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Open banking: A new financial order Open banking: A new financial order
Open banking: A new financial order
Jim Marous
Owner and publisher of the Digital Banking Report

Open banking: A new financial order

2 Oct, 2017 11:51 am

Open banking is already changing the face of the financial industry as a new generation of dynamic and disruptive technology start-ups use cutting-edge artificial intelligence software to remodel the industry on a global level.

Open banking, a phenomenon in which a bank's Application Programming Interfaces (APIs) are shared with third party developers, enabling enhanced customer experience, is arriving and is set to transform the future of financial services.

European Union  regulations, such as the Payment Services Directive 2 (PSD2), which will take effect from January 1, 2018 has marshalled thinking across Europe's financial capitals and led them to embrace the potential of the FinTech open banking phenomenon, and while no such obligations exist in North America, many larger banks are already voluntarily following suit.

The opening of APIs, both mandated and voluntarily, will create new opportunities for financial institutions to respond to the growing needs and demands of today's tech-savvy customer.

Customers are already turning to those institutions that can provide custom banking solutions that seamless integrate with their needs, both in regards to their finances as well as their lifestyle overall. While major financial institutions are poised to lead this transformation, with the help of FinTech partners, those that fail to adapt are at risk of being left behind.

The new open banking revolution will be a defining moment for financial institutions, according to Ame Stuart, Vice President of Digital Market Development in Financial Services at Capgemini, which will now have to face competition from Internet giants such as Google and Facebook.

However, tomorrow's banking sector will be controlled by the organizations that can best utilize consumer insight to drive digital interactions, thinks Jim Marous, industry futurist, co-publisher of The Financial Brand and the owner and publisher of the Digital Banking Report.

Interview :
Jim Marous
Co-publisher of The Financial Brand and the owner and publisher of the Digital Banking Report

"Data is the fuel"

Given the changes taking place today, what do you imagine the future of banking and FinTech will look like?

While new FinTech providers and innovative digital capabilities get most of the attention, improving the overall customer experience is at the foundation of these changes. Today's consumer is becoming increasingly impatient with the pace at which traditional financial institutions are able to create real-time contextual experiences, opening the door for FinTech firms, and even large technology firms, to fill this experience gap.
The digital-first consumer wants their primary financial institution to "know them," "look out for them" and "reward them" in real time, based on both their current relationship with their bank, as well as their lifestyle and behavior outside of banking.
The future of banking and FinTech will be highlighted by those organizations that can use deeper consumer insights to drive digital banking interactions seamlessly. Rather than needing to consciously perform banking transactions, movement of funds will occur "behind the scenes," leveraging behavioral learning, artificial intelligence and digital technology.
Ultimately we will see an expansion of financial institution offerings that will integrate both financial and non-financial services in a single ecosystem. This will occur through open banking APIs and partnerships between FinTech firms and traditional banking organizations, integrating new digital devices including conversational AI digital assistants and the Internet of Things (IoT).

How do we get from where we are today to this future ecosystem? What will be the driving factors?

Customer insight and advanced data analytics will be the foundation of virtually every retail-banking trend in the coming years. From removing friction from the customer journey to improving multichannel delivery and exploring the use of open APIs, data is the fuel that will power these initiatives.
Despite the vast amount of data available to financial institutions, however, most organizations are having a difficult time determining what data will have an impact and how to harness the full potential of insight collected.
Irrespective of the build or buy decision, the expansion of the financial services ecosystem outside of traditional financial services will include open banking APIs like we are starting to see in many markets. This expansion may also result in large tech companies entering financial services like we have seen with Tencent and Alibaba.?

What are some of the early signs that we can see today that suggests we're heading in that direction?

Branch visits are plummeting, digital financial interactions are escalating and the competitive battlefield is getting more crowded, with more start-ups leveraging data and advanced digital technology to create better customer experiences. The application of AI is becoming more widespread, with progressive organizations finding ways to change underlying core systems as opposed to simply placing a nice veneer on old applications. Finally, as opposed to being focused on cutting costs, forward-thinking organizations are focused on enhancing the value of their financial offerings.
While the progress of U.K. financial services ecosystems has been slow in the past, similar to the U.S., it will be accelerated by the implementation of PSD2, which allows a more positive open banking environment. Many FinTech firms in the U.K. have already taken advantage of regulatory trends and are building their solutions accordingly.

What are the key challenges that stand in the way of this transformation?

While there are definitely external challenges to the transformation of retail banking, such as regulations, compliance and the security of financial interactions, the biggest challenge is the legacy nature of the institutions themselves. Traditional financial institutions continue to face internal challenges, with most financial executives at legacy firms unconfident in their FinTech strategy.
Therefore, one of the most important keys to success in the future will be a change in culture and the buy-in and support at the top of the organization. This is a major paradigm shift for an industry that has taken pride in moving slowly and meticulously, and in many cases will require partnering with the same FinTech firms they see as competitors.

What are the potential opportunities for those that manage to execute this transformation successfully?

To benefit from the opportunities provided by the new financial ecosystem model, financial organizations will need to build partnerships with outside providers, rework distribution models, significantly enhance digital experiences and leverage internal data to find the right match between the consumer and product or service offerings.

More than simply being the provider of traditional banking products, the opportunity for progressive banking organizations will include becoming a resource for entertainment, travel, hospitality, retail and a host of other services.

If applied diligently, the improvement in customer experience could be the differentiator that retains the overall banking (and non-banking) relationship.

Jim Marous


Jim Marous — Co-publisher of The Financial Brand and the owner and publisher of the Digital Banking Report.

Named as one of the most influential people in banking and a Top 5 Fintech Influencer to follow, Jim Marous is an internationally recognized financial industry strategist, co-publisher of The Financial Brand and the owner and publisher of the Digital Banking Report.

An author and recognized authority on disruption in the financial services industry, Marous has been featured in major news outlets and addressed audiences worldwide.

He has also advised the White House on banking policy and is a regular contributor and guest host for the Breaking Banks broadcast hosted by Brett King.
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