Open banking has opened up a new collaboration line for Banks to forge a partnership with Fintechs and build new business models using a set of banking APIs. Fintechs have also lapped up these opportunities to create new business models like Neo Banks, Accounting Platform Embedded with Banking, and the recent phenomenon of Embedded Finance. With the consumption of APIs, entire financial services have opened up to new business opportunities and growth dimensions.
As the world is seeing more on Open Banking and embedded finance, APIs will be at the backbone of transforming financial services & come to the center of this transition and powering a new wave of transformation such as – Emergence of new business models: Transition from B2B or B2C business models to new business models like B2B2C or B2B2B and other combination; for example Bank Open embedding banking services in SAAS based Accounting platform and making both banking & accounting services available for their SME customers – Platform or Aggregator Model: New forms of business setting up to build a stack of APIs in partnerships with Banks & FIs and making the same available for third parties; From Plaid, Fincity, Truelayer to Setu or Zeta at home building up API stack platform – Mobile Applications:
APIs have enabled the entire mobile application development process easier and faster; Kotak 811 is one of the leading examples of developing the whole of Digital Bank on top of APIs
– Driving Innovation: APIs have made the internal development process and management much easier and efficient, leading to drive Innovation at a faster pace
Through Open Banking is still in evolution, a long road ahead for the same in the coming years. Many banks have taken initiatives around open banking and made a good impact; many of them yet to embark on the journey. But for most of them, it remains a significant challenge for Banks to get ready with a whole suite of APIs (application programming interface) and onboard Fintechs fast to create new business opportunities, despite having alignment of relationship. The entire process to develop and onboard fintech partnership & Go-to-market may take months and maybe a year. Other financial segments such as Insurance or Wealth yet to see a transition towards API-enabled business models.
GETTING READY FOR OPEN BANKING
It is rightly said that Open Banking is more about business and less of technology, and definitely, it is not technology project-driven through standard project management. Open Banking or Open Business ( for easy reference for Insurance, Securities, Wealth, etc) is primarily about strategy and organizations need to take a strategic view to set up API-led transformation within the organization as part of Open Banking. Based on the experience of working with various banks & Fintechs and understanding modalities of business demands, technology requirements, monetization; The Digital Fifth has devised a full framework to define and implement Open Banking Strategy within the organization.
FIVE PHASED APPROACH TO DEVELOP & IMPLEMENT STRATEGY AS BELOW:
- Assess Open Banking Readiness
This would be critical for early starters or even for organizations in mid of their journey. Business strategy along with short-term and long-term plans will set the context for Open Banking Strategy for Bank. Business strategy of defining new business models or target segmentation will form a critical component to define Open Banking Journey. In addition, one needs to assess competitive positioning, partner ecosystem, current API maturity, technology readiness state, stakeholder’s expectations, and technology.
Competition provides a deeper view for movements within the industry as someone at times takes industry leadership with just one innovation. This one segment is seeing massive traction across the globe from UK Open Banking & Europe PSD2 to Singapore or India. So, it is crucial to explore innovation and activities taking place across the globe.
- Redraw Future Landscape:
Banks need to redraw the landscape of their business. The market is evolving at a fast pace; customers’ expectations are changing while regulators also assessing innovation-led approaches. These transitions demand organizations to draw a future landscape for API-led business for Bank and its opportunities. Open Banking is driving a major transformation in the industry through the opening up of new business models, opportunities for monetization. During this process, One will lay down the future landscape for Bank on API Journey. The below diagram provides an overview of parameters to draw a future landscape for the Bank based on expectations.
- Create Open Banking Positioning
Based on self-assessment and checking out on the new landscape, Banks or FIs must create new positioning for self in Industry and document Target Business Model along with all aspects addressing such as:
– New Business model to adopt
– API Banking Leadership
– Rolling out of API products
– Market Recognition
A new set of KPIs will be another factor to be considered while defining its new open banking positioning in the industry.
This phase needs to focus on Identification of Open Banking Use Cases
Open Banking strategy will be used to design a business model for the Bank. Business models will be defined based on the below aspects:
– Focus on Bank on Business activities/ domains to drive Open Banking
– Right customer segments such as retail or SME
– Approach to manage customer relationship like partner-led or Bank driven
– Define cost structure
– Build monetization opportunities
– This process will help Banks/FIs to pick & define open banking use cases as part of this phase.
- Align Open Banking Initiatives & Define Open Banking Strategy:
Based on the current state assessment, analyzing future state goals and Bank’s positioning in Open Banking; Banks/FIs should put down their Open Banking Strategy for the organization. This process should cover Bank’s goal on three broad objectives:
– Open Banking Customer Journey:
– Partner Engagement Model
– Customer Engagement Approach
– Unified API Service Platform
– Productization of Services
– New Customer
– Operational Journey
– Process Framework
– Governance Framework
– Technology Enablement
– ESB / API Enablement
- Execute the Strategy
Planning and developing Strategy is one part of the game, Execution is the Key. Many of the banks & FIs have struggled to put the right tools and processes in place as part of execution and this becomes a major bottleneck in rolling out a partnership with Fintechs.
The strategy is to define what you want to achieve and how do you want to go about it. But, Strategy is designed to fail if it has not been built in a proper way to make it work. This has to have the top-down approach and horizontally mapped across business units. Open Banking Strategy needs to be managed from CEO or CXO desk and needs to operate as a business unit. So, this would require participation from Operations, Compliance, Risk Management, Finance, and other supporting units to be completely onboard on same.
The strategy is to define what you want to achieve and how do you want to go about it. But, Strategy is designed to fail if it has not been built in a proper way to make it work. This has to have a top-down approach and horizontally mapped across business units. Open Banking Strategy needs to be managed from CEO or CXO desk and needs to operate as a business unit. So, this would require participation from Operations, Compliance, Risk Management, Finance, and other supporting units to be completely onboard on same.