To deliver the level of quality expected from an organisation in today’s consumer-prioritized environment, banks are not only having to adapt to the evolving needs of the customer, but also to new regulations. As a result of the emergence of Open Banking; a series of reforms designed to bring in greater agility, flexibility and ongoing innovation to financial services, banks now have additional requirements to share data with authorised providers like financial mobile applications and other banks.

Around 19 percent of the industry[i] has already shifted to private cloud models and this is only set to increase, albeit slowly. Open Banking requirements are expected to spark increased interest in public cloud services, as banks look at the most cost-efficient strategies to achieve greater agility whilst meeting data sharing regulations. Considering these trends, it’s clear that hybrid cloud approaches are the new standard, in terms of achieving the ‘perfect blend’ of greater scalability and flexibility from public cloud environments and the security and control offered by private infrastructure. This will ensure compliance and modernised infrastructure, without increasing the risks and costs beyond an immediate move to public cloud.

Holding the challengers at bay

The significant challenges facing traditional banks often set them behind digital-first start-ups like Monzo, as larger organisations would have to overhaul their IT systems and infrastructure in order to increase agility, scalability and efficiency to the level of their fresh new counterparts. This is often a difficult decision to make as it involves significant costs, but the potential of no longer being competitive in the market is arguably a greater risk to take.

Additionally, there is the threat of loss of income due to lower transaction completion rates by Payment Initiation Service Providers (PISP)[ii] - banks being one of the primary sources. This has the potential to cause a large amount of retail payments revenue to be wiped off the ledger, which would force banks to find new revenue streams. Whilst this provides additional incentives to update IT assets to support critical operations, the allure of Open Banking is further reinforced by the possibilities on offer from data monetisation.

This diversification of revenue streams, combined with increasing demand from the customer for greater control over financial data, puts the focus firmly on IT teams to deliver advanced data processing, storage and transmission, achieving the full benefits of Open Banking, whilst complying with important regulations such as GDPR.

A hybrid approach

The monetisation of data as a revenue stream can take form in one of two ways: charging for API data requests and using the data from other banks to develop a wider customer understanding, useful for customer targeting and marketing. In fact, according to a report[iii] on open banking by PwC, 40 percent of the customers of a global bank which implemented APIs through partnerships are now digital, a segment which generates more than twice the revenue as the bank’s traditional customers.

Cloud adoption is widely accepted to have a positive impact on innovation within businesses across all industries with its inherent ability to go beyond the obstacles created within siloed organisations. Research by IBM found that at least 75 percent of bankers said their most successful cloud initiatives had already achieved expansion into new industries, created new revenue streams and expanded their product/services portfolio.

As hybrid cloud environments are best placed to deliver the best balance of agility and control over data, these solutions will help facilitate broader digital transformation towards the establishment of Open Banking as an industry standard. Rather than outright replacing an otherwise functional IT infrastructure, hybrid cloud models allow data to be transferred between private and public clouds more quickly, efficiently and securely, enabling greater flexibility and agility. However, to deliver on the true capabilities of this model, it’s necessary to have high bandwidth, low latency connections to and from the data centre.

Therefore, while it’s clear that traditional banks must embrace digital transformation within their IT infrastructure, investment in upgrading wireline connections to the data centre will provide much-needed risk and spend reductions to deliver better results. In a rapidly evolving industry, where flexibility and agility count for everything and the customer experience is a top priority, these improvements will make all the difference in establishing a competitive lead for those banks looking to race ahead on their Open Banking journeys.

[i] https://www.forbes.com/sites/louiscolumbus/2018/09/23/roundup-of-cloud-computing-forecasts-and-market-estimates-2018/#698d4c1f507b

[ii] https://www.finextra.com/newsarticle/28891/banks-set-to-lose-43-of-retail-payments-revenue-under-psd2

[iii] https://www.pwc.com/us/en/financial-services/publications/assets/pwc-fs-digital-open-banking.pdf