Regulation will underpin how open banking will offer the sector new ways to collaborate and deliver on innovative solutions, says Robert Liong, Managing Director and VP, ANZ & Pacific, Fiserv
Open banking is on the verge of disrupting the financial services sector. This is evident from emerging initiatives and corresponding regulations, such as the closely watched revised Payments Services Directive (PSD2) standard in Europe, which has just taken effect in January this year. Correspondingly, the Australian Treasury Department also released information on their open banking plan, stating that open banking implementation guidelines will be released in July 2018 and giving the big four national banks 12 months to comply with them. The other banks have a further 12 months to follow suit.
These new regulations offer opportunities to drive new ways of banking , and allow banks to further transform their services to serve their customers better. The move toward open banking will drive great change that will not only offer more choice for customers, but also encourage greater collaboration and stimulate innovation in the banking industry.
What does this all mean for the banks
Open banking will provide banks with the opportunity to seamlessly integrate banking services into customers’ everyday lives. Under the open banking directive, banks will be obliged to provide licensed third parties with secure access to their customers’ accounts. The bank will provide this access via open APIs. As a result, consumers who now expect access to their banking services, wherever and whenever they want, on a channel that suits them best, will be able to manage their finances through third-party service providers, in addition to their respective banks.
These third-party service providers are classified in two categories: payments initiation service providers (PISPs) that will act as a bridge between the customer’s account and the retailer’s account, and account information service providers (AISPs) that will provide aggregated account information, giving customers full visibility of their accounts, investments, mortgages, and pensions in one website or application.
Open banking offer banks a chance to meet these demands and identify areas where they can add value to services and adopt a more customer-focussed strategy. For example, banks already have access to huge amounts of data, these insights are vital to banks when they are looking to validate, and align new offerings and initiatives that tap into individual consumer requirements. In addition, banks must ensure transparency for customers that data is being used, and where it is being shared.
Outsourcing and managed services
Regulation is ongoing, with regulatory roadmaps subject to change. As milestones shift banks have to be able to innovate quickly to accommodate them.
Focusing solely on initial compliance will inevitably lead to greater overall cost and time investment in the long term. Meeting a deadline for compliance is not the end game, it is merely the starting point. Banks that direct massive amounts of resources toward building a solution internally from the ground up expose themselves to risk. `The risk of failing to reach this starting line and then realising that every change from that point will require a similar amount of effort and cost.
Facing the prospect of continual change, some banks are starting to see the appeal of fully managed services. Adopting platforms and practices which allow them to get and to stay compliant, and also move at a faster pace, will allow them to implement and manage change continuously, smoothly, at the lowest possible cost and with the least possible impact on the bank.
This has the added benefit of freeing up the banks’ internal resources to focus on other high value work. They will be able to solely focus on monetising the open banking opportunity and free themselves from the complexity of compliance to enable them to maximise the open banking opportunity and to turn it into a competitive advantage.
Adopting a ‘Silicon Valley’ mindset
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 innovate at speed, providing customers with new services and delivering more seamless, intelligent financial experiences that help drive customer loyalty.
Open banking is the beginning of what will ultimately be an industry shift to API-based financial services, enabling consumers to access financial information when and where they want.
While current usage of open APIs to share financial information is low, there will be a tipping point – perhaps the emergence of a game-changing use case – when the pace of change will become ten times faster and the scope of change ten times broader.
For financial institutions, customer relationships will be built and maintained through the integration of financial services information and payment initiation into consumers’ daily lives.
Banks that take a broad view of open banking will increasingly realise that open APIs are a two-way street, allowing them to access information and bring more intelligent experiences to their own customers within their own interfaces. This changes the perspective that these regulations are a one-sided mandate to provide access to information to others.
The fintech mindset of being agile and responsive to customer’s needs is also important as it gives banks a compelling reason to think beyond compliance to consider the opportunities ahead.
Collaboration is the key
Open Banking will also enable the industry to be more innovative and collaborative. Banks and fintech providers can partner with each other to offer innovative new services. Fintech companies are leading the market with digital innovations and FIs can learn from this as they consider new ideas for implementing disruptive technologies that will make them more agile. At the same time, banks can provide direction on strategy and the regulatory market, which many fintech service providers may not be used to. With the arrival of open banking, the regulations will allow the collaborative process to be even easier, and open up the market to provide banking services that customers will want to use on a daily basis.