The introduction of the European Banking Authority's Second Payment Services Directive (PSD2) and Open Banking regulations in the UK created a flurry of handwringing and headlines likely to continue well into next year. With the aim to create a more consumer-centric banking environment, these regulations represent the beginning of a new pace of change. Banks have an unprecedented chance to seize the opportunity to differentiate and deliver more compelling customer experiences by establishing a technical foundation that allows them to capitalise on this new reality of relentless and rapid change.
Following the initial roll out of Open Banking in the UK earlier this year, we’ve had the benefit of learning first-hand from the approaches taken from the CMA9, the UK’s nine largest banks and building societies involved in the Open Banking Implementation Entity (OBIE). Many of these institutions undertook massive efforts with internal developers to build solutions from the ground up. This approach is likely unsustainable over time due to the hours and resources involved, and its inability to enable the rapid iteration required in the face of changing regulations and consumer expectations.
Going forward, these institutions and others that are due to meet compliance deadlines are likely to be looking for more practical and efficient alternatives, which may result in new industry mindsets around the delivery of financial services technology.
Sustaining a new pace of change
We can see from the Open Banking roadmaps that regulations will continue to evolve, and banks will need to innovate quickly to keep up. We’ve reached the start of a new pace of change, with banks realising the imperative to look beyond initial compliance to ensure they can continue to stay compliant over time. This could be a catalyst in shifting away from the deeply ingrained preference among banks for building capabilities in-house toward a greater acceptance of outsourcing and managed services. Flexible platforms and pre-built capabilities available on-demand will help banks to achieve this faster pace, enabling them implement and manage change continuously, at the lowest possible cost, with the least impact on the bank.
Considering APIs as products
Open Banking requires that banks build APIs (application programming interfaces) to make information available to third parties. This will result in a change in operating models as banks adapt to not only building, but delivering and maintaining APIs. A best practice will be for banks to consider APIs as a product and to manage them accordingly.
This is another reason why Open Banking may contribute to the appeal of outsourcing. Banks are in the business of banking, not the business of building and delivering APIs. Outsourcing this work could appeal to banks that prefer to focus on their core business.
Regardless of how they are developed and delivered, thinking of APIs as products will help banks manage them effectively, ensuring their services are available for integration into their customers’ lives as much as possible. The availability of banking information and capabilities when and where customers want them will drive satisfaction with the bank itself. It’s therefore in banks’ interest to ensure they are offering accessible and useful APIs.
Industrialising the distribution, production and consumption of APIs could be one way which banks gain the high ground in new digital financial services markets.
Thinking like a fintech
Open Banking and APIs will bring big changes not only in how banks connect with customers, but also how they interact with one another and other third parties. Once banks are compliant with required regulations, know they can stay compliant, and are managing APIs as a product, they can begin to take full advantage of APIs to access data and information to deliver new services to customers.
With the recent intense focus on compliance, banks may not yet have considered how to leverage the information that Open Banking makes available to them in order to better serve customers and create a competitive advantage. There is no reason banks cannot be consumers of information via APIs, as well as providers. There are considerable benefits to be had as a consumer of other banks’ APIs. One example is in the area of lending. Banks can access account information to make better lending decisions while also using APIs to make the process of applying for loan products frictionless for customers by prepopulating required information.
Providing new products and services continuously and at speed is something fintech companies do regularly. By adopting a ‘Silicon Valley’ mindset banks will see the positive impacts of being able to collaborate and innovate at speed, providing customers with new services and delivering more seamless, intelligent financial experiences that help drive customer loyalty. In the future, it will be in banks’ interests to use each other’s APIs to create products and services in tune with customers’ needs. The ability to innovate and provide customers with new services is one that will set banks apart from competitors.
Capitalising on Open Banking regulations will allow banks to provide customers with services that excel their expectations every step of the way. While some have struggled to get compliant initially, we are seeing banks now consider the Open Banking regulations as a positive opportunity. By freeing up internal resources, banks that leverage tools, platforms and understanding of the regulations to get compliant, stay compliant and then innovate, will reap the rewards of Open Banking. Banks that adopt a new, more agile mindset and implement platforms that equip them to keep up with the pace of change and secure compliance with regulatory standards will succeed no matter what comes their way.
Nick White, vice president, product and marketing, Digital Banking, Fiserv
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