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Technology pushes the Open Banking dream forward

(Image credit: Image source: Shutterstock/MaximP)

PSD2 enables financial services innovation and unlocks new horizons. PSD2 forces banks to open up their system of records to third parties, including non-traditional Financial Services companies like Amazon and Facebook. Banking will at last become more transparent and more accessible for those who matter most - the consumers. 

Application Programming Interface (API) technology is the tool that will make the Open Banking dream a reality, allowing data to be transferred and shared between different organisations. Banks should now be developing and executing a plan which highlights the FinTech partners they would like to work with and how they can manage, monitor and monetize new relationships. 

Without secure, powerful, committed partnerships with third parties, banks won’t be able to remain competitive. The importance of these partnerships has led to increased efforts in the development of partner ecosystems. 79% of top performing businesses today are actively participating in a digital ecosystem (opens in new tab), according to Gartner research. The main reason is that a partner ecosystem expands a company’s digital footprint and amplifies its reach. It is similar to the competitive edge that traditional acquisitions and mergers can give to a company. 

These partnerships provide operational intelligence which improves efficiency, whilst also providing insight for business critical actions and potentially, new customer offers. Using technology to help weave partnerships creates the best of breed experience for customers, as all services can be obtained from one platform. 

The ingredients of a successful partnership ecosystem   

The evolution of banks creating and growing their partner ecosystems is going to increase the complexity of business processes. As more partners join in, it will progressively create an intricate web of communication, process and policy. 

This will result in a knot of API connections, all crossing over each other accessing different databases across a bank. 

The global banking industry manages trillions of pounds worth of assets, this year alone HSBC is reported to have a total asset net worth of £1.94 trillion, so managing the sheer volume of assets alongside new partners is fraught with complexity. 

Additionally, connecting different systems of engagement and systems of record is complex and not the core business of most existing in-house IT teams. According to Time Magazine, every two minutes approximately 104,000 financial transactions are made in America; these transactions have to be captured and approved by banks. The number of partnerships will increase together with the number of transactions, as new purchase opportunities are made more accessible than ever to the customer. This increased stream of data will create a strain on banks’ IT systems and could create more outages. Banks have to become robust and get flexible to customer demands at the same time.   

These ecosystems could increase competition or create monopolies in the banking industry. One company developing partnerships faster than the others could potentially eliminate the competition. However, creating the perfect ecosystem has its share of obstacles and complications. Partnerships built in haste and on shaky foundations will not benefit the business in any way. Cultivating and growing the best partnership ecosystem, built on solid common values and the right supportive technologies, is the best strategy for success moving forward. Listed below are five major requirements to build a flourishing partner ecosystem.

  1. Supportive technology - The technology in place must make the process simple, easy, and safe. The exchange of information must be kept secure to ensure sensitive data is protected. 
  2. Copious amounts of trust & communication – No beneficial and healthy partnership can be developed without it. Without communication, the result would be confusing offerings and without trust, the partner companies would each impede the other’s efficiency. 
  3. A clear cultural understanding – This can be challenging for some companies, especially modern start-ups as the differences in processes and mind-sets can result in clashes. 
  4. The customer is at the centre – Delivering value to the customer must be the foundation of a partnership and is crucial in order to work together. 
  5. Complementary offerings - The services provided need to be complementary, to avoid direct competition or wasting time building the same product. 

Banks are forced to open up more and more, and increasingly encouraged to offer better customer service. In such an environment, partnerships are becoming an important tool to achieve these goals.  

However, creating an ecosystem without the right technology could very easily become a confusing mess and is at risk of being quickly dominated by one partner. To master and manage this new process, banks and Financial Services organisations need to focus on the customer above anything else. Only organisations that will manage to quickly create a reliable partner ecosystem with the customer at its centre will be able to reap the spoils of this new revenue stream. 

The three Ms of Open Banking   

Selecting the right partner is merely the first step to become a truly relevant Financial Services organisation, to build a successful ecosystems banks need reliable partners, we recommend following the three ‘Ms’; manage, monitor and monetise, when using APIs below: 

Managing: First, grasp what each customer needs are by analysing the systems of record. Then match them with the product and/or service from the appropriate partner. End-to-end partner management, from partner onboarding to revenue sharing settlement, including revenue sharing and incentivization. This enables Financial Services organisations to know what they can deliver to their customers at every stage.  

Monitoring: Banks can monitor the performance of specific offers and product bundles and build upon successful packages. They can also track the performance of their rivals’ offers, making market competition more transparent.  

Monetize: Banks can build price modelling frameworks that can help them and their partners capture new revenue from the PSD2 regulation. It can make monetizing access to customer information and compliance to the new regulations very easy. 

Amit Dua, President and Global Head of Client Facing Groups, SunTec (opens in new tab)

Image Credit: MaximP / Shutterstock

Amit Dua is President and Global Head of Client Facing Groups at SunTec Business Solutions with 23 years of global banking technology experience. He has authored several articles and regularly speaks on topics like trends in banking technology, core banking transformations or digital banking.