• Ben Robinson, Chief Strategy and Marketing Officer at Temenos


• 02.09.2016 07:30 am
Fintech

Another month, another industry stakeholder jumping on the open banking bandwagon. This time, the UK’s Competition and Markets Authority has called for an for an ‘open banking revolution’, urging the banking industry to embrace open APIs as a way of transforming the sector, encouraging more competition and improving options for customers.

The implications for customers, high street giants, new challenger banks and the burgeoning ‘fintech’ sector are all equally significant – but there is a lot of work to be done if banks are to meet the new 2018 deadline. So how does this latest development fit into the Open Banking story so far, and what have we learned at Temenos from conversations with customers and collaborators on this trend?

Working with a significant proportion of the world’s largest banks, we often gain a privileged insight into the hopes, fears and plans of financial institutions. In our recent annual survey on banking attitudes, for example, we explored their views on open banking. We see this trend as the key to banks remaining the primary providers of financial products, and therefore remaining relevant and profitable in a digital age. It was encouraging, therefore, to see banks agreeing with us.        

Over half of respondents feel that opening up their platform to third parties is more of an opportunity than a threat, and 60% see the adoption of technology that supports open banking technology as key in fending off ‘non-bank’ competitors. But we are still in the early stages of the open banking journey: 53% still say they can’t exploit a wide enough range of user interfaces due to technology or cost constraints, and less than a third would say that open banking is a high priority. Most are still more concerned with other challenges like the cost of compliance and low interest rates.

Despite a willingness from many, it is regulation that could yet be the biggest driver of a move towards open banking, particularly in Europe. As it stands, Europe’s Payment Services Directive 2 (PSD2) will force banks to open up access to customer data to third parties via APIs by as soon as 2018. We are already seeing more APIs come to market which cater to the demands of PSD2 from the likes of Apigee, the middleware specialist, and Open Bank Project, the open source API for account data sharing. These have spotted the opportunity to deliver software solutions for banks to save time and money, but also create new revenue streams.  We have found this first-hand, working to provide financial institutions with design tooling and an open source API framework for building APIs on our core banking system; it is our view that it is the speed to market and strategy behind your open ecosystem that matters.

Looking more specifically at the Open Bank Project, it has until now focused on anti-money laundering, anti-fraud and current account data services. We believe its innovations can lead to the creation of financial services APIs that will have as big an impact as cards, mobile banking or OAuth – the open standard used for authorising access to third party websites from Google, Microsoft and Twitter accounts without users revealing their passwords.

APIs are about creating functionality at scale, without additional cost. Consider the Currency Cloud, for example. As an API-led business, it manages transaction processing with a relatively small team, in contrast with the the hundreds needed by the average bank to achieve the same result.

Beyond that scale and efficiency, APIs can also improve service – and a result then be used as a way of differentiating from competitors or opening up new revenue streams. Banks can do the same, just as they need to reconnect with customers and prove their relevance. APIs are a great way to revitalise the brand – particularly if banks want to become part of a broader ecosystem of financial service and advice, the natural next step down the open banking road Indeed, banks can become marketplaces for banking and non-banking products and services by opening up their platforms to third parties. This will help to keep them relevant in the digital age.

That is exactly why we started the Temenos MarketPlace, a shop front for tried and tested open source APIs available to all, including our own 2,000 customers, and why other similar initiatives such as the Open Bank Project are also thriving.

Often APIs are doing great work in areas that don’t add revenue to banks – but they do make life much easier for their customers. Take for example, the API that allows us to decide who sees our statements. Today, getting a mortgage demands pay slips, statements and all kinds of other documents. APIs are eliminating this – and providing a superior solution to the walled garden approach to banking. It is great for transparency, but not for profits.

The ProgrammableWeb group tracks API opportunities across all industries. We recently overlaid its latest information onto the banking sector to create a map of all the opportunities for APIs in banking. It showed that while APIs have focused on retail solutions so far, every other aspect of banking is also ripe, from back office to compliance, treasury to transaction.

By introducing Open Bank Project, in conjunction with our technology and other fintech companies to banking clients through our MarketPlace, we’re confident about breaking down the barriers that separate innovators from banks and make the two groups accessible to each other. Great technology can implement great ideas. This is what open banking is really about. It’s all about moving fast and getting ideas working as soon as possible: in hours or days, not months and years. It’s about automating repetitive jobs and using analytics and protocols to bring down costs.

This is great news for banks facing stiff competition in an increasingly crowded market, from the incumbents and challenger banks to fintech startups and growing interest among technology giants like Google and Apple. Those adopting APIs now will quickly steal a march on their competitors. And there’s a lot to play for – it’s not just about ensuring top-notch service levels and new revenue streams, it’s about being seen as a modern player in the modern ecosystem. There has never been a more exciting time to be in banking: technology can deliver faster, better, safer and more innovative services. This opportunity is available to anyone of almost any size as the capital requirements to innovate are being dramatically reduced.

While our survey showed that open banking is far from being the top priority among banks right now, nearly two thirds were upping their investment in technology. It appears that banks do recognise the importance of technology to deliver a more intimate customer experience; let’s hope they also realise that to get the most out of their budgets they would do well to adopt an open approach.

This article was written by Ben Robinson and Aaron Phethean, Chief Strategy and Marketing Officer, and head of the MarketPlace at Temenos