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.