Ahead of the Open Banking Australia Summit we caught up with Seshika Fernando, Head of Financial Solutions, WS02 to discuss the opportunities and threats of open banking.
How will the increased use of open APIs shape the financial services market, and how will it impact different market players in both the short- and long-term?
In the history of banking, banks went through multiple phases of customer experience improvement. From branch banking to phone banking to ATMs to online banking to mobile banking. However, while each of these phases improved customer experience, the customer had to depend on the service offerings of the respective banks. The future is different. The customer will do banking through their preferred channel, and banks have to ensure that their financial products and services can be accessed through those experiences. This is where open APIs come in. Banks offer their financial services via APIs so that other players create great experiences on top of that and offer it to customers. Banks who do not open up secure, easy to use APIs will get left behind.
The impact to all stakeholders is positive. Customers are offered better experiences and financial literacy. Fintechs get to enter the currently oligopolistic market that is exclusively governed by banks. And banks get to focus on what they are best at - creating great financial products and services - and let the fintech take care of user experience.
Which activities should banks be prioritising in the wake of open banking?
Banks need to focus on four key areas
What opportunities does open banking present, and which commercial strategies will thrive in the new environment?
- Understanding the requirements of open banking Technology requirements, Process requirements, Business strategies
- Analyze the existing technology stack, see which technology components can be reused for open banking requirements and understand which components need to be acquired.
- Find an open banking solution that provides all technology requirements in a componentized manner.
- Do PoC’s using existing technology and add the required technology incrementally in order to achieve open banking in an agile and iterative manner.
Open banking enables the creation of a consolidated financial portfolio for banking consumers, which is a first in the industry. This is the unique asset that the open banking world creates. Any organization (be it banks or fintechs) who understand the value of that asset will thrive. For example, if banks forge ahead and do API integration themselves, instead of just stopping at opening up APIs, they can then understand their customers beyond the limits of the bank. This allows them to offer their customers, customized product offers that can attract funds spread across different banks to themselves.
Creating insights on top of this rich asset of consolidated consumer financials will be a lucrative commercial strategy going forward.
Third Party Providers are going to be the presentation layer for banks in the future. Consumers will now flock towards certain TPP (Third Party Providers) apps rather than flocking towards a particular bank. Therefore, banks that provide great TPP experiences will indirectly win at the end of the day. The more TPPs providing experiences on top of a bank’s products, the more consumers for the bank.
Customer education is another one. Even though the open banking world seems promising for consumers, the reality is that most of them are apprehensive about whether or not their data is secure. If banks can be the ones to create that trust through customer education, then those consumers will always maintain a strong relationship with the bank irrespective of the independence the open banking world provides the consumers.
How can firms overcome the security and privacy concerns associated with data sharing?
This is not as daunting or complex as it sounds. Basically, in each of the open banking regulated markets, the standards bodies have been kind enough to provide guidance on how to share data in an absolutely secure manner as well as how to ensure consumer’s consent to share their data through Strong Customer Authentication and consent management requirements. All that needs to be done is to follow the guidelines and ensure that you have the right technology mix to implement it.
What are the best strategies to encourage customer engagement?
Customer education on open banking, its benefits, what to look out for when sharing data with a third party, and so on, will all help in creating consumer trust and confidence. If banks remain transparent about the steps they are taking towards compliance, your customers will appreciate that transparency and trust you. Giving customers a complete picture of open banking, all the way from the improved lifestyles they can enjoy through open banking to what is being done with their data, who is accessing it and within what scope helps deliver this. Banks who take the extra mile to educate customers will compete not just on customer experience but also customer trust.
Why will you be speaking at Finance Edge's Open Banking Summit, and what do you hope to get out of the event?
WSO2 provides the only purpose-built solution for complete regulatory compliance in Australia. We are keen to meet all the stakeholders of Open Banking Australia and understand specific requirements and pain points so that we address them through the WSO2 Open Banking solution. We also hope to share our expertise and experience of providing open banking solutions in other regions and use some lessons learned to help you comply in an agile manner.
View more information about WSO2 here.