Open banking is becoming a reality for banks globally. In practice, it means banks need to go digital, update their banking systems and set up new digital banking platforms. They also need to re-evaluate their banking model and open up to new partners and third-party providers, such as FinTechs.
Some may claim banks are opening up to third-party providers due to the second Payment Services Directive (PSD2), but we respectfully disagree. PSD2 does stipulate that banks must allow third-party providers access to their customers’ account information and enable them to initialise electronic payments. However, that’s not the whole story.
PSD2 is at most a catalyst for a process that has already begun. The financial and banking sector would have turned towards open banking even without the European Commission’s regulatory provisions — especially since legislators and regulators in other countries, such as Australia and the United Kingdom, had previously introduced much stricter and more extensive regulations to enable open banking.
Whether banks and financial service providers can go “fully digital” largely depends on their proficiency in API management.
The key to open banking
The digital bank of the future will be based on APIs. These interfaces are used for a variety of applications and customer interactions. They are also useful for connecting with partners whose service offers can be used by a financial institution to augment its own portfolio, or to whom they must guarantee access to certain data because of regulatory provisions.
To survive in this changing banking environment, and to ensure they are able to provide customers with the services they demand, banks need to collaborate with FinTechs and expand their portfolios. To do this, they must ensure their systems are up to the digital challenge, which isn’t a simple task. Designing the right digital platform is key.
Banks might find themselves torn in a number of conflicting directions due to multiplying internal processes and solutions, integration with third-party providers, customer demands, compliance, regulations and simple budgetary restrictions. If API and digitalisation projects don’t have the necessary expertise and experience, they can fail quickly. Banks can’t do everything alone; partnering with experienced IT providers can help them through the digital journey.
APIs as a foundation for automation
A renowned German mortgage lender, for example, wanted to make its range of services simpler and more efficient, and to better align its service portfolio with the needs of its customers. To do so, it partnered with DXC Technology. The first step in digitalising its platform was simplification and automation of business processes and elimination of integration gaps. The next step was digitalising the process of working with physical documents.
Crucial information such as customer history is now available at all levels. By implementing an artificial intelligence (AI) solution, the lender now has a digital bot-assistant that can recognise the content of scanned and uploaded documents and take the necessary actions. Customer experience is also significantly improved, as the new platform has a modern user interface and state-of-the-art communication tools.
When complexity gets out of hand
For a fully digitalised process, it’s essential to have flawless interaction between APIs and automation. This doesn’t just ensure internal connectivity, but also establishes a connection to the customer and incorporates services from service providers, enabling an efficient customer onboarding process. If the solution is intended to cover a variety of application areas and allow interactions with partners’ service offers, complications may occur. Such a solution is therefore impossible without efficient API and partner management. The technological aspects aren’t even the leading factor here. Governance, compliance and organisational change management must be the core elements of such an initiative from the very beginning.
This complexity also regularly poses significant challenges for FinTechs, when their usually fully digital business models and processes must be incorporated into the organisational structures of traditional banks. As soon as they are integrated into a bank’s process and system environment, without clear governance, any kind of manageable overview may quickly vanish. Such a situation requires experience and expertise. When choosing partners, organisations should make sure their partners have the essential API expertise as well as the necessary technical and industry knowledge of the financial world.