What is your definition of Open Banking?
Open banking is quite simple: previously closed systems are opened up using application programming interfaces (APIs). This means that data flows more easily between entities, and systems that were previously hard to integrate are now seamless. Openness means that we, as a technology provider, need to make sure that our platform can be easily accessed and interfaced by the hardware, software, and the services offered by third parties in the ecosystem. That could be banks, FinTech, or system integrators. It is all about providing easy, secure access to systems. By being more open, the customer experiences a frictionless environment, and the business runs more smoothly.
How does Open Banking create value for customers of banks?
Let’s take one of the largest underserved communities right now: corporate customers. Most of the digital innovation is going on around the retail customer base. For corporates, this is hard; you can be a corporate treasurer, and get a better banking experience in your personal life than in your professional environment, as corporate banking is still far more analogue. Open banking can enable the digitalisation of trade for corporates, and open up things like blockchain and syndicated lending. The easier we make their access to capital, the more successful their business will be. On top of this, open banking allows for Know Your Customer services (KYC). Knowing your customer has been integral to effective business forever, and open banking is the next step in this process.
However, open banking does not equal digitalisation. Digitalisation is happening regardless of openness, but open banking allows for a whole extra layer of innovation, frictionless systems, and KYC.
What are the largest challenges for banks when embarking on Open Banking?
The biggest challenge for banks is a cultural one: the culture in banking is overwhelmingly ‘we have always done it this way, so we are going to remain doing it this way’. Banks are conservative, but fail to stop change from happening. For example, the banking industry spends USD 200 billion on IT, but 150 billion of it is spent on maintenance. The technology evolves far quicker than the banks are adopting it, and this will lead to some banks being left behind if they do not use the power of analytics and cloud services. Banks who are doing these things are in the fast lane: they are able to exploit customer opportunities, to comply with regulations, and to deliver return on equity. The fast lane needs to be navigated carefully, however. The bank can concentrate on what it is best at, the management and movement of money, and a technology provider can provide the necessary innovation and digitalisation.
The slow lane, on the other hand, does not use analytics, cannot digitalise, have not grasped the power of mobile, have no strategy for how the interoperate with new partners, and see the cloud as a threat, as opposed to an opportunity.
How do PSD2, Open Banking and GDPR come together for banks?
In the one corner, we have PSD2, wanting more openness, more competition, and wanting to do more with data. In the other corner, we have GDPR, wanting industries to be more focused on how they manage customer data, and how to be sensitive about privacy. This does not need to be a conflict, but there is the possibility of PSD2 being constrained by the rules of GDPR. The EU has made an uncomfortable bed; one the hand PSD2 is designed to inject fresh input into payments and banking (necessary, as European banking has been sub-optimal for the past decade), but on the other hand, GDPR is concerned about the abuse of customer data. It is a confusing dilemma for banks. There are two ways to deal with the regulations: you can treat the two regulations in isolation, which is happening a lot currently, but it is better to look for the points of conflict and overlap and create a single strategy.
What is Misys’ role in the Open Banking ecosystem?
Rather than standing at the side line, Misys jumps right in. We want to be a partner of the FinTechs, system integrators, and banks. We joined the Banking Industry Architecture Network (BIAN), which is becoming more prolific and has gathered attention from banks. We see the need to connect to third party systems and offer the banks solutions to plug their own interfaces into our platform. Currently, we are moving to Platform as a Service (PaaS), on top of the software that we already sell. The choice is central for banks: we offer the freedom to pick the option that best suits their customer. PaaS allows access to an enormous range of developers and applications, as it is web-based and open to third parties. This means that Misys does not develop all the applications, but provides a truly open platform for banks to create their own environment. This means that any store could develop an app to enhance customer experience, and a bank can choose to integrate it with their service.
How strategic is standardisation in Open Banking? Should banks actively pursue this?
A standard enhances efficiency, and processes move far slower without a standard in place. Standardisation allows for better cooperation between banks, a more frictionless environment for customers, and faster payments for everyone.
About Alex Kwiatkowski:
Alex is Senior Strategist of Banking & Digital Channels at Misys and works within the Global Solutions Marketing team, focusing on strategic activities in banking and digital channels. He formerly ran IDC’s Financial Insights team in Europe, where he was responsible for all advisory and consulting services, working closely with banks, technology vendors and service providers. Before joining IDC, Alex spent 4 years as a Principal Analyst within Ovum’s Financial Services Technology practice. Prior to this he was a senior manager within Lloyds TSB’s Business Delivery team.
Misys is a provider of financial software solutions focused on retail and corporate banking, lending, treasury, capital markets, investment management and risk management.
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