Open Banking – For Whom?

If I wanted to explain the benefits of open banking to my teenage son, where would I begin? With the opening hours of our local branch? Or the 24/7 access he has on his mobile banking app? Unlikely – I can just imagine his response.

No. I’d say something like “suppose our bank received information from its customer base that young people like you needed a particular financial product or service - a credit card that keeps track of the CO2 load of each purchase perhaps, or a new type of savings account that gives savings credits based on the time you spend on Snapchat.”

“And suppose the bank said they wished they were in a position to provide it, but the teenage-product cupboard was bare. Then the bank contacted another company - a fintech or insuretech - to ask if they could buy that product from them and then offer it to you.”

Of course, the bank would need to work out a practical way to adopt the new product or service. Years ago, this was called white labelling. Back then, the connection between a bank and its supplier was managed manually by the back office, with a flag in the product admin system saying that there was an external provider.

Today, the connection between buyer and supplier is conducted via APIs (Application Programming Interfaces); the buyers being the incumbent banks and the suppliers, third-party providers more often than not.

So, who are banks open to exactly?

To everyone – vendors, suppliers, third parties, other companies and businesses, customers – in many and various digital ways. In fact, anyone who can provide data, a product, or a service, which the incumbent bank doesn’t have to develop itself (because of banking strategy or being unable to fit it in alongside the backlog of other development projects – regulatory or not).
 
Banks operate in a number of different ways:
 
Bank Channel. BaaC.
The old traditional way - servicing customers through own-front applications (entrance doors) by using APIs or a file as a channel for own-brand products.

Banking with API Market. BaaS.
Exposing services and products to third parties via open APIs. Customers show up from the back-end using the bank’s product or service, without interacting with the bank itself.

Banking as a Distributor. BaaD.
Integrating or bundling external financial services with own-bank offerings.

Banking as a Platform. BaaP
Fidor Solutions (a fintech), a bank itself, has a platform that offers a core of products and services to banking start-ups. I believe it’s just a matter of time before major banks realise that they can make use of their core to create new revenue in this way.

Banking as a Data Aggregator. BaDA
In future, data will be a commodity. Customers will own their data and will be able to tell data intermediaries and aggregators “I want the mortgage and deposit account with you, but my data is with a data intermediary x”.

One of the most interesting GDPR concerns is around data portability. The commissioner has really put the customer in the driver’s seat. And in the end, the providers that customers are most likely to trust with their personal data will be traditional banks, because they can demonstrate that they’re already holding enormous amounts of customer data, safely. The financial newbies will have a hard time convincing customers that they are as secure, reliable, and trustworthy.

Banking with Customer Collaboration. BwCC
Instead of leaving customers to pick their own path through the myriad of API-connected multiple parties and services, banks should take ownership of the relationship. They need to customise and personalise all those enabled open-banking services; their own, as well as others’.

Where do the incumbent banks position themselves?

Most reach the Banking As A Distributor level and then stop, thinking that the next levels are reserved for fintechs. They couldn’t be more wrong. With a laser focus on data (their most precious asset) and the right data ecosystem, major banks could create 360 flexibility in their business model without having to share revenue with the disruptors. The winners will be banks that can utilise their data, drive down costs, build effective partnerships, provide robust security and, most importantly, maintain the highest data ethics.

So, do my son and his friends care about open banking? Hardly. Open banking is just another way of operating the machinery and embracing emerging technologies like AI, IoT, and Blockchain.

In fact, most customers couldn't care less about what happens under the hood as long as it makes their day-to-day financial journeys easier.