EXCLUSIVE: ‘An open road’ – Eli Rosner, Finastra in ‘The Paytech Magazine’

Finastra’s latest State Of The Nation report shows that the financial services industry is well and truly on the bus when it comes to open banking. Eli Rosner, the company’s Chief Product and Technology Officer, looks at the next stop…

The transformative impact of open banking on financial services globally has been underscored by a major survey.

For its State Of The Nation 2021 report, technology powerhouse Finastra polled 785 professionals from financial institutions in the US, the UK, Singapore, France, Germany, Hong Kong and the United Arab Emirates (UAE). Just one per cent said they hadn’t seen any significant effect on their businesses from open banking. That compared to 13 per cent who said they’d seen no change when the same question was asked a year ago. The cause of that accelerated race to embrace?

Eli Rosner, Finastra’s chief product and technology officer, is in no doubt that COVID-19 ‘lit a fire under the banks’, causing them to examine their resilience and future strategy as payments, in particular, made a warp-speed advance.

“Financial services companies, just like many others, recognised that if they didn’t digitise, if they didn’t move faster, they were on a losing wicket,” says Rosner. “Ninety-five per cent of the organisations we spoke to forecast that they will look to improve or develop technology in the next 12 months. These discussions are happening in boardrooms as we speak.”

Other factors not related to the pandemic were also conflating to bring about change. Financial regimes that followed the UK and Europe’s open banking lead, including Australia’s CDR (which could be described as open banking-plus) and Hong Kong’s open banking framework, have either begun or have pretty much rolled out over the past 12 months. The full impact of the revised payment services directive (PSD2) in Europe is also now being felt.

But what the Finastra survey also revealed was that the industry now has its sights set beyond an open banking horizon. The technologies that Rosner says organisations are focussed on delivering over the next year are principally mobile banking, banking-as-a-service (BaaS) and artificial intelligence. Together, they are moving it towards open finance. That said, those technologies are not impacting at the same speed everywhere, while open banking itself is seen to be delivering different benefits in different regions.

Of the financial institutions that had already integrated open banking into their operations, the core benefits were seen to be improved customer service/experience, higher conversion rates for both new and existing customers and delivery of new services. In the UK, attracting new types of customer was seen by a considerable margin as the number one advantage of open banking. In France and Germany, organisations were more focussed on how it improved customer service/experience.

The Asian markets (Hong Kong and Singapore) saw open banking’s ability to deliver new services as the key benefit. The US rated customer conversion and the ability to support the delivery of new services equally. There was broad consensus among the UK, the US, Hong Kong, and Germany that the biggest impact will be felt in retail banking, whereas Singapore and France anticipate that payments will see the greatest revolution. The UAE identified trade finance as the number one area that could be transformed by open banking. Summarising the impact of the open banking revolution so far, Rosner says it has provided a variety of important benefits and has already paved the way for a holistic system of open finance.

“Sixty-three per cent of the people we questioned believe that it has enabled them to improve the customer experience, which is now seen as a critical success factor,” says Rosner. “There isn’t a meeting that we’re having with executives where customer experience is not being discussed.

“Close to 60 per cent claim that open banking helped them attract new types of customers, and, when they were asked about the future, 84 per cent agreed that open finance is a natural evolution of open banking.”

A COLLABORATIVE FUTURE

Given that open banking is predicated on a new data-sharing infrastructure, the questions around attitudes to collaboration – which is needed to enable it – were revealing. When asked if they thought shared data and infrastructure would become the norm across the industry, and a key part of the strategy for the move to open finance, the vast majority appeared to have bought into the idea.

That was particularly true of the UK, the UAE and Asia.

Once that principle is in place, you have the basis for a much richer range of services and products across not just this industry, but critically, others, too.

“Open finance goes beyond open banking and towards financial transparency and inclusion,” says Rosner. “An example would be to give customers the ability to share access to all their financial data online, including mortgages and savings. By enabling others to access that data, participants in the new ecosystem that’s been created will be able to bring to the table more innovative solutions for customers.”

How those participants prioritise innovation reflects the techological maturity and cultural nuances of the markets in which they operate.

“The UAE, at 44 per cent, and Hong Kong, at 42 per cent, lead the way when it comes to interest in mobile banking,” says Rosner. “Singapore, on the other hand, at 45 per cent, is most likely to improve or deploy BaaS. And, interestingly, the UAE, at 51 per cent, is most likely to improve or deploy AI. So, you can see diversity across the regions, but all of them are talking about how to leverage mobile, BaaS and AI.”

The overwhelming feeling was that BaaS would have a significant impact on business operations. Rosner believes banks have accepted it as a future business model or, at least, as part of a business model that has a regulated entity at its core.

“Without it, you can’t really carry out any financial transaction,” he says. “A middle layer [in this new construct] could be a marketplace, it could be a platform that packages services for consumption by whoever needs them, which might well be another bank or any company that wants to embed financial capabilities in its customer journey.

“From the bank’s perspective, it essentially changes their distribution channel,” he continues.

And, he points out, it allows them to utilise assets more efficiently with the potential to create additional revenue streams.

“If I’m a bank that has invested billions of dollars in infrastructure, I have very sophisticated capabilities, but some of them are not being 100 per cent utilised. Just like Uber is using cars that would otherwise be sitting in a parking lot, another organisation can utilise a bank’s capabilities when it’s not. Banks could essentially turn cost centres into profit centres,” says Rosner.

But it’s not all plain sailing to the promised land of collaboration and transparency. Complex regulations, security and the challenge of transforming legacy IT systems are all cited in the survey as major hurdles that have yet to be overcome. Rosner would argue that a platform approach can help address those in a coordinated and cost-effective way for organisations. An example would be Finastra’s partnerships with Salt Edge, announced in August. To deal with one aspect of regulatory controls, software-as-a-service provider Salt Edge will make an API available on Finastra’s core banking platform to improve the speed of compliance with PSD2 and other emerging open banking standards around the world.

“Regulation was identified as a significant barrier by 40 per cent of respondents to the survey,” says Rosner. “It was the top barrier for financial institutions in France, at 47 per cent, in Singapore, at 45 per cent, and in Germany, at 44 per cent – so, close to half of the respondents in all those countries. Security risk was identified as the top barrier by banks in the US, Hong Kong and the UAE [all 40 per cent]. And the last barrier, which really stood out for us, was legacy systems and IT – specifically in the UK, at 48 per cent.”

The pandemic catalysed not just a technology change, but also a cultural one. Finastra’s survey showed that 86 per cent of those asked, believed their organisations had a duty to support the communities they serve beyond supplying a purely for-profit service.

“These companies are increasingly looking for their organisational purpose,” says Rosner. It’s about how they deal with sustainability. How they contribute to the community. We call this redefining finance for good and it’s maybe one of the key takeaways from the research,” he says. “It’s a positive evolution as financial services and their customers adapt beyond the pandemic.”

This article was published in The Paytech Magazine 09, Page 30-31