The cloud simplifies and accelerates delivery of open banking standards, providing opportunities to improve awareness, transparency, and scale. Industry players would benefit by forging ahead with more effective and structured collaboration, facilitated by application programming interface (API) standardisation and shared customer data insights.
The current bank model is shifting as regulations such as the Competition and Markets Authority’s (CMA) open banking mandate, the European Union’s Revised Payment Services Directive (PSD2) and General Data Protection Regulation (GDPR) prioritise innovation. Legacy players are being encouraged to nurture their value propositions in this new digital landscape where agile competitors have no legacy technology debt to manage.
Capgemini’s 'Leverage Open APIs - the glue that will hold your ecosystem together' report details how open APIs simplify the way financial institutions (FIs) collect actionable data in the form of customer purchasing decisions, loan needs, preferred journey patterns, as well as access to contextual information relating to risk profiles and future income projections, for example.
FIs can then leverage this “actionable data” to cost-effectively use artificial intelligence and machine learning algorithms to support multi-channel marketing, reduce reliance on overspending and manage a federated agency network. As banks are now able to integrate services and deliver in an agile manner, CEOs are more interested and involved in these API-driven service conversations than CIOs and CTOs - solidifying the business value of this technology.
Finextra spoke to Colin Payne, vice president and head of NextGen Banking, and Clifford Evans, executive vice president and head of cloud and digital for Europe, at Capgemini about how banks need to understand their new relationship with data, the control customers have over their personal information and opportunities to leverage the power of APIs to drive business value. Capgemini is a Premier Consulting Partner in the AWS Partner Technology Network and has achieved AWS Financial Services Competency for its expertise in helping financial institutions accelerate their journeys to cloud.
The cloud is home
The API economy is here to stay. Evans highlights that the first principle banks need to understand is they do not own the data and regulatory standards will continue to support this concept. “Customers own their data, and open banking acknowledges this fact. Open banking ensures that we move to a world where data may be transferred or processed to create value and that customers can give authority to whomever they choose.”
Introducing the subject of premium open APIs also reiterates the significance of how this translates to permitting data usage for value-added services. “It is not the early level of regulated exchange that will provide value to the customers. And this is where we think cloud is the natural home for that kind of premium API exchange. New business models need a scalable standardised format, and cloud is essential for this paradigm shift,” Payne explains.
However, for this paradigm shift to be set in motion, traditional FIs must leverage the opportunities that positioning the cloud as the natural home for API exchange offers - in the same way that native digital players are currently doing so. Here are three of these opportunities as described by Evans.
1. The cloud facilitates stronger scalability and security for businesses and introduces new ways to mine data from multiple, simultaneous sources, allowing banks to provide control at the data item level and manage open exchange of data on a case-by-case basis.
2. With permission from customers, the cloud allows banks to position historic transaction data in a real-time customer-centric context and integrate data from IoT devices or social media.
3. The cloud can apply sophisticated algorithms, machine learning and artificial intelligence to derive actionable insights to deliver business value.
Evans summarises that for these three actions to be set in motion, there needs to be a “highly scalable processing capability, which can be applied to real-time datasets, can handle distributive datasets, and can scale on demand. Again, this is a natural ability of an elastic high-performance cloud computing environment. In our discussions with clients, we are seeing this is one of the most prominent business cases for cloud usage.”
As the financial services industry undergoes digital transformation, banks must migrate from on-premises data warehouses when handling large volumes of data. Scalability is also important here, as Evans explores. “In order to harness usable insights from data, you need a very different processing capability than what banks historically had to manage these in-house data warehouses. You need to move away from the data warehouse concept and have an infrastructure which can scale up and scale down on-demand, which cloud offers.”
“That is why we see when we are talking to the banks, the most prominent business case around using cloud is how we manage these datasets and derive fresh, purposeful insights to improve customer experience.”
A call for standardisation
The next step in the cloud computing adoption journey is standardisation. While there have been attempts to standardise the use of open APIs in the UK by the CMA and Open Banking Implementation Entity, the industry is still seemingly in the midst of a perfect storm. However, customers need and deserve standardisation, according to Payne.
“Currently the legislation relating to open banking has a limited scope only really covering personal current and payment accounts. Therefore, relatively common banking information like mortgages, investments, loans, credit cards, etc. do not need to be made available by API in the same standard format. We expect these standards to harmonise over time either led by industry or regulators, but we are some way off.”
Payne goes on to explain that regulation only offers encouragement and direction, but players in the industry need to act and leverage what is available to them to offer customer-centric products and services. Further to this, Capgemini believes that instead of grappling with the current open banking mandate, financial services will transition to a phase they define as ‘Open X’. With this, there will be a fundamental shift from product to experience, assets to data, ownership to shared access, and building, buying or partnering.
Open X will drive an efficient exchange of resources and inform product innovation; however, incumbent banks that are unable to keep pace with this new ecosystem must ensure that they can profitably success in new roles.
Payne states that “the minimum viable products approach has ensured that banks are only just about compliant. But the market is demanding a standardisation to move to a wider Open X capability. We cannot rely entirely on regional regulatory initiatives because those alone cannot achieve the kind of common global standard that is needed.”