October 29, 2019 | Dr. Ashima Chopra
Category: Banking, Open Banking

fiorano-integration Freedom of Choice and Services:

We know that Open Banking is about being Customer Focused. Customer Focus is fundamental to Open Banking in that it allows customers a wider choice of services to choose from; gives them control to use these services; keeps their data as secure, all whilst offering them the comfort of their traditional Bank albeit removing the monopolistic restraints and constraints that bound these customers to the limited services offered by these Banks.

Banks and Digital Services:

Not unlike the internet which was initially developed as an internal tool to assist researchers in communicating with each other via the intranet, Open Banking, in particular the use of APIs, were initially local offerings by Banks to enable third-party developers to build applications and/or services for their Banks. “[They started] … out as isolated local initiatives, [but now] … represent a growing global movement that is being embraced on a strategic as well as a technical level to unlock a new world of rich, interconnected digital services. (“Open Banking is taking off! But where is it heading and who is in the lead?” Melisande Mual, Voice of the Industry, 14/10/2019. )

Fundamental to Open Banking is digital services and its widespread use in the payments realm (using the computer or mobile devices) the world over. But fundamental to survival of providers/Banks is to remain relevant in the digital Banking space … [via] … the adoption of an open API strategy (enabling third parties to offer new services) with a well-developed technical strategy to enable these services to be provided. The importance of this cannot be stressed enough as this is now a global phenomenon. Open APIs are a fabric of Banking in more than 50 countries covering thousands of Banks. (Refer to "Open Banking is taking off! But where is it heading and who is in the lead?” Melisande Mual, Voice of the Industry, 14/10/2019.)

Changing Trends:

With the agility of changing Banking trends driven by digital solutions and services, "'Millennial' consumers demand more from payment providers: more creativity, more cashback, more rewards, and a more interesting user experience … [which entails] researching the top payment solution providers and finding savings to pass along to their customers in the form of cashback rewards, loyalty points, or increased functionality. Since Millennial consumers are constantly researching how to get the best possible deal from their payment solutions …” ("Popular payment methods for millennial customers." Melisande Mual, Voice of the Industry, 09/10/2019.)

Competitive Edge:

But how does one use the Open Banking advantage with ensuring that the digital generation of the Millennials can be attracted to the services being offered? To stay competitive, Charlie Quigley, co-founder of Youtility, says information contained within customer Bank accounts could be better used to enable customers to get a better deal … where information on a person’s spending held by a bank can be used to provide a better deal for Utility services to that individual. (Refer to "Not About Banking", Joe McGrath, OpenBankingExpo Report October 2019.) The key is knowing how to use data to improve customers experience, relationships and outlook to Banking where customers consider Banks a friend and guide and not just monetary institutions. (Joe McGrath, "Not About Banking" OpenBankingExpo Report October 2019.)

And it is Open Banking with its Open APIs that enable services such as Youtility to offer the Bank’s customers the service of connecting them to utilities that would prove to be more cost effective for them based on data available.

Adopting a Strategic Approach to Open Banking and Related Developments:

So why is it important to think strategically about Open Banking, APIs and related Data? APIs function is to interface with data. It is this data that in the Banking world can be considered a goldmine of information on individuals and can assist these individuals in making savings (if these individual customers consent to using a third-party service offered by the Bank), giving the Bank an added advantage in retaining their custom.

Eleni Coldrey, Business Development Director for EMEA at Equinix has discussed what innovation to Banks may entail. Innovation can become a reality when Banks think strategically about their data and APIs. Coldrey says: "[While regulations such as] PSD2 … [have] been interesting in that … [they force] … banks to think about their API strategy … [in reality] … in talking to customers, we see there is internal attention on APIs … Open APIs are the minimum that are being provided … but premium and contract APIs are a big field that can advance once they get past compliance." ("Features", OpenBankingExpo Report October 2019.) In short, the competitive advantage of Banks come into focus when Banks go beyond providing data to third parties as mandated by regulators but, instead, taking a strategic innovative approach to the data they hold and what it can offer customers when used to "guide" them about their spending and/or on choice of services they may subscribe to.

The possibilities of Open Banking are endless starting with the cross-over boundaries of service, the scope across national boundaries and demographics, the endless innovation, the need to meet the impatient, agile and well-informed needs of the digital Millennial Generation. But to take advantage of its full potential Open Banking cannot be relegated to a regulatory “need” and instead should to be seen as a strategic canvas with endless potential. The discussion has only just started!

Note: Several Banks are implementing Fiorano PSD2 Accelerator to comply with PSD2, a new Banking regulation in EU.