Where are we with Open Banking?

COVID-19 has accelerated digital transformation across the financial services industry in a way that it was not wholly prepared for. It has placed fintechs much further ahead in the race to adapt and deliver new business models and revenue streams, especially for those who have already leveraged the potential of Open Banking. But while traditional institutions may have acknowledged the need to shift from a transaction-led model to a data-led revenue system, few have made the leap.

The problem is, Banks still see Open Banking as an imperative rather than an opportunity.

But in order to remain competitive, they need an approach to Open Banking which fosters valuable collaborations with fintech developers. A successful strategy cannot rest on the notion of building a series of interfaces and expecting third parties to come running. A whole new series of developer-focused support services, from API discovery to supporting ideation, testing and deployment must be considered in the strategic future of banking.

Developers are banks’ new customers

Banks’ commitment to developer relations was important but now, is vital. COVID-19 has thrown a spotlight on the banks’ ability to adapt and survive without people visiting branches and without reliance upon manual processes. Those that didn’t truly commit to a digital transformation strategy yesterday, are set to pay the price today. By allowing third party fintechs access to business accounts, payment providers, lenders and equity managers, they will be able to better serve businesses desperate to improve operational efficiencies, cut costs and better serve their customers.

For banks to make this necessary step, they must work hard to make their platforms and sandboxes attractive to third-party developers looking to rapidly prototype new applications. To attract much-needed talent, developers need to be treated as a valued customer would be. High standards of service should be upheld, high-quality, rich APIs must be produced, and relations must seek to exceed developer expectations in the same way banks should for their traditional clients.

A testing environment built for success 

Beyond being welcoming, banks need to make Open Banking easy for developers. This also means documenting as much code as possible and putting everything into an API interface which will allow consistent testing and rebuilding. The availability of testing not only holds benefits for developers who will be able to customise their working processes, but for banks who will gain a more enriched user experience from a tried and tested integration.

But this can only take a bank so far. Mining for better data is the essential next step in delivering on Open Banking’s potential which means collaboration must extend beyond financial services.

Banks can only collect a limited layer of data; the actual owners of the data tend to be the retailers or service providers that customers are purchasing from. If banks were to take the plunge into insurance and retail data, there would be a greater understanding of consumer behaviour, leading to an enhanced service offer. This is why early innovation has focused on personal finance management – once the industry has a grasp on how and with whom those consumers are willing to spend, banking and fintech as we’ve known it can start to make insightful recommendations that take us beyond Open Banking into Open finance.

Commit to the cause

Currently, Open Banking is not as open as we would like it to be. Banks need to acknowledge its potential and fully embrace it or risk stagnating within a market that continues to be disrupted. Committing to the cause means fostering new partnerships for success and tapping into fintech developers and retailers whose expertise are vital in delivering a truly ‘open’ experience.