Open banking: Focus on the positives
The opening up of traditional data to new aspiring service providers opens up new realms of possibilities for challengers, but it also creates exciting and intriguing relationship opportunities for incumbent banking service players.
The regulatorily mandated opening-up of traditional banking data to other would-be banking service providers is often viewed through a single lens: the vast opportunities that this presents to financial technology (FinTech) firms, aggregators and other so-called disruptors.
The apparent business theory, in so far as it might constitute a valid business theory, is that new comers to the field, who are unencumbered by legacy systems, processes and attitudes, will be free to wreak digital havoc, while analogue dinosaurs look on in paralysed bemusement. For us, nothing could be further from the truth. We take a very different view.
The new wave of dynamism supposedly unleashed by enlightened regulators and enabled physically by ever evolving technology, does in fact fit very well into our own business universe. The future will be increasingly based on the availability and transparency of data. This will of course create some opportunities for digital upstarts.
But it will also create further opportunities for banks who can envisage the necessary transformation and successfully navigate the corporate barriers to take advantage of this. Incumbent players, in short, still have a highly attractive future.
Regulators want traditional banks to make their data available via application programming interfaces (APIs). We are already doing this, via almost 4,000 APIs on our developer platform, enabling the creation of new solutions in myriad ways.
Exploring the opportunities
For the pessimists, the era of open banking driven by regulations such as the European PSD2 (Payment Services Directive) that became effective at the beginning of 2018 has generated a common complaint, as it is perceived as unfairly benefitting the web giants and their boundless appetite for data. From my point of view, however, it is up to the financial industry to explore the opportunities which have been created and to take up the challenge of transforming into a new form of competition.
There is no denying that the GAFA companies (Google, Amazon, Facebook and Apple), and possibly the BATX group, their Chinese equivalents (Beidu, Alibaba, Tencent and Xiaomi), although they come from a very different context, may now redouble their efforts in entering the banking sector, as confirmed by Facebook’s much-publicised intention to create a so-called stable coin, called Libra.
They have all made their way into the payments industry, each with their own strategic objectives. All end up with the same ultimate target: increasing knowledge and awareness of their customers and thus improving their information-based business models. That target is now easier to achieve than it has ever been.
Producing better but cheaper products
Although their entry may have been underestimated by the European lawmakers, this is part of what they had in mind when drawing up the PSD2: to promote diversity of competition, to stimulate the development and provision of better and cheaper financial services to the consumer.
But this objective is not reserved to new entrants only; it is equally a call for banks to try and improve on their offerings, not only to remain competitive in a recently crowded marketplace but also to stay relevant to their customers and their expectations.
As alluded to earlier, the regulatory mandate to open up our clients’ data through using APIs brings an extraordinary chance for us to modernise our approach to building our information systems. It will enable us to make them more agile, allowing the business to deliver more personalised products and services, at a faster rate and at a lower cost. We are optimistic that this will, in due course, extend well beyond the areas covered by the directive and will ultimately enhance every aspect of our banking services.
The challenge we face is to offer the user experience that customers now take for granted and that technology leaders and FinTech start-ups have integrated so well into their own value proposition.
Another positive consequence of new regulations is that in this specific context, the rules of the game have now been changed, the playing field has now been levelled and the goalposts have been placed where they should be, specifically with regards to security.
While aggregators and other personal finance management providers, until now, have relied upon questionable methods such as screen-scraping techniques to access the data they needed, there are now purpose-built and well-defined APIs available to do the job legitimately and efficiently, with state-of-the-art protection mechanisms in place.
All in all, I am convinced that the open banking movement will be beneficial to us incumbents as much as they are to the web giants, the fintech start-ups and other potential providers, because it will help everyone to deliver better services to their customers.
I will not pretend that it will be easy. There remains much work to be done on our core processes and on improving our digital client journey. However, we have an invaluable advantage which is the implicit trust we have from our clients. That is a very strong foundation upon which to build.
“The regulatory mandate to open up data brings an extraordinary chance for us to modernise our approach to building our information systems. It will enable us to make them more agile, thus allowing the business to deliver more personalised products and services, at a faster rate and at a lower cost.”. Alain Fischer – Chief Digital Officer, Global Banking & Investment Solutions