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The Journey towards Open Banking: What Banks Need to Do?

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Companies like Airbnb, Amazon, Alibaba, Uber etc. have caused major industry disruptions and have radically transformed customer experiences and interactions. They have set the stage for an inspired lot to fuel competition, drive up efficiencies across different industries and deliver higher value to customers. In essence, they have raised the bar of expectation in all customer-centric industries.

Banking is no exception. Regulations are catching up to ensure level playing field for new entrants and shielding customers from age-old disadvantageous banking practices. The UK Competition and Markets Authority (CMA), in this light, has recommended a number of remedies to increase competition, encourage switching, deliver customer value and drive innovation in banking.

CMA Remedies and timelines

In its bid to enhance value to customers, the key measures and directives of CMA usher the revamp of the banking ecosystem in UK towards Open Banking with well laid out timelines. Open APIs have been laid out as one of prominent "Foundation Remedies". In terms of implementation, the CMA will require the release of least sensitive data (bank data on their products, services, prices and T&C's) first by the end of March’2017 with all other aspects of the open banking standard ready for early 2018. The CMA has further directed the industry to work closely and collaboratively with bodies like BACS, FCA and OBWG to usher in the new order.

2017 & 2018 are set to be the transformative years for major banks in the UK to lay the foundation for a robust Open Banking future.

CMA Remedies, a major influence towards Open Banking

Globally, Open Banking is only a question of time and in UK, the CMA push is all about bringing the future much closer. Fueled by new technologies and driven by the need to standardize Open Banking API, the CMA directives will

  • Enhance the capability of consumers (individual and SME) to accurately evaluate market offerings
  • Facilitate the creation of new digital services
  • Pave way for development of new business models offering innovative services to customers

Open Banking - The future is here!

Both market forces and CMA directives have put banks on an aggressive trajectory. Understandably, weighed-down by legacy infrastructure and solutions, many banks will primarily focus on achieving regulatory compliance. However, our view and recommendation for banks is to focus beyond the immediate future, and beyond just compliance.

History shows inertia on the part of incumbents could lead to being rendered irrelevant in a new world defined by challengers. To thrive and succeed will hinge on changing elements that are within the bank’s control to provide the required nimbleness and responsiveness to meet the demands of the new ecosystem.

Banks require a paradigm shift in viewing Open Banking as an opportunity to create more diversified and differentiated value propositions (See Figure 2). This will ensure the bank’s relevancy to its customers and avoid the potential of being obscured by aggressive new competitors.

Figure 2 Significant milestones enabling the shift to Open Banking

Next steps for banks

The complex demands of Open Banking pose huge challenges for banks to ascertain and implement suitable strategies to work towards creating an open collaborative platform. The platform should seamlessly enable intermediaries to access data securely and develop intuitive applications for customers.

Key Considerations

What Banks need to do?

Refurbish legacy systems

Banks will need to focus on building an agile and responsive intermediary layer that sits atop the core banking and other legacy backend systems and actively engages with the API environment

Redefined banking ecosystem

Banks will need focus on revamping their integration platform to swiftly and securely interact with a host of third party providers seeking customer and transaction information aimed to deliver the new and enhanced offerings

Avoid ending up as data pipes

Banks hold volumes of customer data. They have to diligently think beyond their existing boundaries, shed concerns and develop new partnering capabilities aimed to cooperate and take advantage of Fin Techs

Build comprehensive business models monetizing data assets

Banks have to take advantage of robust collaborative platforms, connect with financial intermediaries to tap into new revenue opportunities for ex: tie up with alternative lenders to finance their underserved customers.

Figure 3: Key considerations and action for banks

The challenge of legacy pull can be mitigated by a lightweight, robust, responsive and agile middle office, in the form of a new and emerging core. This will effectively bridge ‘high speed’ Open Banking requirements with ‘slow speed’ legacy foundation capabilities - leveraging next generation messaging and storage capabilities including API, microservices, cloud etc. Also, a robust API platform with pre-built stacks of APIs dealing with least sensitive information for initial phases and comprehensive list of APIs for later phases can help accelerate banks’ efforts.

Stay tuned for more on this in our next post in the Open Banking series.

About Author

Maniarasu Thirunavukkarasu (Mani)- Solutions Design Specialist, Banking Solutions and Consulting Group, Wipro, Ltd.

Maniarasu Thirunavukkarasu (Mani) is a Solutions Design Specialist with the Banking Solutions and Consulting group at Wipro. He has around 13 years of experience in implementing business process re-engineering, automation projects, off the shelf product roll outs and large scale IT Projects of strategic importance in the areas of Retail Lending, Liabilities, Cards, Channels and Mortgage.

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