Karthik Jagannathan, :: projective: Open Banking and instant payments could be a powerful combination, triggering a wave of payments innovation and replacing cash
Could you please tell us a bit about your professional background and what are you most passionate about when it comes to digital innovation?
Very briefly, I am a career banker and my current focus is real time-payments and Open Banking. I am currently an expert consultant at :: projective, a business and technology consulting company exclusively focused on the financial industry, assisting one of our key customers with their global instant payments product strategy. What floats my boat when it comes to my current area of focus is the endless potential to innovate and bring real life impact to end users.
What we build today as an industry – and soon expand – is guaranteed to change how money moves between hands in the future. This is most exciting for me as a payments professional.
Open Banking and instant payments are the two major drivers of innovation in the industry right now. What do you consider to be the most relevant business opportunities stemming from the confluence of these two areas?
The most relevant business opportunities in this context would be those created by the forceful vacation of cash as a medium of payment. Cost of cash, maintenance of it, logistics around it, safety elements and so on are very heavy in the macro-economic sense. Maintenance of a database to record transactions would be way more cost effective overall. But there is an opportunity to replace cash with something simple, cheap and effective. A lot of market forces will need to align for this to happen and they will eventually align. I believe this is inevitable.
What is it that banks need to do in order to ensure the success of Open Banking and instant payments initiatives, to increase revenue and to drive innovation while also leveraging their legacy technology investments? What strategy would you advise banks to take going forward?
Simply put, legacy technology is the main impediment to the success of these initiatives for banks. But, at the same time, these legacy systems delivered in the past and, to a large extent, continue to deliver what they are expected to do. Therefore, a carefully laid out tactical approach leading them towards the end goal of the legacy replacement should be the thinking here.
Instant payments is a relatively new industry requirement and infrastructures are only just being built to handle instant payments globally. Therefore, the revenue streams – besides charging the customers – are yet to be formulated. This is a going to be a long journey and I do believe patience and perseverance on the part of banks is an important strategy! Regulation towards removing cash which will eventually come will assist with return on investments.
On the other hand, Open Banking, some of us believe, has existed for a while for large corporations in one form or another (ie multi banking platforms). Here, partnerships with dynamic fintech organisations is key. In my view, front ends or channels don’t necessarily have to be maintained by banks. They are cumbersome and expensive. Strategic partnerships with technology companies and new revenue sharing models should be considered.
What is your take on the importance of consumer education regarding Open Banking? Most people are unaware of what Open Banking is, of what it can bring and what the risks are. Do you think this prevents the success of Open Banking? And what would be the best ways to address consumer education?
Yes. Right now, only lawyers, strategy consultants, compliance officers and TPPs know about Open Banking, while end consumers (even users of TPP products that exist rather successfully in their current form) are blissfully unaware of Open Banking. This is because their user journey has been relatively smooth. This is key to the success of Open Banking!
As a consumer, I believe risk is something my bank is supposed to handle. Therefore, I could argue that as long as my bank ensures that there is a consistent and simple user journey, I’ll be open to trying out new ways of making a payment, be it online or in person. And whichever bank ensures this, I’d be tempted to aggregate my accounts with that bank.
A consumer with one bank account need not be educated on Open Banking as long as the end user journey or payment instrument doesn’t change. The current unresolved issue seems to be around this end user journey. And this is to be solved by banks and TPPs working as partners and not adversaries.
I don’t believe lack of consumer education would prevent success of Open Banking but rather the lack of newer revenue streams would.
Looking forward, how do you see Open Banking evolving into the banking and fintech industry? What are the benefits you see coming from Open Banking in the coming years?
As mentioned earlier, I believe banks should seriously consider their front-end strategy and how that could be hived off via partnership mode to fintech organisations. This would open up budgets to modernise or replace their legacy infrastructure. Open Banking and instant payments could be a powerful combination, triggering a wave of payments innovation and replacing cash. This is a long-term benefit for any economy. Better quality financial products, transparent reporting and so on are all good outcomes of Open Banking.
About Karthik Jagannathan
About ::projective
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