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Where are we with Open Banking?

COVID-19 has accelerated digital transformation across the financial services industry in a way that it was not wholly prepared for. It has placed fintechs much further ahead in the race to adapt and deliver new business models and revenue streams, especially for those who have already leveraged the potential of Open Banking. But while traditional institutions may have acknowledged the need to shift from a transaction-led model to a data-led revenue system, few have made the leap.

The problem is, Banks still see Open Banking as an imperative rather than an opportunity.

But in order to remain competitive, they need an approach to Open Banking which fosters valuable collaborations with fintech developers. A successful strategy cannot rest on the notion of building a series of interfaces and expecting third parties to come running. A whole new series of developer-focused support services, from API discovery to supporting ideation, testing and deployment must be considered in the strategic future of banking.

Developers are banks’ new customers

Banks’ commitment to developer relations was important but now, is vital. COVID-19 has thrown a spotlight on the banks’ ability to adapt and survive without people visiting branches and without reliance upon manual processes. Those that didn’t truly commit to a digital transformation strategy yesterday, are set to pay the price today. By allowing third party fintechs access to business accounts, payment providers, lenders and equity managers, they will be able to better serve businesses desperate to improve operational efficiencies, cut costs and better serve their customers.

For banks to make this necessary step, they must work hard to make their platforms and sandboxes attractive to third-party developers looking to rapidly prototype new applications. To attract much-needed talent, developers need to be treated as a valued customer would be. High standards of service should be upheld, high-quality, rich APIs must be produced, and relations must seek to exceed developer expectations in the same way banks should for their traditional clients.

A testing environment built for success 

Beyond being welcoming, banks need to make Open Banking easy for developers. This also means documenting as much code as possible and putting everything into an API interface which will allow consistent testing and rebuilding. The availability of testing not only holds benefits for developers who will be able to customise their working processes, but for banks who will gain a more enriched user experience from a tried and tested integration.

But this can only take a bank so far. Mining for better data is the essential next step in delivering on Open Banking’s potential which means collaboration must extend beyond financial services.

Banks can only collect a limited layer of data; the actual owners of the data tend to be the retailers or service providers that customers are purchasing from. If banks were to take the plunge into insurance and retail data, there would be a greater understanding of consumer behaviour, leading to an enhanced service offer. This is why early innovation has focused on personal finance management – once the industry has a grasp on how and with whom those consumers are willing to spend, banking and fintech as we’ve known it can start to make insightful recommendations that take us beyond Open Banking into Open finance.

Commit to the cause

Currently, Open Banking is not as open as we would like it to be. Banks need to acknowledge its potential and fully embrace it or risk stagnating within a market that continues to be disrupted. Committing to the cause means fostering new partnerships for success and tapping into fintech developers and retailers whose expertise are vital in delivering a truly ‘open’ experience.

 

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Comments: (4)

A Finextra member
A Finextra member 10 July, 2020, 12:52Be the first to give this comment the thumbs up 0 likes

I would welcome the oppurtunity to discuss this with you Adam. I think there may be a few events that would contradict your understanding of the progress made. Captain Tom, personal and commercial loan assessements, Wealth management usage, CBPII products, unique payment collection solutions, financial education to name a few. The sheer volume of API calls and the use cases may not match your interpretation.  Notwithstanding the Crown Commercial Framework (RM6118) where multiple Open Banking provders are registered I would argue that the progress is a lot more than PFM.  I am happy to dicuss anytime you have availability. Progress has been superb and the amount of use cases that I see emerging is a lot broader than you state. 

Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 10 July, 2020, 13:53Be the first to give this comment the thumbs up 0 likes

A2A payment apps (PayM, myBank), PFMs (Mint, Kublax) have been operating (and dead) for ages without requiring Open Banking. I don't see anything in this post - or anywhere else for that matter - that explains what more revenue profit opportunity exists for banks from Open Banking-based Payment and PFM providers?

And, as I pointed out in my comment on this Finextra article, I was terribly surprised that the PAYMENTS category is altogether missing from the Open Banking App Store.

Compared to Twitter, LinkedIn et al, who are quick to shut access to third party apps that gain too much traction basis customer info they get from them, banks have done a far better job of supporting Open Banking (I don't know why). 

Adam Bialy
Adam Bialy - OpenPayd - London 10 July, 2020, 15:10Be the first to give this comment the thumbs up 0 likes

Thanks for your comment Simon. I don't think progress (or lack thereof) with use cases or number of API endpoints available in the UK in particular is what I'm highlighting here. Although even with that I would argue that the UK banks' commitment to supporting the technical community of 3rd party developers consuming the open standard (regardless of how many endpoints are available) hasn't been great. Were it not for the local implementation body and the decent job you gents are doing, there would likely be no progress, only neglect. This is from a perspective of someone who's been at the level of individual API fields and the painfully heterogeneous user authentication flows. This topped off with complete lack of post integration support on the part of individual banks doesn't paint a great picture.

But I digress... My main point here is that the issue is broader than just the UK and it's primarily around mindset. The banks in Europe clearly don't have the required technical pedigree to spot, understand and support great ideas that solve real customer problems - ideas that keep popping up every now and then and that leverage (or are supposed to leverage) the Open Banking / PSD2 APIs. These, from experience, are mostly in the B2B space as in B2C we're yet to find the universal killer use case (which I personally believe has to be at the level of universal bank payments at a supermarket till, in order to gain critical mass). 

My hypothesis is that the current state of affairs is due to the European banks' philosophy itself being broken - still treating OB / PSD2 as an imperative rather than opportunity, per my post above.

A Finextra member
A Finextra member 10 July, 2020, 15:24Be the first to give this comment the thumbs up 0 likes

I can only speak with authority and empirical experience on the UK. For me the push from the UK banks and the fintech sector is material to say the least. Our own govermnent is taking the initiative very seriously. Multiple sectors are experiencing support to transform Open Banking from a compliance exercise to a commercial set of propositons. That is key. Tell me are Openpayd enrolled and active within Open Banking? 

Adam Bialy

Adam Bialy

Chief Product Officer

OpenPayd

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