Open Banking as an accelerator for digital transformation in times of change

The current ongoing pandemic caused by the novel Coronavirus Covid-19 is having a global economic impact – without any doubt.

We see the wellbeing of millions being impacted and the health systems reaching its limit. Governments are intervening with drastic measures to rescue health systems, economies and jobs. For a functioning global economy, a functioning banking and payment system is vital as well. Yet, the financial services industry is facing another shock after the financial crisis 2008/2009 with shrinking revenues due to lower consumer and business spends, lower interest rates, increasing credit risk and volatile capital markets. 

Despite this difficult situation, there are clear ways the financial services industry could contribute innovative and constructive ideas to boost the recovery phase after the crisis. Currently, we can observe a change in consumer behaviour, and we need banks digital transformation agendas and regulators shaping the respective legal environment to help facilitate this change.

Change is coming faster – the NEW NORMAL?

Consumers are rapidly adapting to the new situation – not only with regards to changing health and wellbeing behaviours but also with what they expect from their banks. We see banks prioritizing and driving digital banking and payments to meet the increasing demand for remote/online and mobile solutions. In my discussions with banks in the recent weeks, we talked about how they can be prepared to facilitate the new normal and become even stronger than before the pandemic. But platform and data businesses of the tech giants are strategically well positioned to capture more business during and after the pandemic – away from particularly physical stores at Point Of Sale (POS). Time will show if this change is sustainable and solidifies as the ‘new normal’ – but change is coming faster for sure.

So, what is happening right now that could cause changing customer behaviour? We are already seeing people making changes by…

• …avoiding cash as a potential virus transmitting payment instrument (ATM transactions went down by more than 50% compared to 2019 in the UK as an example)
• …using contactless payment methods as many merchants do not accept cash anymore
• …shopping more on online platforms. Ecommerce platform businesses for things such as deliveries, food, travel and others could strengthen their digital position and even become more powerful
•  …willing to share data for a higher good. For example, in South Korea and China – with more countries soon to follow – people are actively sharing their data with apps that track infected persons and therefore help save lives

Banks are also responding to the new environment through…

• …speeding up adoption of mobile payment mechanisms
• …opening up new digital onboarding capabilities for any type of banking service
• …investing in Open Banking capabilities to collaborate with fintechs and speeding up the implementation of their digital banking agendas 

Regulators could also play an important role here by…

• …increasing limits for contactless payments at POS to avoid people having to touch the terminal and cash – e.g. as already happened in Europe in March 2020 when the EBA encouraged payment firms to increase the limits
• …establish new regulation to allow remote and online banking processes such as digital onboarding (eKYC, loans, account opening and other banking services). For example, Egypt published a regulation in March 2020 to allow eKYC at banks with existing customers to issue mobile wallets and open internet banking accounts
• …establish first guidelines for an Open Banking framework with API standards or regulation to enable more people securely manage their money online
  
  

Open Banking capabilities as an enabler

Banks and regulators are being given a golden opportunity to proactively shape and respond to the current situation and support the new normal. Open Banking is a vehicle to bring banks and the ecosystem up-to-speed to face the new challenges. Banks could benefit from capabilities provided by Open Banking concepts beyond the current market conditions, for example:

• Form collaborative ecosystems: leverage fintech capabilities to speed up digital transformation using Open Banking concepts
• Boost online presence: more self-service in the online and mobile banking, AI-powered finance managers, digital onboarding, marketplaces and more
• Support struggling SME businesses: easy supply chain financing, offer discounting and factoring services, AI-powered cash liquidity management and business finance managers
• Enable contactless payment mechanisms and go beyond digital wallets: payment-enabled ecosystems surrounded by banking and non-banking third party providers (TPPs) to meet customer's mobile needs
• Carefully build on the increasing consumer willingness to share data for benefits: improved data-driven applications and analytics

What does it mean for regulators in this fast-changing environment?

Regulators could redefine their role they play in innovative banking and payments – and regulate in an agile way. “Regulators as innovators” could describe it more aptly. Forward-thinking regulators can foster a progressive environment for more digital transformation and support innovate solutions – starting with Open Banking, digital onboarding, security and data protection standards.

Digital transformation is not new but is now more relevant than ever. Open Banking can help to equip banks and the ecosystem to build innovative solutions for consumers much faster. All players have a role to play in tackling the current situation and in helping the economy recover as quickly as possible.