your-customer, auto savings and credit scoring to name a few, or use cases being commercialized into functional solutions, all these activities call for API’s.
Customers are beginning to understand and assess value of their data, and their expectations will in time start to influence products and offerings – most banks, will have little choice but to shift towards more open models.
Additionally, regulations or not, customer demand and shifting expectations will drive increased adoption of open banking models, and so will the customers look for seamless and intuitive value-added banking experiences. It is a virtuous cycle.
Longer term, be it Singapore or the US or the developing economies of the LATAM, open banking is poised to bring fundamental changes to the industry.
The moot question for the day, then becomes: How will the Banking firms demonstrate readiness for digital transformation that embraces Open Banking?
– Start by uncovering new areas of opportunity for future growth and value
– Build trust with customers as a safe and secure data holder
– Locate niche areas of expertise and develop unique products and services
– Partner with accredited open banking partners to create better economies of scale.
As banks start to expand their ecosystem in order to better serve customers, the ability to quickly and effectively connect to partners, data and systems will be key to organizational agility.
In the described open banking scenario, what specifically are the digital transformation partners, expected to bring to the table?
Apart from demonstrating A-level banking domain expertise, digital transformation partners of the future, will have to necessarily highlight their ability to craft superior digital experiences with both open source and hardened technologies