Open Banking is becoming a strong driver within the financial world and it has the potential to enable communities and individuals to make informed financial choices as they recover from the pandemic’s impacts. From the evolution of open banking standards to how banks may approach open banking as a tool to achieve business goals, there are strong signs that the coming year will see open banking become a strategic enabler for financial institutions and the communities and individuals they serve. This drive will also prompt high demand for the connecting interfaces/APIs that power open banking and that will help to build an ecosystem that features a large range of diverse stakeholders from traditional banking and fintech to third party innovators.
Many industry experts believe that open banking will transform the banking sector in the year 2021.
Open banking partnerships can enable customers to manage their financial accounts in an easy manner by providing them with a consolidated view of their accounts. This is the reason why access to open banking products will encourage improved long-term wealth generation, better financial decision making, and lower debt.
As a result, it will benefit many stakeholders like FinTech workers, banking institutions, API industry figures, consumers, and underserved communities.
Open APIs play a crucial role in delivering smart, secure, agile and relevant experiences to consumers. Open banking extends data and banking as a service to give consumers the ability to move and manage money where, when and how they want.
Open banking also enhances consumer loyalty through personal financial management services or other partnerships. Enabling consumers to bank the way they want is the priority now and after the pandemic. Open banking can enhance this flexibility and help FIs unlock capabilities that lead to richer consumer experiences.
How can banks operating on a 20th century business model adequately service customers with 21st century expectations?
After years of rebuilding and optimizing internal technology and data mandated by regulations after the financial crisis, banks have been confronted with the realities of falling behind on the customer experience gap. Both customers and regulators are demanding transparency and trust on top of convenient experiences.
One thing is clear: operating a 20th century business model no longer provides banks with the ability to adequately service customers with 21st century expectations.
Unlike many banks who have sought to keep pace with fintechs by digitizing existing services, fintechs have pioneered new operating models — bundling services in different ways or distributing them through different channels (e.g. partnerships). This change in thinking — from providing traditional services to providing platforms for service delivery — offers a glimpse into the future of digital engagement.
Connecting the open banking ecosystem
Underpinning all these trends will be demand for connections between ecosystem players: banks, fintech firms and other third parties. The way to do that is to build good interfaces and those interfaces today are APIs. APIs have to be great, otherwise fintech firms will not consume these consistently enough to deliver business results for the bank.
The challenge is to be able to create the right APIs and then to ensure they are reliable, discoverable, usable, high-performing and flexible to offer long term value to both API consumers and their end-consumers. Banks will need the right technology, the right partners, and the right kind of commitment in implementing a robust digital strategy as it looks to move past the often-difficult early stage to build strong adoption across the ecosystem.