There can be little doubt after this year’s Sibos that digital disruption drives new
ecosystems, marketplaces and businesses; thus, changing the game for how banks
connect to their clients and how banks run their businesses – Open banking and APIs are coming, and it is time for banks to reinvent their business models and embrace collaboration.
For European delegates at Sibos, the revised Payment Services Directive (PSD2) was a hot topic. But the implications of this Directive for banks globally was not missed. PSD2 ushers in an era of open banking, in which banks must open their customers’ accounts to third-party payment and information requests.
This will pave the way for an entirely new end-user experience in digital financial services, one in which the customer will have more power. There will be benefits for banks as they can reduce costs while providing a better customer experience.
By using an ecosystem of third-party applications and services – enabled by open application programming interfaces (APIs) – banks can rapidly advance their digital transformation agenda in the open banking world. When introducing a panel on the subject of open banking, Qatar National Bank’s Chief Innovation Officer, Dr Leda Glyptis, noted that just two years ago an API Sibos Innotribe session had failed to draw an audience; in 2017, the main conference room was full.
An audience poll found that 43% of those present had an API strategy; 42% were considering the need for one; and only 16% had no plan at all. Saket Sharma, Chief Information Officer, Treasury Services Technology at BNY Mellon, told the assembled bankers that they should not think in terms of discrete API strategies, but see the issue as an integral part of their overall digital plan – something that they “must have”.
This is because APIs are simply delivery methods; what matters is a bank’s intellectual property, its data and algorithms. Damian Richardson, Head of Payments Strategy and Innovation at NatWest, conceded that PSD2 would probably hit payments revenues.
He said this requires banks to develop new strategies to take advantage of open APIs. While it is tempting to believe that open APIs are a solution for everything, Laurence Leyden, General Manager, Financial Services, EMEA at SAP, says financial institutions should take a step back and realise that some core components within banks work “pretty well”.
The trick is to bring together all elements to ensure seamless processes for dealing with customers. “Banks need not only to deliver great customer interactions but also how they can bring risk, profitability, compliance and lifestyle considerations into real-time events and how to understand the concept of the ‘customer of one’ in a real-time environment. APIs can help banks to deliver a complete and valuable service to customers.”
Open banking and APIs give banks the opportunity to reinvent their business models, but this must be guided by a sense of purpose – banks should be able to clearly answer the question of why they exist.
Leyden talks about a process of continual renewal and a culture of learning and questioning of the status quo. Open APIs are emerging from outside the boundaries of banks; the key element for success will be the ability to bring together FinTechs, other banks and other industries to create seamless and beneficial customer services.
At NatWest, ‘hackathons’ are used to this effect, says Richardson. During these events, small groups of developers work on customer pain points. NatWest provides the participants with a brief and they use their skills sets to rapidly create ideas and solutions. Ideas can be generated and tested in a short period of time (typically over a weekend). Richardson says the developers gain access to the bank’s technology and the bank has access to new and innovative ideas.
By getting FinTechs involved, banks will have a better chance of finding the services that resonate with customers and deliver the wave of innovation that will tap into new revenue streams. For Leyden, the new business models will be about more integrated technologies, rather than products.
Banks will be focused on making their customers’ lives better, which will involve a combination of better price points, more transparency and increased ethical components. “Banks will not just be executing products and transactions, but will be really meeting their customer needs in the way customers want it.”
Providing customers with what they really want, says Eric Zingmark, Co-head, Transaction Banking, Nordea, requires collaboration with others. “No one institution can provide all of the things that retail and wholesale customers expect. They have high demands and expect immediate delivery. If a bank cannot do that, customers will go somewhere else.”
Nordea’s approach is to collaborate with FinTechs, other banks, regulators and customers. Collaborating with customers is “an absolute must”, he adds, as it accelerates innovation and enables a bank to become “relevant faster”.
The year 2018 will be a “defining year” for banks, says Zingmark as PSD2, Europe’s General Data Protection Regulation (GDPR), and new technologies come to the fore. These were all topics of great interest during Sibos.
The successful banks, he says, will be those that are open, transparent and “forward leaning”. Other banks are struggling with the cultural aspects of open banking, but will survive, while some have come “too late to the party” and won’t necessarily make it.
Mike Blalock, General Manager – Financial Services at Intel, says collaboration is enabled by the move to open APIs. He agrees collaboration will be important and observed a focus on collaboration at Sibos.
This collaboration involves banks, the FinTech ecosystem, regulators and technology partners. Open APIs allow banks to share data safely and securely with the aim of providing more value to customers.
From a technical view, the banking industry is “getting there” with open banking, but that is only half of the equation, according to Jesper Illum, Nordic Head of Financial Services, SAP. “The big struggle for banks is to how to commercialise open banking and PSD2. It is one thing to open up the bank, but it is not being done properly it leaves the revenue for another party to pick up.”
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