Open Banking: How to exploit the opportunity
- Posted on February 10, 2019
- Estimated reading time 3 minutes
As I mentioned in my last blog post, many countries are embracing the business drivers behind Open Banking and seeing it as a new opportunity to offer more choice for the customer. However, what should banks do to be successful?
Open Banking is an opportunity to ensure banks remain relevant in their customer’s lives – and avoid becoming a commoditised, ‘utility’ player. As ever, strategy depends on where you are starting from and your future ambitions, but there are several important considerations:
- Invest in data: develop distinctive insights from your customer data and offer more contextual services. All of BBVA’s open APIs are available to its Spanish customers for a fee. A retail shopper can finance a purchase using a loan from BBVA by clicking the loan button embedded in the retailer’s checkout screen. Accenture research shows that almost half of consumers want banks to play a role in the purchasing process for non-banking products. Once you have a mortgage approved, customers could then be given advice on insurance, removal companies and decorating services, for example.
- Aggregation plus: Open Banking is not designed simply to offer customers account aggregation. HSBC used Bud for its aggregation services and was a UK first mover.However, First Direct’s artha uses algorithms to offer money-saving tips by looking at current accounts. Another example is Yolt’s utility switching and money management services.
- Unbundle and specialize: Mastercard has been aggressively unbundling its card services into a myriad of component APIs, including a tokenization service that is powering PayPal’s Braintree business for merchants. Banks can also sell their specialized services to other parties; for example, consumer credit check services to fintechs or identity management tools (like KYC) to smaller banks to enable their business.
- Max your developer portal: you need to actively market your developer portal - by offering open source development tools, for example. Market your APIs as services and remember that your developer community is an active advocacy unit for senior decision-makers. The basis of competition has effectively shifted from fully-integrated banking solutions to banks competing through portals to entice more developers to use component services of the bank.
- De-risk through plug-and-play: core banking providers offer plug-and-play environments that de-risk banks’ experimentation with new offerings. Fractal, for example, is building its Customer Genomics on top of Finastra’s Fusion Fabric platform-as-a-service so that banks can plug-and-play the customer analytics service to help them reach new customers. Temenos has created a marketplace for its T24 core banking platform that will function as an app store, making it easy to access an approved and standardized set of new services on an API-based plug-and play basis - like the Apple App Store.
- Leverage non-banks: a number of industries are using Open Banking to enter the financial services sector. For example, Deutsche Bank has developed a payment solution with the International Air Transport Association so direct bank account payments can be used for airline tickets - at a price below that of card transactions. But go for preferred partner status rather than just another commodity provider.
- Collaborate in your ecosystem: this will dictate success. Forrester analyst Jacob Morgan puts it well: ‘Consider how your capabilities may connect with new communities of customers, partners, influencers, or competitors. Identify assets and competencies where you possess an edge, the ecosystems that might benefit from them, and who might use them. Build for integration — you must design ecosystem-thinking into products from the outset.’
The winners will be those banks that embrace Open Banking and see it as a strategic business opportunity, rather than compliance with regulation. It will be a challenge, both culturally and operationally, but banks can now innovate significantly within their ecosystem in a way they have not done before. As this is understood and acted on by banks worldwide, that can only be good news both for the customer and for the future development of the market.