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November 12, 2018

Banks the world over are exposing their data, systems, and processes through application programming interfaces (APIs) to third-party partners (TPPs). Regulations in some parts of the world like Europe, Australia, Hongkong are also driving this movement. Open Banking is expected to deliver superior choice and convenience to the end consumer. Not only that, it will also foster a level-playing field for new entrants, provide an integrated experience that cuts across value chains beyond financial system boundaries, and unlock new sources of revenue.

With the increased regulatory push for adoption, the financial services industry has begun to realize that Open Banking is an opportunity to be seized rather than just a compliance exercise. In short, it could well be the game changer that the industry has been longing for!

Open Banking - as a regulation or otherwise - is seeing strong proliferation across various geographies. What started as PSD2 and RTS in Europe, moved to the UK as UK Open Banking driven by OBIE and CMA. Now, Australia and Hong Kong seem to have adopted the concept – with increased scope and vision. With consultations in progress in countries including Canada, Mexico, and the US, a global-scale adoption is not far away. 

Leveraging ecosystems – the very essence of open banking

The new crop of startups and challenger banks are trying to wean away customers from traditional banks by offering an experience comparable to that in industries such as retail. However, we believe that competition between incumbents and new entrants will slowly give way to direct or indirect collaboration to arrive at a win-win partnership model. We recommend that banks adopt a broad, three-pronged approach – the ’3C Strategy for Open Banking’:

  • Comply: Ensure compliance by distributing mandatory data and services through third-party channels
  • Collaborate: Collaborate with TPPs to provide value-added services through partner channels, paving the way for monetization
  • Compete: Consume data and services to create new offerings; enhance existing product and service capabilities, and distribute offerings through own and third-party channels, laying the foundation for new business models and monetization


The Ripple Effect:

We foresee the evolution of an ‘open data economy’ with significant implications for several functions like risk assessment and evaluation, financial crime management, marketing, and so on. This evolving paradigm will require traditional banks to re-align their operating strategies.

Furthermore, open banking is not just about APIfication as perceived in many quarters; it must be viewed in a much larger context, and banks will need to exhibit a differentiated set of characteristics to capitalize on emerging opportunities, which are:

  • Align to changing customer behaviors and preferences and cater to a ‘digital consumption’ driven customer segmentation – digital lite, digital par, and digital savvy 
  • Embrace risk through a mindset shift from being the sole owner and supplier of offerings to a more collaborative ownership
  • Enable innovation through continuous learning and simulation to deliver delightful service experience
  • Create and participate in ecosystem marketplaces to extend and enhance business capabilities
  • Leverage technology to realign business and IT to infuse agility in product rollouts 


How banks can open up to open banking

We expect adoption trends and use case fitment to encompass four distinct patterns:

  • Comparison and aggregation: product comparison, personal finance management (PFM)
  • Integrated experiences: on-boarding, utility services, and so on
  • Tailored products and services: product bundling, alternate lending, and so on
  • Marketplaces: niche (home buying, car buying, and more) and participative marketplaces 


To take advantage of the benefits of adopting open banking, financial institutions must define implementation strategies that align with their priorities. While compliance will undoubtedly drive the program in the initial phase, banks must factor in the ‘collaborate’ and ‘compete’ aspects during strategy definition to ensure the required resource allocation and support.

An ‘ecosystem-first approach’ will be vital when strategizing open banking adoption.

As with any paradigm change, questions will arise around some key aspects:

  • What quantitative benefits will banks accrue (increased transaction traffic on non-traditional channels, customer acquisition, revenue uptick, and so on)?
  • How must banks invest in initiatives driving new sources of revenue and ensuring customer stickiness and retention?
  • How should data security issues be tackled, especially since banks typically do not extend customer journey value chains beyond traditional, well-fortified boundaries?
  • Which monetization and revenue generation and sharing models can be adopted?


We welcome your thoughts on the future of open banking, the challenges and opportunities that shall pave the way forward.

CTO, Manufacturing and Utilities, TCS

Responsible for technology leadership and strategic advisory services, Unni works closely with TCS Corporate Technology Research, industry partners and academia in defining the research and innovation (R&I) roadmap as well as emerging technology strategy for enterprises the world over. As CTO, he defines digital architecture and formulates differentiated industry solutions for areas such as smart factory, networked logistics and intelligent assets.

Unni holds a Master’s degree in Technology from IIT Bombay and is a regular speaker at technology forums and customer panels.


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