Everyone in the financial services industry has heard clichés about banks facing strong headwinds fueled by everything from global economic turbulence, to the fickle expectations of millennials, to competitive pressures from agile fintechs – the new kids on the banking block.
Adding to the mounting regulatory pressure, led by the revised Payment Service Directive’s (PSD2) pending launch in Europe, there’s no denying that today’s banks face a challenge unlike anything before.
And, while the challenge may not be as daunting as swapping out a 747 engine (one of four) at 40,000 feet, many financial executives are bracing for impact.
Disrupt or be disrupted
While never known to be nimble, financial firms must now think like disruptive bigtech companies such as Amazon or Uber to creatively augment their digital capabilities in the face of aggressive competition from new entrants. Accepting digital is no longer a matter of if but when.
In fact, critical assessment of obstinate legacy banking architecture is long overdue. Now is the time to either attempt in-house digital transformation or to enthusiastically embrace open banking with a value-adding fintech hug.
Keeping a calculated eye on the future, more and more financial institutions are partnering with fintech experts at leveraging application programming interfaces (APIs) to attract new prospects and to delight current consumers through unprecedented customer experience (CX) and an exciting range of personalized new products and services.
APIs offer a bridge between systems while paving a digital path to a connected financial ecosystem. Banks, already trusted by consumers, can tap their vast customer data to play a central role in this emerging ecosystem. But to enable the most meaningful CX improvements, banks also must open their APIs to a global community of web developers to encourage novel idea sharing and exceptional innovation.
Only then will open banking be unharnessed to profitably accelerate digital innovation.
Certainly, adherence to compliance across an ever-changing regulatory landscape hasn’t been easy; and neither has mounting competiton with fintechs and media-darling tech unicorns (usually a start-up without an established performance record and a stock market valuation of >$1 billion USD). So it’s no surprise that more and more banks are realizing that an if-you-can’t-beat-’em, join-’em collaborative approach makes good sense.
This is particularly apparent as open banking initiatives become the norm in regions such as the European Union where the regulatory push from PSD2 will legally oblige banks to facilitate account information access through APIs.
Open banking is on track to becoming a triple win as consumers, banks and third parties all benefit as new aspects of the digital economy become broadly accessible.
What’s in it for financial institutions? The chance to overcome legacy challenges and the flexibility to distribute products and services through third-party channels thanks to fintechs. This means a shorter time to market. Not to mention, open banking helps to reduce service costs, improve CX, target new segments, generate better customer analytics and increase revenue and cross-sell opportunities.
It also helps banks leverage the latest innovation technologies without necessarily having to make huge infrastructure investment. Also, improved information sharing across firms will help improve fraud detection and risk mitigation.
For customers, open banking unlocks opportunities for more engaging and informative services while taking the hassle out of traditional personal finance routines.
Banks, fintechs, customers and third-party partners are fastening their collective seat belts as open banking prepares for takeoff. And – buoyed by first-mover advantage tailwinds – banks that lead in adapting and refining their digital business models may be the ones to prosper the most.
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