Bank Of The Future

Open Banking: Many Opportunities, Some Considerations

 
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.

Unni  heads the Technology & Strategy function at TCS’  Banking & Insurance Business unit in Europe & UK. In this role he is  responsible for  Technology leadership & Advisory services.  He works closely with TCS’ corporate technology office and leverages the TCS Co-Innovation Network (COIN™)  of partners and FinTechs to enable research and innovation (R&I) within the unit.

In the current role Unni is also responsible for two strategic initiatives - Open Banking and Cloud -  for  TCS’ Banking and Insurance customers Globally. His  areas of interest also include  Core Systems Modernization,  Core-Edge Services & APIfication  and Future Banking architectures

Unni has 21 years of TCS’ experience in working with global customers across US, UK, Europe and India. He participates in advisory  capacity  to multiple TCS customers’ technology and architecture forums.  An ardent proponent of continual learning and hype cautious, he strongly believes in leveraging technology as a key differentiator in translating strategy to execution.

Unni is a practicing Enterprise Architect and a regular speaker at the TCS Technology Architecture Conference and technology panel discussions besides mentoring our in-house technology and solution leadership programs. He has authored papers on IT simplification and modernization and holds a Master’s in Engineering and in Software systems