Beyond Open Banking Compliance – Doing a Bit Extra
Retail banking is at a crossroads. The implications of Open Banking on banks’ business models have been well-publicised, with plenty of talk of the increasing separation of products from distribution. Banks are deciding which parts of the value chain they’re going to target and, given the current uncertainty across the market, the likelihood is that they will try to pursue multiple strategies concurrently to take advantage of the opportunity.
However, whilst banks’ ambitions are to ‘compete and lead’ with Open Banking, the reality is that their dials are set to ‘comply’. Consistently low return on equity over the last ten years, uncertainty arising from Brexit, as well as the need to deliver ring-fencing and a variety of regulatory programmes, has placed considerable strain on finite resources. Despite the distractions, compliance with Open Banking on its own is not enough. There is a plethora of FinTechs and “Neo Banks” snapping at their heels; for example, it’s hard to ignore Monzo’s rapid growth in customer volumes. A 100k+ customer base isn’t going to scare the big banks just yet, but it should be enough to get them thinking.
Right now, there are three key areas where incumbent banks can start to build foundations that will stand them in good stead for the challenges to come, and none of these should require significant investment.
Firstly, banks should recognise the paradigm shift from “closed” to “open” banking; this is as much about mindset and culture as it is about APIs and data. Sharing doesn’t always come easily to banks – both internally and externally – so, for example, firms could educate their staff and draw on new digital ideas for their business by creating internal focus groups and communities. Even regular business breakfasts to help senior management understand the nuances of Open Banking / PSD2 and GDPR would be of benefit. This could help to build a culture where senior management are actively exploring how they can provision their own products and services through open APIs, treating APIs as a new “channel”.
Secondly, this new “open paradigm” should focus on experimentation, ready for the open ecosystem that is coming. Banks and third parties will soon start to use the Open Banking architecture and it will take time for the technology to be fully understood and for the banks to fully realise its potential. Experimenting with Open Banking APIs and data sets now (i.e. by building developer portals and sandboxes, similar to what BBVA has done), will help firms to gain important early insights and develop the skills needed to succeed later. Dealing with the usual technological challenges now – such as a legacy architecture and siloed systems – will also save time, money and opportunities when APIs are actively used.
Thirdly, everyone knows that partnering with FinTechs and other third parties on small proofs of concept (POCs) is a must, but it’s not always something that is prioritised. Too often it’s a nice news story, but not a meaningful way of driving forward the core strategy and delivery. POCs provide an inexpensive way of demonstrating business value, building capability, and highlighting where the gaps and challenges lie, before doing this at scale. They also help build the aforementioned “open” culture with exposure to different, faster and more innovative ways of working.
With the industry gearing up for an Open Banking go-live in early 2018, preparation is paramount, and funding doesn’t need to be a blocker. Building an open culture, experimenting with the Open Banking technology and data, and starting to form partnerships are realistic objectives that can be done with minimal direct investment. There’s really no reason not to be doing more!