Although open banking has legislative origins - and is compulsory in some countries - it is also a major catalyst to bank transformation. In addition to the opportunity to generate new revenue streams, improve services and attract new customers, open banking challenges the traditional culture and closed mindset of banks. Historically, banking has revolved around a closed “vault” function. The vault has become a metaphor for bank culture, which has remained closed and product focused. Open banking changes all that and encourages banks to participate in an ecosystem that is open, innovative and collaborative.
Open banking also challenges the traditional rules of engagement for banks and, over time, may even change what it means to be a bank. Banks are no longer competing just with each other but with new competitors, often from different sectors. Over time, industry boundaries will become blurred and some may disappear.
The power of open APIs
In this new order, banks must examine their service propositions to understand exactly where the value lies. Open APIs empower a bank to deconstruct its value chain and market individual components – such as Know Your Customer – as bespoke services. At a fundamental level, every bank needs to consider what makes it stand out and also what it stands for - open banking is a unique branding opportunity.
API-enabled banking creates many new opportunities but also threats. For many banks, managing APIs is uncharted territory that requires fresh thinking, not just about monetisation but also about API ownership and governance.
Open banking and data
Open banking is also about data. It creates an opportunity for banks to become data-driven companies and to deliver customised services in context for customers. Some banks have already seized this opportunity, but to succeed, banks must ingest, store and share a greater volume of data – for a wider range of purposes – than has ever before been necessary or feasible.
To extract the most value from the data available to them, banks will need to process and analyse the data in real-time and at scale. In many cases this calls for a fresh approach and new technologies. Indeed, over a third (36%) of the participants in a recent open banking study identified IT systems modernisation as the biggest open banking challenge.
Where does cloud technology come in?
Open banking, innovation and cloud technology are not synonymous, but are very closely entwined. Banks that wish to capitalise on the open banking opportunity will need to adopt strategic cloud solutions and as open banking develops, cloud technology will move from being useful to essential.
Why? The following list offers some of the benefits of cloud that apply to the open banking opportunity. This is not exhaustive and there is considerable overlap between these benefits.
1. Scale, elasticity and real-time processing
Open banking success is inextricably linked with data and the capacity to process large volumes of data in real-time. To deliver a truly bespoke customer experience, banks need to ingest and process large volumes of data from disparate sources. The number of sources will increase as open banking develops, so banks need to prepare to manage an exponentially increasing volume of unstructured data. However, as data processing volumes are also likely to vary over time, a cloud solution offers true elasticity of processing to accommodate fluctuations. Cloud also facilitates near real-time processing, which is necessary to align banking services with the dynamics of the real world.
2. Gain customer insight and deliver bespoke services in context
The cloud empowers a bank to capture an unprecedented volume of customer data, analyse it, and deliver bespoke services where they are wanted. But most customer data is unstructured and requires modern technologies – such as artificial intelligence and machine learning - to analyse it. Although it is possible to implement these technologies on premises it makes practical sense to do so in a modern cloud environment, which obviates the risk and expense of an on-premises solution. The cloud also offers low-cost access to an operational test environment with secure sandboxes based on industry best practice methods. Developers have a safe playground in which to innovate.
3. Safe and secure processing
After some initial concerns, regulators acknowledge that cloud technology combines the highest standards of data security available. Tech giants like Amazon routinely have hundreds of millions of customers online and its security standards are beyond doubt as this is their core business.
4. Move to microservices and continuous development
At a time when banks are seeking to boost their agility and shorten time-to-market for new services, open banking offers a unique opportunity to do things in new, modern ways. Banks can break away from their monolithic technology stacks towards one that embraces microservices, Agile principles and continuous development. These are the building blocks of a truly digital bank and can redefine what’s possible in banking. As well as boosting processing efficiency, moving to the cloud helps insulate the bank from technology change and the need to schedule upgrades.
The time is now for banks to build the bank of the future and by utilising cloud technology, open banking can truly become greater than the sum of its parts!