For years, the market has demanded that banks open up their data and infrastructures, providing developers and third parties access to data and addressing questions like where information is stored across the bank and where and how it will be shared.
Initially, the concept of building open ecosystems was centered on payment-centric technologies. Still, it is currently being extended across a wide variety of financial transaction operations, including cash management and treasury. Like any other change or development, traditional financial institutions face dangers as they move toward an open environment. The primary issue is preserving and establishing a solid brand value. Otherwise, the institution risks being reduced to a back-end hidden utility and losing touch with its consumers.
Banks as connected ecosystems
The opening up of data that was previously only held by banks has been enabled by the new regulatory framework, technology revolution, and global competitive dynamics. This allows new players, non-financial institutions, and other third parties to offer data-driven services and solutions. As a result, we see more competition and a potential for the banking industry to achieve new heights, establishing an ecosystem that extends beyond banking and provides a lifestyle experience.
We see a trend away from banks acting as vertical integrators — owning the entire client relationship from back-end to final products — toward banks acting as a platform and connected ecosystem, supplying and utilizing APIs to create new customer experiences and digital products.
“The challenge presented by open banking is to transition from vertical integrators to members of an integrated digital ecosystem of services and digital products.”
Open banking models
Financial institutions frequently make the mistake of using API-enabled systems while “doing it alone” and pushing their product development rather than using it as a route to spread their company and activities to external partners and new areas of their customers’ lives. Meanwhile, other companies with more excellent vision and a simultaneous shift in corporate culture have begun to invest in fintech and technical startup incubators to form a network of partners that will allow the company to expand and evolve with new synergies.
“Tech giants, fintech startups, regulatory pressure, and customer expectations are all forcing banks to accept new business models.”
When the organization is ready, digital transformation should be the path and catalyst for moving financial organizations towards the Open-banking paradigm. Partnering with fintech startups to build a financial ecosystem beyond what the bank has traditionally offered is critical to providing excellent customer service and developing new income streams from API products.
To do so, financial firms must first identify the critical business operations that gain the most from direct access to bank data and back-office services since they should not rely too heavily on fintech partners.