• Vasile Valcov, Chief Commercial Officer at Salt Edge


• 20.04.2023 12:45 pm
#OpenBanking

As technology evolves and is more present in our lives, consumers are beginning to ask why banking services cannot be as intuitive as managing their music playlists. Higher consumer expectations combined with the currently fast-changing environment brought by open banking make banks jump into new innovative waters. 

In the past, banks’ open banking strategies have been focused on regulatory compliance simply to avoid penalties for non-compliance and bypass the threats of open banking competition. However, nowadays, banks are starting to embrace the opportunities brought by open banking. Even more, they have learned that building products in-house is a significant burden on teams, budgets, and the infrastructure and takes years (!). Meanwhile, open banking sets the ground for financial services institutions to partner with third-party vendors to build and distribute products quicker.

Since open banking starts with regulatory compliance and evolves into innovative opportunities, it has now become a topic of strategic interest for banks. So, let’s explore the models banks can adopt on their open banking journey to reach the best outcomes for them and their end-customers. 

Compliance banking

We cannot start speaking about heavy lifting strategies before banks actually ensure they have in place a well-functioning compliance solution – with APIs that work seamlessly and are reliable for communication, offers a user-friendly experience for customers, and have all the elements for proper interaction with third parties. Unfortunately, even in 2023, many banks still struggle to offer fully compliant APIs.

In this model, banks are just complying by making APIs available – and not purposefully seeking to get new revenue streams or enable operational optimisations. 

Enhanced traditional banking 

This strategy means that banks simply boost their existing products and services to match those offered by emerging fintechs. Namely, banks become third parties themselves and allow their customers to connect their other accounts to online banking. Banks can offer better loan conditions, suitable investment options, smarter PFM features, and more useful tools based on the account information gained from other banks, and also they can enable a lower-cost payment option powered by open banking. 

By taking this route, organisations can use open banking to enhance their digital services or streamline operations with the goal to improve client loyalty and lower risk.

Banking-as-a-service (BaaS)

BaaS is one of the answers to the most recurring question that banks ask: how do they monetise open banking? This model sets out for the bank to focus on the core infrastructure of banking services and leave the front-end distribution to third parties while the latter creates and launches white-labelled banking products. Thus, banks having the role of a supplier to fintechs, substantially extend their reach of service distribution. 

Banking-as-a-platform (BaaP)

Banks choosing this model become an open platform by building APIs to allow other ecosystem players to access their products and services. They also may consider tapping into the solutions offered by third parties, in order to bring their clients the best user experience and value.

As a result, in this partnership, the bank provides the customer base while the fintech delivers technological innovation. That means the bank will pursue building partnerships with fintechs that offer the services relevant to its end-clients. 

How can Salt Edge help banks take the next step on their open banking journey?

Banks start to recognise the open banking opportunities, and the sooner they set and initiate a clear strategy, the more chances they have to succeed. So which of the above scenarios is the most suitable? Well, it’s important to highlight that these are not mutually exclusive, and one can combine them to meet the objectives of different parts of the business. A key component in meeting their goals is identifying the technical partner that supplements the banks, rather than competing with them. 

Salt Edge can assist banks with all of the above strategies. The company has built hundreds of PSD2 APIs for banks’ regulatory compliance throughout Europe & beyond and also offers the widest open banking connectivity to over 5,000 banks worldwide for financial institutions to enhance their banking offerings. 

In regards to the BaaS and BaaP models, Salt Edge works with global core banking leaders that have been helping hundreds of banks globally to spur the fastest go-to-market while assisting with building the PoC, testing by the market, and fully launching viable solutions. We offer embedded solutions and enable seamless flows that allow banks to build upon Salt Edge’s open banking APIs quickly. Besides the technical setup, we assist banks with implementing real use cases that actually work. From combining their lending expertise with open banking-enabled data analytics that decreases banks’ credit risk to empowering more lucrative investing experience thanks to faster customer onboarding and safer & quicker top-ups, adding PFM features that increase customer loyalty, enabling more convenient eCommerce payments, and building tens of other use cases.