Open banking affords new ways for banks to create sources of revenue and generation of value for all the members of its ecosystem. This development expands to the exploration of new business models and collaborative business opportunities.
As the date for making the application program interface (APIs) available for the open banking initiative comes close, more and more banks are planning out strategic alternatives to take challenges head-on from the fintech companies.
What is open banking and how does it affect me as a customer?
Open banking is an initiative introduced with the help of the Payment Services Directive (PSD2) which enables customers bank data to flow to a central authority and which then can be used by other banking and financial services firms to provide better and more personalised services. Customers have full control over such data and whether they wish to consent to its use or not.
Does open banking pose a risk to the incumbent banks?
Open banking has the potential to reduce a large legacy bank's market share and make the market more competitive in general (as was the initiative's original intention) but it could also reinvigorate an industry on the brink of stagnation. With the crash of 2008 still pressing on the popular conscience, fresh and open new practices could be just what the doctor ordered if the dinosaurs of finance hope to stave off extinction.
Who gains the most out of open banking?
Customers tend to benefit the most from open banking as they get to choose the services which fit them the best.
Are banks ready to adopt open banking and loosen their APIs?
There will always be extremes. Some banks saw this coming and started finding new ways to create opportunities out of it, whilst others are still persevering with legacy systems and outmoded thinking.
Several banks started developing in House start-up incubation centres and accelerators in order to invite fintech start-ups to provide their services to its large customer base. While other banks are investing heavily in the fintech companies by acquiring them.
What are the possible strategic opportunities available with open banking?
Banks can now charge other companies for the use of their APIs and the data which flows around them. This should foster an even playing field, with all participants being fairly compensated for their services.
Providing banking platforms as a service has the potential to open up new avenues of enterprise for customers, banks and fintechs alike.