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Safe steps to open banking

In March, Europe’s banks finally stepped over the PSD2 threshold, throwing wide the door to third-party developers before potentially going live with services mid-September. Oliver Dlugosch, CEO of NDGIT, advises how retail banks should approach their open banking strategies as this new ecosystem emerges.

After long preparation, we are now in the final stages of facilitating PSD2 and open banking services.  Third-party providers (TPPs) are now able to begin integrating their service APIs, using bank’s pre-defined toolkits and safe ‘sandbox’ test areas, in advance of rolling out their new bank-connected products later in the year.

With this in mind, how can retail banks approach their open banking strategy to ensure they are ready to embrace the new opportunities at the heart of this exploding financial service ecosystem?

NDGIT is currently working with 40 of Europe’s leading banking and challenger banks as they journey towards open banking.  Here are some of the lessons we’ve learnt while preparing them to embrace more customer-centric digital services:

  • Shift to a collaborative mindset

With open banking platforms, banks can now connect and adapt new services from TPPs quicker and with much more flexibility than ever before. As part of a wider technology ecosystem, they can benefit from smarter, more specialised digital FinTech services, while FinTechs can access the bank’s customer data. Closer collaboration ensures a true win-win situation.

  • Make sure you have the right tools

For the exchange of data and services to work, banks need to network their communication flows and open up core banking systems using modern API technology. This applies both to closed ecosystems between, banks and specific TPPs, as well as across multiple players in the wider market, using relevant standards such as PSD2 or other Open API initiatives.

  • Be an innovator

Banks should avoid waiting for regulatory requirements, or first steps by other banks, before engaging in open banking. They must develop their own models for a networked digital economy in order to be competitive in the long term. It’s much better to be a first-mover/innovator than to be a me-too/follower that is easily overtaken by the market

  • Build in long-term flexibility

Try to avoid restricting technological infrastructure and investment as a result of short-term thinking.  This can turn out to be a big mistake in the long term.  No one can really foresee where the dynamics of the market are going, so solutions must be flexible and readily adaptable.

  • Exploit complementary technology

At the moment, most of the focus for open banking is on Multi-Banking, Personal Finance Management, Insurance Comparisons, Spending Analysis and Sharing of Costs among Friends. However, there are no limits to the fintech innovation that can be achieved once new open ‘Banking Hub’ ecosystems are established. When designing services with TPPs, banks should remember to include all their digital tools in the mix e.g. leveraging their existing Robo Advisory capabilities.

  • Treat TPPs as an opportunity, not a threat

Customers want to use banking services that are increasingly flexible and location-independent. Open banking not only makes it much easier for TPPs to adapt services to new customer needs but it also often enables better customer journeys. In turn, banks can benefit from this strategic advantage by establishing ecosystems in which they offer the best complementary services from TPPs and use them to get closer, rather than further away from their customers

  • Learn from non-bank sectors

Banks face disruption on two levels – from user behaviour and new technologies. When it comes to digital transactions, non-bank organisations like Amazon and Netflix have demonstrated how networked platforms can be designed and exploited using API technology. It pays to look outside the banking industry to see how they have harnessed technology to accelerate the delivery of new digital services

  • Balance imagination with pragmatism

Open banking can facilitate many new ‘lifestyle-based’ transaction opportunities. Imagine, cars that automatically suggest the nearest gas station and pay fuel bills automatically or visiting a store, picking an item and leaving, with no need to queue and pay. Even if some of these services are already possible, they only become really useable with open and instant payment rails. This involves banks being ready to support retail and commercial markets with the innovation they need to turn their vision into reality.

Enabling banking transformation

All of these new business models depend on API-Platform technology and Open Banking to embed innovation into new and existing infrastructure and to evolve and connect new Fintech-Marketplaces and Ecosystems.

The good news is that Banks are already embracing the change.  At NDGIT, we have seen a fourfold increase in API-demand as banks in the UK and Europe develop their digital capabilities to avoid being dis-intermediated by new entrants with superior offerings and services. Many are already developing next generation services and we can expect to see game-changing applications stepping out into the marketplace before 2020.