The Reality Behind the Mystique of Open Banking

Open banking can mean different things to different audiences. In the United Kingdom, where it was ushered in by government mandate, it’s about allowing consumers to share their financial data with non-bank providers of financial and payment services. European Union regulators have issued similar edicts focused on the retail financial services market.

Much of the talk of open banking in the United States to date has focused on retail banking applications as well. However, some of the most significant opportunities for U.S. banks arise from the ability Open Banking offers to better serve their commercial customers.

Banks and their commercial customers are plagued by numerous stressors brought on by the COVID-19 pandemic. With growing demand for remote, just-in-time service delivery, capabilities such as online account opening and digital boarding have fast become table stakes.

Commercial customer demands aren’t all that different from the demands of retail customers: they want innovative solutions that support more efficient finance processes. Unlike consumers, who have few qualms about relying on nonbank financial technology firms, however, commercial clients prefer working with banks on the digital transformation of finance. Among those surveyed by Accenture for example, 70% said they would prefer joining an Open Banking ecosystem platform with banks; just 19% said they would prefer working with nonbank fintechs. The top three areas of business they expect to benefit from Open Banking are: finance, payments and treasury management.

Open Banking Basics

Open Banking platforms are built around several new and emerging technologies, including the cloud, artificial intelligence (AI), robotic process automation (RPA), and open APIs. These technologies are agile enough to support rapid deployment of data-driven products and services accessible using any type of device through any channel. They also allow for open access to customer financial data in collaboration with customers’ fintech partners. And they create new opportunities to grow through data-driven solutions, pricing and risk profiling, thereby improving the customer experience. But knitting bank, customer, and fintech securely is key. Close integration helps.

Open Banking uses a microservices architecture. Microservices are individual services and functions culled from larger applications and combined to create new applications using special APIs. These APIs (known as REST, or Representational State Transfer APIs) contain the routines, commands and protocols that integrate microservices so that they work together as a single application deployed through the cloud. The host operating system constrains access to physical resources thereby limiting consumption of the host’s physical resources.  Open Banking also uses APIs to connect to bank and partnered solutions.

To demonstrate how this works in practice, consider the client onboarding process. In a traditional banking environment, this is a time-consuming, largely manual process requiring substantial documentation and verification steps. As a result, it can take between 20 and 90 days to onboard a new commercial customer, resulting in as much as $25,000 in lost revenues from that customer, according to an analysis by Deloitte. Using technologies like AI and RPA (think workflow automation on steroids) eliminates much of this friction, leading to improved customer satisfaction and greater cross-selling opportunities leveraging data digitized during the on-boarding process.

Open Banking will drive significant value to banks’ bottom lines. The journey to Open Banking will not be a speedy one, however, as it premised on new sets of business principles and IT philosophies. Understanding where your bank’s core technologies reside on the IT continuum offers insight into how to map out the journey to Open Banking. This will be the focus of my next blog post.

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Published by Joe Spatarella

Joe Spatarella is a successful entrepreneur with more than 40 years of experience in FinTech. Joe has been at the forefront of successful new digital banking strategies and products. He has a proven track record of leveraging emerging technologies and developing successful go-to-market strategies for financial institutions. He has a multi-dimensional view of the business with a thorough understanding of sales, marketing, product, operations and technology components, along with the ability to communicate issues and opportunities with a clear, concise and forward-looking perspective.

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