The API Economy is a set of business models and channels based on secure access to functionality and exchange of data between businesses. It looks likely to revolutionise how data and services are distributed in many industries over the long term, including banking. This type of radical change will change business plans, patterns of behaviour and market positions in the banking industry. In the longer term, the API Economy also seems to be asking bankers to reflect on their core strategic perspective i.e. “what business are you in?”
In the shorter term, banks will struggle to respond to the API Economy. Banking is a mature industry with many monolithic systems and divisional organisational structures. Open APIs are quite different to own-brand products in mature industries. The monetisation goals for Open APIs will have to reconcile with the goals of own-brand products. Mature industries with very established patterns of pursuing profits at divisional level will struggle to see where they will capture value from Open APIs. Finance teams in mature and profitable industries will prefer specific and tangible revenue strategies from Open APIs rather than strategies that promise market influence and market profile.
All mature service businesses need to prioritise investments to develop modular software with a microservices architecture. Under-investment by mature firms in Services Oriented Architecture will act as a constraint to their entry into the API Economy.
To be successful in the technical challenge, banks also need to look at the sociological factors in organisational design. If firms in mature industries ignore these sociological factors, they are unlikely to succeed. Older businesses that were not born in the networked economy can be excessively focused on the downside risk of data travelling out to third-parties. Non-technical teams in mature industries with a business development responsibility need to be trained in API Product Management and API Monetisation methods. Understanding and managing the relationship with a community of external API Developers is an entirely new discipline for a mature business. If commercial teams in banks try to repel substitute products from their ecosystem, they will inhibit the development of complement products. Employees in all mature businesses will need role clarity to act and thrive within new organisational directions.
Nick Caley, Head of Financial Services & Regulatory, ForgeRock
Creating engaging customer experiences has become a critical success factor in determining the winners and losers in the rapidly evolving financial services industry. New market entrants and startups across many different sectors have disrupted established players and stolen their market share due to a laser focus on user experience, convenience and better value. Digital identity is a fundamental element of creating a seamless customer journey across lines of business and different types of channels, be it web, mobile, contact centre or a growing ecosystem of partnerships. Given the regulatory demands of Know Your Customer, Open Banking, and the EU General Data Protection Regulation (GDPR), digital identity helps financial services organisations not only get in compliance but also develop innovative new products and services to stay competitive.
A new payments business model will become available to banks once open banking takes effect. By opening up API access to the traditional structures that have dominated financial services, open banking and PSD2 create opportunities to condense the payments value chain. This allows the customer to seamlessly make payments, with authentication options such as facial recognition and fingerprint sensors ensuring payments remain secure. Another new entity enabled by PSD2 and open banking is the Account Information Service Provider, which is focused on the vast potential of transaction data to provide real insights about customers. This offers an opportunity for a deeper level of customer engagement, delivering a different experience from the online bank statement and inviting customers to engage with their own financial wellbeing.
To lay the groundwork for stronger, more trust-based customer relationships, banks should focus on convenience, choice and control. Time wasting and duplication of effort need to be swapped out for convenience if organisations are to take advantage of open banking. It’s now about redesigning the customer journey and delivering a seamless, context-aware customer experience, enabled by secure methods of authentication, biometrics and authorisation. Choice is also vital. Open banking is designed to give customers greater flexibility. Banks should embrace this and use it to gain an edge over their competitors. This means not just complying with regulations at a surface level, but going beyond that and offering real value and choice to the consumer. Banks have a distinct opportunity to extend identity assurance to a wider system that covers customers’ different life stages and needs. Lastly, putting customers in control of their own finances is essential through establishing a system and culture that treats customer data as a shared asset, giving users transparency and control over how and under what circumstances their information can be used.
Financial services firms have a tremendous opportunity through innovation and collaboration to extend trusted identities and their attributes to new services and develop further revenue streams. I expect to see the provision of highly customer-centric, digital financial services portals that leverage customer insight gained through access lead to a more complete view of a customer’s financial transactions. Such services can enhance customer loyalty as well as open new revenue opportunities for both banks and Third-Party Providers (TPP’s).
With a modern digital identity platform, financial institutions can protect against malicious attacks and identity fraud through multi-layered security models. Through contextual authorisation and adaptive risk features, organisations can verify the authenticity of users, devices and things continuously throughout a session and mitigate risk whenever an anomaly is detected. Integrating identity context within the security response capability allows financial institutions to monitor users and their activity, with alerts for changes to identity and access behaviour in user activity reports. With identity, there is an opportunity to develop a mutually beneficial value exchange built on trust. In return for a richer user experience, customers will share more data if they can trust what will be done with that data.
Organisations can use the management of consent to earn a far greater degree of customer trust by giving customers control over who gets access to their data and for how long. In this way, digital identity powers a far more effective digital transformation as organisations gain a better understanding of their customers when they share actionable information on preferences, habits and choices. This can be used to create authentic, engaging customer experiences that contribute to loyal customer relationships.
Nick Caley will be joining us for the Open Banking Summit. This high-level, interactive forum will bring together senior-level professionals from all corners of the open banking space.
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Following the successful Open Banking Summit 2018, ECN is pleased to host a webinar on Accelerate Open Banking with APIs, Strong Authentication and Risk-Based Security on Thursday 19 July.
Join this webinar to hear Mehdi Medjaoui, author of Banking APIs: State of the Market, along with experts in API and security capabilities, to introduce the elements of modern application architecture that all digital banking business leaders should know about – API management, microservices, strong authentication and risk-based security. You’ll learn about:
All registrants will also benefit from a complimentary copy of our Banking APIs: State of the Market report.
Kevin Russel, Head of Proposition, SEI Investments
Digital solutions can help investment management firms reduce both the cost and risk of serving clients through the effective connection of systems and services to deliver straight through processing. Digital solutions also allow clients to access mobile or digital services that provide information, enable top-ups and simple self-servicing tasks which reduce the cost to serve and enhance the client value proposition.
Doing things in a different way always brings challenges and firms need to be open to new ideas about how to manage and control risk as well as different ways of supporting advisers and consumers. People form habits and existing habits are not easily changed – so it is often the organisational and cultural aspects of change that impede progress with digital and technology projects, not the development and implementation of the technology solution itself. To address this, organisations need to be committed to, and prepare well for, change; and they need to be open to new ways of working to take advantage of the opportunities new technology can bring.
Technology is an enabler for an investment manager to spend time focusing on delivering the best service possible to clients. Designing and developing solutions that help firms spend more time with clients and less on admin and processing tasks frees up valuable time which can be used to focus on developing and growing the business. To achieve this many organisations now recognise they need to partner with experts who understand their business and can deliver access to products and services in a way that supports their client value proposition and operating model.
It is also important to consider the required future investment to maintain, develop and support complex services and solutions, particularly where the core skill set required for this is not the firm’s core focus or strength. Effective integration of the various systems and processes used by managers to deliver a seamless experience and access to data is critical to the success of digital and multi-channel products and services.
Our research shows that a convergence of technological, economic, demographic and consumer trends will turn the wealth profession on its head by 2021, reshaping customer expectations, disrupting business models, and altering advisor roles. These new realities will require investment providers to drive wide-ranging digital transformation or face extinction at the hands of competitors both old and new.
Many firms are not as prepared to meet rising investor expectations as their clients may think. For example, 63% of investors expect providers to ensure cybersecurity, while only 48% of investment providers say that they are well-prepared to do so (source : Roubini Thoughtlab 2016). The ability to provide holistic goal-planning advice, customised investment solutions, and access to wider investment opportunities are particular trouble spots for wealth and asset management firms.
I am interested in the themes and trends that will impact our industry moving forward. I look forward to sharing our research and thinking on digital and technology changes and how they will help address challenges and create opportunities for investment firms. I also look forward to hearing views and insights from others; and I hope to catch up with a few old friends and meet a few new ones!
Nick Rugg, Senior Underwriter,Financial Institutions and Fintech, Markel International.
Transactions involving the sharing of data and the movement of funds will always carry risk. Where there are multiple parties involved in these transactions there is clearly heightened risk. The exposure to fraud, theft and data loss for banks, account information service providers and payment initiation service providers will no doubt be a key concern for these companies.
As well as having strong customer authentication and data protection procedures it is vital that companies also have the right insurance policy in place. The right insurance policy is key for companies that wish to gain FCA authorisation to offer account information services and payment initiation services and to protect themselves against the liabilities that may arise from offering these services.
The market for the type of insurance that AISPs and PISPs need in order to gain FCA authorisation is very small, however the Markel fintech insurance policy has the covers required for these companies to become authorised and we are very proud to say that our insurance policy has formed part of many companies successful applications for authorisation from the FCA.
The right insurance policy is critical for FCA authorisation so it’s important that companies wishing to offer account information and payment initiation services speak to an experienced insurance broker or insurer of fintech companies in order to arrange the right level and breadth of cover required for successful authorisation.
It will be a great opportunity to meet some interesting people within the Open Banking sphere and to hear about their ideas and experiences. And hopefully they will be interested to hear what I have to say too!
Roger Vincent, Head of Innovation, Equifax
Whilst implementation of APIs is driven by government policy, innovation within banks is fuelled by increasing pressure from competitors, meaning traditional banks have to up their game. FinTechs are likely to be the early adopters of open banking APIs, which is why Equifax & big banks are already building partnerships with them and starting to integrate functions such as account aggregation.
Implementation of open APIs among payment service providers are likely is likely to lower the cost of transactions as a result of increased competition too. But there are much bigger fish lurking just around the corner in the form of the big four global tech giants.
Banks need to start with compliance to provide guidance on continued development of regulations (PSD2, GDPR etc.) before involving legal teams to sign-off revised consents needed when processing requests. It will be important to overcome these issues before looking to provide greater clarity on product integration and the customer experience.
They need to assess the time/cost of digital teams involvement to provide resources needed to deploy solutions or whether outsourcing these capabilities to existing suppliers like Equifax might provide more value, working with banks to provide agile end-to- end solutions by connecting with key FinTech partners to help implement Open Banking routes for banks digital customers.
Alongside, product owners need to consider how they start to make use of data that might be available from their competitors and how this may impact their ability to construct new products and services whilst Operations & Services need to support the preparation of FAQs to process a potential increase in customer requests or complaints.
Equifax has been working with a number of banks to explore how regulatory compliance can quickly be turned into competitive advantage to commercialise Open Banking.
The first area we typically explore is cost-cutting, by turning a bank into a leaner organisation with optimised processes. The first large bank to create a true culture of cost-cutting through new enabling technologies will be well on its way to “commercialising” Open Banking. In April 2018, HSBC and Equifax alongside a number of FinTech partners enabled the UK’s first successful loan application using Open Banking which is a small step on a journey to digitising and optimising all aspects of its currently manual underwriting function.
Past experience shows us no company is immune from cyberattacks. And the recent news surrounding Facebook, only adds to privacy concerns consumers are likely to have over this sort of direct access to their financial data.
The implementation of GDPR, could help as all companies take stock of their security and data is no longer shared without correct permissions. Open Banking APIs sit neatly within these data rules.
Privacy concerns in the banking industry are not a new phenomenon. You only have to look back a couple of years to observe the impact contactless payments have had on that sector. We should expect a similar journey with Open Banking. In the short-term, there is likely to be a slow-burn in take up of Open Banking, as customers need to be able to trust the technology will keep their data secure.
The use of Open Banking provides an opportunity to banks to strengthen their engagement, by offering digital services which seek to improve customer experiences and not solely focusing on generating new revenues. By building platforms that deliver a range of services, banks have a better chance of tapping into what their customers want, in the short and long term.
Challenger banks are leading the way in ‘market-place’ banking, by integrating third-party apps that benefits the user experience. And bigger banks enriching their customer experience with banks like HSBC going live with their Connected Money app, allowing customers a complete view of their finances.
Banks will realise more customer benefits to Open Banking and Equifax we are well-placed to help banks make the most of Open Banking opportunities through using in-depth profiling and categorisation engines, to offer actionable insights which will allow banks to more broadly engage customer.
Roger Vincent will be joining us for the Open Banking Summit. This high-level, interactive forum will bring together senior-level professionals from all corners of the open banking space.
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David Vanek, Co-Founder & CEO, Anorak
This is entirely dependent on how successful we are – as an industry – at building services that are genuinely useful and trustworthy for consumers. As it stands, we expect it will take at least 12 to 18 months before these kind of innovative services provide meaningful value, and people feel comfortable connecting their bank data to make their money work harder.
The obvious innovation leaders are the neo-banks like Starling, and personal finance management apps like Yolt (by ING) and Bud – who have just partnered with First Direct.
We’re still at the very early stage though. So far, most of these services focus on the functional side of personal finance: saving, tracking and transferring. The question we’re asking is: how can we provide value beyond budgeting? How can open banking become a companion that helps you make smarter, more savvy decisions about how you protect your finances and family?
Used in the right way, open banking has the power to not only help you save, but also advise on how to meet your saving goals. It can effortlessly inform you about your pension performance. It can automatically let you know when to remortgage and how. It can demystify what it means to protect your family, and tell you exactly when to adjust your insurance cover. I believe these services need to be built by smart, data-driven companies who are willing to work with complete transparency with their customers and partners.
As Stephen Hart argued brilliantly in his piece on LinkedIn, that was very clearly a case of ‘just because you can, doesn’t mean you should’. As tech and fintech companies become more mature in their outlook, they must be committed to only taking the data they need to provide their service – rather than having an unrestricted ability to mine customer’s personal data at whim. Consent is key here. Companies must be explicit about what information they need from their customers, why they are asking for it, and what the benefits are. And they must reconfirm customer consent regularly – especially if they are developing new features or updates.
In my opinion, open banking signals the long-awaited dawn of the Age of Assistance in financial services. Just like Google Assistant, Citymapper and Spotify give us intuitive advice at the exact moment we need it, so too can open banking APIs enable financial companions that are always on you side and smart enough to anticipate the financial decisions you need to make. The players who will do best will be the ones who invest in developing trust – building services that still allow you to have control of your personal data and make you smarter about the decisions you make. It’s certainly a very exciting time for innovators.
David Vanek will be joining us for the Open Banking Summit. This high-level, interactive forum will bring together senior-level professionals from all corners of the open banking space.
CONTACT US to secure your place
“It was great for us as a Firm to be lead sponsors for the event, and for Stephen and me personally to be the presenters for PwC. We look very much forward to a mutually fruitful collaboration in the future, and we will be in touch.”