Keep an Open Mind on Open Banking

More Than a New Regulation; More Than a New Technology

At Digitopia, we maintain that a company’s digital maturity is determined by the outcome of its capabilities across six dimensions: customer, operations, people, technology, innovation and governance. We have conducted research looking at how open banking practices play into these dimensions and the value provided.

Basically, open banking allows – or forces- financial institutions to share data with third-party providers (TPP) with the customer’s consent. The goal is to deliver to customers. The Payment Services Directive (PSD2) and General Data Protection Regulation (GDPR) enforced by the European Union pave the way for open banking. PSD2 and GDPR mark a regulatory milestone in the global trend for privacy, security, transparency, competition, and innovation. Here are some cases where open banking is used:

• Know Your Customer (KYC) and Identity Verification: Collecting customer information in real-time from reliable sources, matching it against additional accounts and screening it against watchlists to verify the customer.

• Onboarding: Aggregating relevant customer data to automatically fill applications for a smooth onboarding process.
• Loan Scoring: Fetching up-to-date account information and allowing a customer to provide access to her financial or behavioural information for a quicker and accurate appraisal of the loan score.
• Finance / Multi-account Management: Gathering financial information from different financial institutions into a single information system quickly and transparently to give a full picture of the customer’s financials.
• Payment Initiation: Enabling alternative payment methods both online and at the point of sale for frictionless payment processes.
• Transaction Monitoring: Analysing customer data and transaction data to identify patterns and anomalies to detect fraudulent activities.

The use cases suggest that open banking is connected to a wide range of functions in the company. Here’s how it is related to the six dimensions of Digitopia’s Digital Maturity Index (DMI) :

• Customer: Identify and run initiatives that bring greater value to customers through new products, services or channels. Evaluate customer journeys and leverage ways to simplify, accelerate and personalise the journeys for a better experience.
• Operations: Leverage capabilities to efficiently run the back-office of products, services and processes. Look for ways to eliminate redundancy, reduce costs, and improve response times.
• People: Cultivate an open-minded culture and a diverse set of talents to realise the potential of open banking initiatives.
• Technology: Develop and maintain application programming interfaces (APIs). Set up a flexible IT infrastructure and ensure security and privacy. Develop a solid data structure and governance.

• Innovation: Explore opportunities across sectors and cultivate partnerships to satisfy unmet customer needs. Cultivate the strengths of FinTech and technology providers to nourish innovation.
• Governance: Identify the risks, opportunities, and the overall ambitions of the organization. Set key performance indicators, determine the cases to focus on and execute accordingly.

Open banking reaches beyond just a set of regulatory requirements; it requires more than a set of technological capabilities. We are sure of the changes to come, and they will not happen overnight. Banks should take a holistic approach at open banking and take well-organised steps to unleash concrete business opportunities.