Open Banking creates better Financial Services; Are Banks and FinTechs ready?
By Edil Corneille
Open Banking is not a new concept. The implementation of the PSD2 regulation in Europe and the Open Banking one in the United Kingdom (UK) has been a great boon for FinTechs where the governments have necessitated the sharing of customer data traditionally held by banks which leads to improved financial services for customers. However, financial institutions and regulators across the world have yet to keep up with the pace of customers’ demands for improved and personalised financial services. Countries in Asia have taken a market-driven approach in the space of Open Banking which is generally not government regulated.
CFTE Co-founder & Open Banking and Platform in Finance Program Director and The Disruptive Group CEO Huy Nguyen Trieu elucidated, “Open Banking is the Iphone moment for banking. The Iphone was the catalyst for millions of new apps – including hugely successful ones like Whatsapp or Wechat. Open Banking does the same in financial services, and makes the development of new financial products much faster and easier. In practice, that means faster innovation in finance, that can help consumers with better ways to manage their money.”
Banks share customer data through application programming interfaces (APIs) with relevant third party providers (TPPs). This ensures the customisation of financial products where customers are able to view different financial accounts, spends, advice on financial requirements, etc., on a platform. The ecosystem is characterised by a range of products and services by various entities which is possible through the sharing of data by banks to TPPs after the customer consents to it. Providing these same services can be a challenge for traditional institutions with their legacy systems.
Stephan Murer, Owner of Murer Consulting, previously Group Chief Technology Officer at UBS expounded, “The digital platform economy is one of the strongest forces in today’s economy. The most valuable corporations both in financial services and in general are digital platform providers. The financial industry with its standardized transactions, no physical goods involved, and a high degree of information asymmetry lends itself well for a digital platform transformation. Highly standardized application programming interfaces are the technical prerequisites for a digital platform with many participants to succeed. Open banking, be it driven by regulation or driven by the market. provides these APIs.”
“We live in a connected world and customers increasingly expect their favourite brands to work together to provide personalised and connected digital experiences. Open Banking is how banks will participate in these connected experiences. These customer expectations impact banking just like they impact all service providers, so it is vitally important that financial professionals are well educated on the key characteristics of Open Banking” said Paul Rohan, Head of Business Strategy Finance at Google Cloud Apigee.
Open Banking is definitely a game-changer for the financial services industry. Large banking institutions like DBS, Société Générale and Wells Fargo have embraced this practice and set it at the core of their strategy. Australia recently had the Consumer Data Right (CDR) going live on July 1, 2020, for data sharing in the country. New Zealand is seeking inputs on CDR with the deadline for submissions closing on October 5. CDR describes a mechanism for consumers to securely share data that is held about them with trusted third parties, on the consent of a consumer. The third-party could be another product or service provider or a separate entity such as a fintech.
The first month of 2020 saw Plaid’s 5.3 billion acquisition, followed 6 months later by Mastercard buying Finicity, showing the industry’s interest in acquiring the FinTech enablers of Open Banking. Market changes and regulatory prominence in finance have resulted in hundreds of FinTech startups and traditional organisations shifting towards Open Banking in the last two years alone.
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