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Digital or Open Banking

Digital or Open Banking! 

Just the other day, I was talking with a banking friend. We were discussing the changes that have happened and what tomorrow may bring. He commented that Digital Banking will drive future change. As soon as he said that I had this feeling that digital is such an old term. It seemed to me that Digital Banking has been around for a long time. Digital can no longer be the future of banking.

I say that because we have past the age of the Digital Bank. If your bank is not digital by now, then either it has closed or will be closing.

Today the future is Open Banking. Banking relevance is to progress past being a Digital Bank and moving into being an Open Bank. This is the new path for banking success.

Let’s examine briefly what Digital Banking and Open Banking are.

Digital Banking combines online, mobile and ATM banking services as the banks business strategy. Digital Banking is really made up of three words: quick, easy, and seamless. Banking is now done by computer, tablet and more importantly by smartphones. Today’s consumers do not want to stand in line at the bank. They want banking accessible on their terms, when and where they need financial services. Digital Banking provides this.

The system of allowing access and control of banking and financial accounts through third-party applications is Open Banking. There is the potential to reshape the competitive landscape and experience of the banking industry. Open banking provides a unique opportunity for customers and companies by transforming how to manage their finances. It is a way to revolutionize the banking industry.

Here’s the math equation that represents Open Banking:

(Online + Mobile + ATM = Digital Banking) + API Access = Open Banking

Open banking allows third parties to access the bank through the use of application programming interfaces (APIs). Fintech’s represent a variety of possibilities, from microloans to easy payment gateways to e-wallets. Banks applying open banking are no longer traditional institutions with locks and keys. By providing a customer-centric approach to financial services, banks can become bank as a service and bank as a platform. There is the opportunity to offer financial services that the bank didn’t have initially. Customers and business can manage their finances more efficiently which is a big benefit of open banking.

The key for banks is their core banking system. The core banking solution is the technical foundation of the bank. Everything that happens inside the bank is connected to the core banking application which is the general ledger, accounting, and system of record. It is more important today for banks to make smart choices selecting their core banking vendor. There are several large companies that provide this software such as Fiserv, Finestra, Fidelity, Temenos, etc. These companies and others like them provide good solutions but without the flexibility to enable most banks to personalize and innovate. Their customer base relegates most banks to being just a number on a long list. It is understandably hard for these companies to provide the quick, easy, and seamless experience of digital banking with the accessibility enabled by open banking. This is not a recipe for banking success.

Open banking is the fuel of innovation for both the banking and fintech industries. This allows new technologies to grow and re-shape how financial services are consumed. Banks want core banking providers that provide business personalization with support to match. This is what will enable most banks to compete with the financial giants. The same is true of the core banking providers. Path Solutions is doing just that for Islamic core banking systems. In conventional banking, DataPro is a strong provider with their e-IBS core banking solution. Core banking solutions only become robust from years in the market. Combining SaaS hosting with the latest in digital technology plus the APIs of Open Banking is truly a winner.

With the ever-increasing competitive pressure banks are under today from fintech’s and other banks every edge is required. The innovation of open banking, huge savings from SaaS deployments and best in class support allows banks to meet market challenges as part of a superior bank-vendor relationship. 

Banks in the era of open banking have to be more competitive in order to win customers. This results in a wider choice of options, better customer service, and improved quality of financial services. Banks that adapt to new technologies will have more success. Open banking with digital banking and SaaS hosting allows banks to compete directly against fintech’s, third-party institutions, and bank incumbents. This leveraging of innovation is the path for banks to remain competitive in this rapidly evolving industry.



Comments: (3)

Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 17 June, 2021, 14:47Be the first to give this comment the thumbs up 0 likes

Since you've mentioned microloans, I'd argue that you've left the domain of Open Banking and entered the remit of Open Finance.

Open Finance has surely created tremendous value in USA, as testified by the nosebleed valuations enjoyed by do many Fintechs that access bank info via Plaid / Finicity et al. It's also clear that banks are not feeling too threatened by these Fintechs - otherwise, they could easily have cut off their data firehose, which is something that very few banks have done. (For the uninitiated, unlike EU, there's no OB regulation in USA, so banks that are sharing their customer data with third parties via Plaid et al are doing so voluntarily).

But have US banks gained anything financially by giving away their customer info to Fintechs via Open Finance? Has a single bank made a mention of the financial gains from Open Finance in its quarterly results briefings? If not, what makes US banks give away their crown jewels to their wannabe competitors? Those are the questions I've been asking myself and others for a while now.  

Hopefully, you have an answer!

Chris Principe
Chris Principe - APB, Inc. - Miami 22 June, 2021, 18:06Be the first to give this comment the thumbs up 0 likes

Hi Ketharaman, thank you for your interest in my blog. I understand your point which is specific to one aspect of Open Banking. You make a number of interesting points that are accurite for US banks. The benefits for Open Finance have yet to be displayed. I do believe that it is early yet for monitoring the results and I will be keeping an eye on this now that you have correctly brought attention to this aspect.

Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 23 June, 2021, 09:51Be the first to give this comment the thumbs up 0 likes

Fine, accepting that it may be too early for tangible results, I'm curious why banks even entertained request for integration partnership with the Plaids of the world. Per popular narrative, banks are extremely slow and won't move their backsides unless there's gilt-edged ROI. So the question is, what's the ROI promise for banks from Open Finance? Have any banks shared at least that info in public?

Chris Principe

Chris Principe


APB, Inc.

Member since

15 Nov 2008



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