Will open banking bring us closer to true customer centricity?

Open banking - the concept of using an open API technology to enable third-party software providers and banks to build new, customer-centric financial applications and services - has the potential to unite the UK and European banking customer. It can do this by bringing them into a new era; one in which they are at the centre of the financial services experience. But (and it’s a very significant but…) this relies heavily on whether the industry feels ready to adopt new technologies, and whether banks feel they can trust the solutions on offer not to topple their other operations. It can’t be ignored that regulators need to be satisfied, even if customers are screaming out for new banking platforms and tech-based financial services products. Currently fewer than one in four banks (24%) with operations in the UK and EMEA feel that their compliance is adequately in hand when it comes to their technology upgrades. And only a same small amount - 24% - feel that they can now safely move on to making innovation a core aim. 

A commitment to innovation will usher in a new era in open banking

Only a small majority (56%) of the broader Financial Services industry sees value in introducing new services to help guide their open banking transformation. And there is a stark difference in how legacy institutions versus challenger banks view innovation when it comes to open banking. 65% of FinTechs consider innovation - as well as constantly offering new services - to be at the heart of their open banking transformation journey, whereas only 58% of banks think the same. This means that banks are being increasingly cautious at a time when they could be using their competitive advantage to grow and nurture new services.

One trend that we at Cloud Elements have picked up with our broader business dealings – including those not only in the financial services space – is that many enterprises are duplicating rather than integrating their various tech operations and APIs. The problem is that integration, however, is no longer a nice-to-have product feature. It is a necessity. Many customer experiences are driven by aggregating existing data from applications instead of recreating it. And this can only be done with an effective API strategy. Moreover, effective integration of technology will improve business processes by automating data transfers from one app to another or multiple apps, serving not only internal business units but the larger application ecosystem comprised of customers, prospects, and partners.

The average number of internal applications organisations use to run their business is 1000, and this is increasing each year at a dramatic pace. When you consider the fact that each application has its own engineering, product, QA, finance, accounting, and support function, we begin to see how challenging something like introducing open banking to a compliance-heavy industry can be. Each of these applications will likely have their own APIs and, to make matters more complex, they may have different styles of APIs such as REST, SOAP, SDK, and so on.

Effective integration requires a clear strategy

So, how do you bring all the data hiding in these applications together? Depending on the size of your enterprise, it is highly unlikely that you will be able to bring this responsibility in house. Indeed, this often only leads to heightened risk and less likelihood that compliance deadlines will be met. Only 18% of Financial Services now employ their own developers to manage their integration strategy. 43% have partnered with external providers who deal with all their integration needs, whilst 33% are with providers that deal with some but not all their integration needs. These providers either manage the business’ holistic integration strategy, or integrate individual operations respectively. This is a great sign – we cannot move forward without strong partners in this game.

While open banking regulatory deadlines are looming in the UK and EMEA, it is important not to forget that the customer themselves will be the toughest critic of all when it comes to how innovative banking services are. At a time when political news and division in Europe is capturing everyone’s attention, we must not forget that one thing is not divided across the channel – whether the banking customer is getting what they want. No doubt the rest of the world will be watching very closely as open banking as a trend becomes a tangible reality in the UK and across Europe.