The Digital Revolution in Open Banking

What is Open Banking?

The upheaval driven by customer behaviour and constant regulatory changes has opened the market to new entrants who are disrupting how, when and what customers buy, completely challenging the payments status quo.

Payment Services Directive and OBWG

European initiatives such as the Payment Services Directive (PSD2) and the UK’s Open Banking Initiative (OBWG) are beginning to impact the market. Organisations like Google, Apple, Facebook and Amazon are looking to use solutions based on these proposals as their preferred payment platforms to circumvent their traditional payment processors like credit card companies. This shift isn’t unique to Europe. Payment aggregators in the United States such as Mint.com are disrupting traditional payment vendors and are already owning the ‘last mile’ of the customer banking relationship.

The first phase of PSD2 came into effect in March 2018.

• European banks must provide access to customer information (e.g. account balances and details) to third party Account Information Service Providers (AISPs) thereby introducing another entity to the customer relationship.
• Banks must expose customer information and payments services to Payment Service Providers (PSPs), disrupting the traditional payment model. Most importantly, banks and financial services institutions may also take on the role of AISPs and PSPs themselves.

These organizations can take advantage of the opportunities that AISPs present and move from a transactional customer relationship to a more engaged, valuable and ultimately a more profitable relationship. By helping customers manage their financial affairs, make better decisions, and save money – banks can drive deeper ‘trusted adviser’ relationships that will result in customer retention and increase product up-sell and cross-sell value.

Banks know that to compete they must ultimately develop their own digital capabilities to avoid being displaced by new entrants, eroding revenues or more agile incumbents with superior offerings. This need to drive a more open set of business practices will in turn accelerate the adoption of Open Banking.

For traditional banks, digital transformation initiatives cannot be siloed; their most important asset is their customer and transactional data which today is locked in legacy systems like IBM mainframes and SAP applications, un-usable and un-accessible. With the right data abstraction, legacy platforms can ‘plug and play’ into the Open Banking environment effectively. The same challenge applies to those organisations who are already running in-flight modernisation programmes. If they have made the decision to significantly update or replace core systems over the coming years, an investment in Open Banking today should not be discarded as their modernisation programme needs to accelerate.

Open Banking needs real-time transactional data!

Open Banking presents an opportunity for banks to re-engage with customers and leverage the trust they have established within existing customer relationships. Despite initial reservations and inherent scepticism, banks are positive about the benefits that open banking will bring to improve services to clients and drive innovation. Banks must provide first-class product functionality and customer experience.

Many of Attunity’s customers have modernisation programmes underway for core banking platforms to not only support real-time processing but also make it easier to support an omni-channel, service-based business. These legacy back-end systems can be a barrier to efficiently extend new functionality, creating a level of complexity and cost that slows time to market and hinders the implementation of next generation digital offerings.

To become a first-class player in this world of APIs, you need to deliver simple integration and open data, banks need a data architecture that’s fit for purpose – agile, adaptable, highly scalable, reliable and robust. A foundational technology for modernizing your environment is change data capture (CDC) software, which enables continuous incremental replication of updates at the optimum granularity and latency; this is critical for digital initiatives and should be made available without being locked into a particular platform. When designed and implemented effectively, change data capture (CDC) technology can meet today’s scalability, efficiency, real-time challenges with zero-impact requirements.

This diagram is an example of data exchange through a core banking platform

Attunity is the leader in platform agnostic real-time CDC-based data integration, helping global banks unlock the value from data they have in their most important transactional systems.  Customers are dealing with a huge amount of disruption both from a business, regulatory and technology perspective; the cloud market is rapidly evolving, presenting both opportunities and risks with many organisations preferring a multi-cloud and hybrid strategy to balance agility, cost and risk.

With the entrants of new digital challenger banks including; Metro, Atom and Starling Bank traditional banks need to unlock siloed data from legacy systems fast to gain competitive advantage and halt eroding revenues.

Open Banking will be Transformative!

Open Banking blows apart the inward-looking culture of many banks and has begun to transform the banking landscape. This will take a decade or so, but the first mover advantage will separate the winners and losers.

Digital transformation is sweeping through the global banking industry, directly effecting other industries and is not restricted to specific groups or markets. In Africa, one in three people are already using basic mobile phones (not smartphones) to make payment transfers using Vodaphone’s M-Pesa service.  On a larger scale, Ant Financial, part of the Chinese giant Alibaba, already has 450 million customers and is looking to reach 2.5 billion customers by 2025. Alipay and Wechat already move about $5.5 trillion payments per year and growth continues to accelerate.

The Power of Ecosystems in Open Banking

Ecosystem-based business models will become critical as open banking and regulator driven innovation disrupts the value chain and introduces competition. Banks will focus on delivering customer-centric propositions and outcomes with partners, using new business models-based data around marketplaces and open services.

Platforms and marketplaces will be the base on which banking services will operate, similar to how Airbnb or Uber transformed the hospitality and transport industry. Financial services of the future will be ‘open’ and real-time. In this way, financial institutions will act as the provider for different partners operating in a marketplace.

Digital banks will deliver products on different platforms and offer value add services to the customer, for example connect a banking proposition that can include other value-add services from insurance, retail, travel as part of the complete service for a customer. The role of institutions will be to support those structures for others to use, optimise and bring value to the customer. One key challenge for banks will be developing the API’s to be part of this new economy, quickly and effectively to access the data to enrich the whole customer engagement.

Customers are at the Centre of Open Banking

Open Banking is all about putting the customer at the heart of every decision. For example, many customers opening a new account have been forced to visit a branch simply to prove their identity, a complete inconvenience and not needed in a digital world! Digital is not about adapting traditional products to new channels, but about transforming current products and services, utilising the possibilities that technology enables. Fintech start-ups continue to revolutionise the customer experience (UX), offering previously unknown levels of simplification, customisation and value.

Amazon, Alibaba, Facebook and Google continue to innovate and are actively entering sub-markets of the finance sector, working with Fin-techs to completely change the game making it easy to respond to in-app advertisers, integrating with messaging and social to simplify the payments experience.

Yet Banks sit on the wealth of “data” of knowing customers, buying and engagement behaviours as well as perceived as secure and trusted. Traditional banks just need the tools, partners and practices to unlock real-time data that will enable them to compete and lead in the new Open Banking World.

This blog was written by Sunil Mistry, Solution Consultant at Attunity. For more information, you can follow Sunil on LinkedIn and Twitter. To learn more on how Attunity helps global banks connect their big data integration projects, visit www.attunity.com.