The Rules of Open Banking for Those Who Want to “Go Big”
“Open banking is proving to be a game-changer for financial services. As the last pieces of a more modern, flexible technology infrastructure fall into place, Fintech disrupters and financial institutions with a clear strategy are surging ahead with innovative and profitable open banking initiatives”. These are the clear and emphatic words of a reputed firm in the sector, Fiserv, taken from the introduction to one of their latest white papers, ‘Open Banking: Start Now and Move Fast’.
Over the course of just over a dozen pages containing numerous references, this document addresses the current status of open banking across the world, looking at the proposals being considered in different countries, and provides some key points for staying competitive and surviving in this new environment.
The report assures that banks “still” hold the key to consumer trust, warns that fintechs are making movements towards becoming banks themselves and encourages the biggest players to work with new partners as a way of participating “in the growing migration of financial services from traditional banking channels into the fabric of customers’ lives”.
The movements of fintechs and the quick response of some large banks have led to increased competition, and the report cites the Spanish bank BBVA as a successful example, having agreed with Wise to offer digital banking for small businesses through the BBVA Open Platform.
This competition has also had a direct impact on the tech budgets of some of the most recognised names on the market, which reach some dizzying figures: $11.4 billion in the case of JP Morgan Chase, $10 billion for the Bank of America, $9 billion for Wells Fargo and “just” $8 billion when looking at the investments by Citigroup, according to data provided by Business Insider in March of last year.
This journey is far from straight forward for anybody. Whilst many financial institutions “are eager to experience the benefits of becoming more open, it’s important to note that the answer is nowhere as simple as opening the data floodgates”. In fact, the authors point out that sharing data the wrong way and implementing open banking poorly could lead to a “tangled web” when integrating information, open holes in security and cause setbacks for an institution instead of pushing it forward.
The latest waves of technological development have focused on the four design principles identified by Celent in ‘From Challenged to Challenger: Becoming a 21st Century Bank in an Open Banking World’. These four principles are: API first, cloud-native, open data model and real-time 24x7x365. These can be described in more detail in the following way:
The priority has to be in generating and powering APIs which allow sharing, exporting and importing of data with other players.
All information and data should be on the cloud.
There is no viable business model which isn’t based on taking advantage of the opportunities of sharing data.
The functioning has to be in real time, 24 hours a day, 7 days a week and 365 days a year.
These principles being met, “financial institutions are empowered like never before to transform the customer experience and help people bank the way they want to bank”.
As a result of all this, it’s logical, therefore, to consider what today’s consumer is like, focusing on the millennial consumer and especially Gen Z, which “is predicted to become the most entrepreneurial generation yet”. The questions that the sector really needs to ask are: What problems could financial service providers solve within the next few years? How will new brands emerge to meet new needs? Which banks or fintechs will become known for helping microbusinesses succeed? Which will create unprecedented levels of personalisation and become recognised as “the bank that knows you”?
And since we’re talking about banking, the big question seems inevitable: where’s the money? This white paper projects some viable scenarios based on the use of technology to accelerate digital transformation and create differentiating customer experiences, which in turn will boost relationships, revenue and customer retention.
One example of generating recurring revenue would be to charge fees to third parties based on the volume or type of data that they consume, the number of times that they request data or the number of transactions completed through an interface. The report also suggests that another way of generating revenue would be by developing and selling new innovations through an open marketplace.
Finally, ‘the key to winning’ in this market will be “to think like a venture capitalist”. “Open banking strategies allow financial institutions to be creative and differentiate in the same way a venture capitalist identifies a problem and then devotes resources to solve it in a way that’s unlike anything the market has seen before”.
These are the new rules of the banking market for those who truly want “go big”. Wherever banks choose to start their open banking, they need to focus on differentiation, having a positive impact on the consumer experience and aligning themselves with technology partners who can provide as much strategic and tactical support as needed.