Open Banking – the agility test for banks

Mainstream banking is in the midst of its biggest transformation since computerisation first took root in banks half a century ago. Driven by changing consumer expectations and the development of new technologies, this transformation is being further spurred with regulatory initiatives. A case in point is the introduction of the European Banking Authoritys Second Payment Services Directive (PSD2) in Europe and Open Banking regulations in the UK, which are set to spark a significant evolution in how institutions think about, provide, and commercialise financial services.

These regulations aim to create an industry-wide framework for accessing financial information, with the aim of improving customer satisfaction and encouraging competition between banks.

The introduction of PSD2 and Open Banking has been one of the biggest compliance tests the financial services industry has ever faced. Faced with deadlines, many banks initially focused on a sprint to compliance, only to find they are facing a marathon of sustained change.

This new environment requires new ways of operating and thinking.

The ABCs of APIs

Open Banking regulations require that banks build APIs (application programming interfaces) to make information available to trusted third-party providers (TPPs) This is a radical shift from the traditional financial services approach of tightly managing customer engagement through their own channels.

In an era of open APIs, security is paramount if banks – and the TPPs consumers choose to allow to access their financial information – are to maintain consumer trust. The new regulations define an approach intended to deliver a high degree of security along with a clear and reassuring customer experience. The guidelines call for a combination of bank-grade secure customer authentication in all circumstances, which will be incumbent on the bank to provide. In order to provide a reassuring customer experience, the guidelines also suggest a multi-step authentication process, so banks will need to be mindful of potential “over-engineering” that could add unwanted friction to the authentication process.

When security is addressed, the possibilities of an open approach to banking become clear. Open APIs enable the ready access to information that consumers expect, ensuring that financial services are available for integration into their lives as much as possible. The availability of banking information and capabilities – including payments - when and where customers want them will drive satisfaction with the bank providing that information. It is therefore in banks’ interest to ensure they are offering accessible and useful APIs.

In addition, while Open Banking regulations require that banks provide access to information to TPPs, there is also a compelling case for banks to take advantage of APIs themselves. Using the APIs of other institutions will enable more convenient interactions, such as pre-populating information in forms or creating aggregated views of financial standing, and will also give banks the insights to deliver ever more intelligent experiences to customers.

A new approach

As banks move toward more API-based financial services, they will find themselves sitting at the heart of increasingly complex digital financial services ecosystems.

The concept of open banking, and the associated regulations, will evolve and transform as new use cases emerge. Because banks are at a starting line, rather than the endpoint, it is essential to build in flexibility in anticipation of accommodating change. The continuous change we can expect as open banking gains momentum will require banks to invest in extra resources unless they build in long-term agility from the start.

Flexible platforms and pre-built capabilities available on-demand will help banks deploy new functionalities more quickly, enabling them to implement and manage change continuously, at the lowest possible cost, with the least impact on the bank.

A combination of outsourced or managed services with in-house developers and engineers provides a solid formula to deliver this agility while positioning the bank to move beyond compliance and take advantage of the broader opportunities of open banking.

Selectively outsourcing required development for compliance, coupled with third-party API support, can free up the bank’s internal innovation teams to focus on building their own propositions leveraging open banking models, positioning them to better serve customers and stay one step ahead of the competition.

From compliance to opportunity

As part of a move toward open banking, there is considerable scope for the banking sector to comprehensively reshape itself for the digital age. Secure access to a greater volume of information can allow banks to provide customers with intelligent experiences that exceed their expectations every step of the way. Taking advantage of this opportunity will require not only a new way of operating, but a new perspective on the role of banks in enabling people’s financial lives.

About Nick White

Nick White is vice president, product and marketing, EMEA at Fiserv. He has been building digital services in the mobile, media and fintech space for over 20 years. Having worked with brands including Virgin, Vodafone, and Barclays, White has helped create successful customer-focused digital propositions. He also helped define and build the enabling B2B fintech capabilities required to transform the pace of innovations within financial services. White is currently leading the roll out of FinKit for Open Banking from Fiserv, a fully managed service to enable banks to get and stay compliant with Open Banking regulations.

About FinKit for Open Banking and Fiserv

FinKit for Open Banking is a platform-based solution for the delivery of UK OBIE and EU PSD2 open banking compliance, provided as a managed service. It allows financial institutions to keep up with the increasing pace of regulatory change by delivering continuous change without initiating repeated projects for bespoke work.

Fiserv enables clients worldwide to create and deliver financial services experiences in step with the way people live and work today. For more than 30 years, Fiserv has been a trusted leader in financial services technology, helping clients achieve best-in-class results by driving quality and innovation in payments, processing services, risk and compliance, customer and channel management, and insights and optimization.

At this year’s 40th annual Sibos conference in Sydney, financial services technology provider Fiserv will showcase solutions in step with the conference theme of “Enabling the Digital Economy!” Digital banking, open banking, payments, and financial crime risk management will be center stage in the company’s discussions, demonstrations and presentations, with a focus on how innovations such as open APIs, artificial intelligence (AI) and machine learning can help financial institutions deliver intelligent experiences.

Fiserv will also announce the results of its payments transformation survey, exploring how financial institutions are developing and implementing holistic payment strategies to better serve customers and support their business goals. Fiserv will be exhibiting at Stand C22.