MAKING A SUCCESS OF OPEN BANKING

MAKING A SUCCESS OF OPEN BANKING

It’s taken them a while, but institutions are at last responding intelligently to regulation that’s liberated financial services, says Kanika Hope, Global Strategic Business Development Director at Temenos.

According to the recently published Economist Intelligence Unit (EIU) report, A Whole New World: How Technology Is Driving The Evolution Of Intelligent Banking, businesses see Open Banking as the top strategic priority by 2025.

Forty-one per cent of respondents also consider acting as a true digital ecosystem as well as a hybrid model, aggregating third-party products in addition to providing their own, as the primary business models of the future.

Both of these are classic Open Banking platform models that we are already seeing today where banks collaborate with third-party manufacturers and distributors to provide services to their own and others’ customers. By 2025, respondents also see the biggest competition coming from technology and ecommerce disrupters, and from partnerships between these giants and fintechs, rather than from payment providers or peer-to-peer (P2P) lenders or fintechs on their own.

This mirrors what we at Temenos observe in the industry today.

Regulators embrace innovation

From a regulatory point of view, over the past year, Open Banking has received a big boost across the world. Regulators are promoting competition and innovation while driving application programming interface (API), digital identity and security standards. In other words, they are encouraging open banking initiatives, both directly and indirectly.

Europe’s revised Payment Services Directive (PSD2) was the pioneering initiative. This, along with its own open banking framework, introduced by the Competition and Markets Authority, made the UK one of the first markets to mandate Open Banking.

In Australia, the government’s Open Banking In Australia initiative mandated the four major banks to make banking data available to third-party providers (TPPs)
by June 2019. The monetary authorities in Singapore and Hong Kong have been aggressively driving API standards in recent months. Canada is expecting
to see similar initiatives, with the Canadian Bankers’ Association focussing on digital identity as a precursor to an Open Banking framework.

But are banks ready?

If we look at the more mature markets, the reality is that Open Banking adoption by incumbent banks has been slow. On the technological capability side, banks are not finding it easy. In the UK, four of the CMA9 banks missed the January 2019 deadline. A 2018 report by Finextra and APIMetrics UK called Open Banking APIs Performance Analysis: 2018, on the performance of the open banking APIs in the UK, revealed that several banks are failing to deliver adequate service quality levels to consumers for the mandated APIs, such as availability and latency. The challenges of legacy infrastructures were noted in the report. Furthermore, in Europe, only 41 per cent of banks are on track to be compliant with PSD2 ahead of this month’s deadline. Consumer awareness and apathy are another factor. In January 2019, one year on from the launch in the UK, 58 per cent of respondents in a YouGov survey still did not know what Open Banking meant. Privacy and security concerns also play a role, with the disillusionment caused by recent incidents involving Facebook, Google and other technology giants in this area

Luckily for banks, they are still more trusted than third parties. Those consumers who were made aware of Open Banking in the same YouGov survey in the UK, categorically said that they would trust banks above new entrants in keeping their personal and financial data secure.

The endgame – a consumer-centric revolution

To make a success of Open Banking, incumbents need to make consumers aware of the concrete benefits, while assuring them of the safety of their data.

The key question they must address: how does Open Banking create greater choice and control over what consumers buy and from whom; and how it provides increased convenience, targeted advice, transparency and personalised products at lower cost.

At Temenos, we are seeing many of our clients starting to implement open banking successfully. Many have launched API marketplaces, initially aimed at third party developers, that were oversubscribed within weeks of launch. One incumbent bank has launched an aggregator multi- bank personal financial management (PFM) app in its home country, while several digital challengers are exploiting open APIs to provide real value-add to their customers in terms of ease of payment or new services. Santander’s Openbank recently launched a charity marketplace. “Customers can go to the website, select a charity, set up an automatic transfer every month or year, and receive a tax receipt,” said their CEO, Ezequiel Szafir, recently.

In the end, open banking will be deemed a success only when it is able to drive a consumer-centric revolution of sorts in financial services, i.e. helping to launch banking innovations that are intrinsically based on interconnectivity of data and services from multiple ecosystem players that become mainstream and make a tangible difference to the everyday lives of end users.