By Maggie Scarborough Spatarella, Partner, Open Bank Advisors
The bank desires but has limited if any business digital engagement. The bank has the business transaction information it knows about, the business financial positions it knows about, and the ability to execute transactions upon the business’ orders. The bank does not necessarily have real- or near-real-time understanding or visibility into the business’ entire financial activities, even across the bank’s own entities. Inefficient, the information resides in separate silos that require hard-coded interfaces to access. Today, efficient close integration with processes of business customers and their business partners leverages real-time data and transactions and requires open technologies.
The roadblock to close integration is the know-how, time, and cost of digital transformation to open banking. Core banking systems and large corporate banking, treasury, and cash management systems are built of complex legacy architecture that is rigid, expensive and has difficulty adapting to the needs of large business customer bases, let alone a single business customer and its partners.
- Only the largest U.S. and global institutions, with large customer and transaction scale, will go through monolithic transformations of core retail and corporate banking; some have already replaced a few of their systems with open platforms. All are going through transformation of existing code and migration to new systems. It is a multi-year effort costing hundreds of millions to billions of dollars. The bank’s scale and opportunity must be worth the effort.
- With smaller scale, community-sized institutions, have an opportunity to replace their core systems with open banking cores or partner with an open banking integration platform that can leverage the data and customer information of the existing core, allow customers access to partnered applications, and facilitate transformation over time, all while meeting current business customer needs.
- Mid-tier institutions or large regional institutions must execute a significant transformation plan, while serving existing customer needs, they too will benefit from open banking integration platform partners. Although we have seen several legacy core replacements with open core solutions in this market, they have been multi-year journeys costing hundreds of millions as well.
The instruments of Open Banking are the cloud, open application programming interface (Open API), data, artificial intelligence (AI), robotic process automation (RPA), machine learning (ML), and image and voice technologies. The orchestra of Open Banking is the integration and data framework itself, including data management, business process management (AI and RPA/ML), API management, identity and access management (IDaM), and specialized security. New fintech partners with banking expertise such as Prolific Banking Inc. are rising in this area.
Key focus areas of business open banking are digital engagement (remote service and account onboarding and maintenance), close data and process integration with critical partners of the business customer though open APIs (e.g. business financial management and analysis such as SAP), CRM, payments, and risk and compliance.
Regardless of the transformation strategy on the IT continuum, banks should be kick-starting the migration to Open Banking now or risk losing business to more nimble competitors that may not be banks.
