Right now, open banking isn’t about waiting for the music to start; it’s about taking the necessary first steps today to become familiar with the methods and protocols that will dominate financial services for the next decade.
If the recent influx in FinTech-bank collaborations is any indication, many financial institutions in Latin America are kicking off their own initiatives before waiting for new open banking and API rules to roll out in Europe, Mexico, and elsewhere. And rightly so!
Around the region, several financial institutions have started narrowing down projects and partners that can deliver proofs of concept and quick wins in the near term. It’s not a stampede by any means, but rather a discernible and deliberate pattern — they pick a project that’s not overly ambitious, a partner that they like, map out the roles and requirements, and get started.
The reason is simple: these projects illustrate and ground abstract ideas into concrete experience, and rally people in ways that are critical to competing in the future. They turn skeptics into informed, engaged, and active partners, and the more urgency and watchful eyes they receive from a financial institution’s leadership, the more likely they are to move quickly and succeed.
Different Project Types
Government-driven open banking initiatives are about stimulating innovation, competition, and financial inclusion. However, this can include a wide range of project types from instant payments to robo-investing to QR enabled mobile P2P payments.
The types of projects we’re hearing about today vary and the terms used to describe them don’t always shout “open banking”, but make no mistake, if it involves APIs and collaborating with third parties to deliver financial services, it’s probably open banking.
Companies developing for the industry generally prefer and recommend projects that fit specific criteria, such as services with a track record or clear potential to scale rapidly, one that you can pilot with an existing and able client, and one that clearly falls into the bright lines of current rules (minimal legal exposure). By nature, these tend to be business customer-oriented services (though not always) like digital account origination, real-time payments, mass disbursements, and B2B2C plays like digital lending, to name a few.
The FinTech B2B trend seems to be catching steam as evidenced by reports of Santander’s plans to launch a digital business banking service in the UK, and BBVA becoming the first global bank to issue a loan, using distributed ledger technology from negotiation to signature, cutting the closing process of €75m corporate credit from days to hours.
Innovate Via Micro-Wins
Innovation in incremental doses is nothing new, but quick-win projects can face resistance within organizations that are incorrectly interpreting them as competing with other efforts. For example, an initiative to define a new system architecture road map isn’t necessarily in conflict with an open banking project.
Today’s API-enabled, wrap-and-extend approaches permit those projects to happen in concert. Ultimately, initiatives that appropriately leverage existing assets while improving digital agility are typically a good idea.
Commercial Banking Customers Aren’t Happy
Let’s be honest. Most banks in any given market have fairly similar business products. It’s hard to point to many areas where one bank has a dramatically better product than another. What happens when that changes?
Answer: They take away business at an alarming rate.
This is made worse by that fact that more tech-savvy and innovative corporate customers aren’t exactly wowed by current services. A recent study of corporate treasurers found they are quick to move away from banks that don’t understand and can’t meet their digital requirements.
In fact, when it comes to imagining the corporate bank of the future, McKinsey & Company advises corporate banking leaders to pay close attention pointing out that digitizing processes from end-to-end increases customer satisfaction, building customer-centric journeys, and suggests it may be time to redefine some product offerings and migrate them to new platforms.
API Economy and Platform-Driven Business
Case in point: gig economy and other digital platform companies have been providing a clinic on how real-time systems have the ability to dynamically pull financial services and rapidly scale volumes with little need for human intervention or traditional bank delivery models. Anecdotally, we’ve seen deposits growing at a rate of CAGR +2,000% in such use cases. That’s not a typo.
How often do bankers see a product do that? Not very often. And when they do, the conversation about open banking projects takes on a decidedly different tone and sense of urgency.
The secret to these initiatives is almost always a combination of powerful APIs, orchestration, and clearly defined roles from the beginning. Being realistic about what each side of the party in a collaboration can reasonably deliver in a given timeframe is key. Stretched IT teams that over promise are not conducive to “quick” or to “wins”.
So, pick a song and a dance partner that complements your abilities and don’t wait for regulations to spur your open banking efforts. Like the saying goes, accepting the future hurts once. Delaying it hurts forever.