How do you define Open Banking?
Open Banking refers to the practice of banks sharing customer data securely (only with written consent) with third-party financial services providers and non-bank financial institutions, such as Fintechs, retail providers and other players. Through the use of application programming interfaces (APIs), the data shared includes account details, transactions, and more, and is only accessible to the customer unless otherwise agreed.
This new technology is disrupting the fabric of the financial landscape as it is changing the way that data is used, stored and shared. Ultimately, it is creating a comprehensive banking environment that is likely to lead to an uncoupling of products from distribution. Resulting in a situation similar to a ‘marketplace’, customers will be able to use a single banking interface to access products and services from a multitude of players, including incumbent banks, challengers and Fintechs. This interface would both give customers a holistic overview and use cognitive analytics to help them manage and optimise their finances.
A great example is Standard Chartered’s own open banking offering, aXess, a platform that drives more connectivity between developers, corporates and FinTechs. We curated aXess to service an open community and allow for the experimentation of cutting-edge technologies that can accelerate ideas. The interface allows for the co-creation of ideas through enabling new business models, sharing best practices, capabilities and tools. Through this, we aim to encourage developers to refine and innovate the best solutions for our clients. APIs on our platform include services targeted at corporate banking and retail banking, such as FX, retail products and custody services.
Do you foresee a noticeable upside for industry revenues because of Open Banking’s adoption or is this just a change in practices and procedures that will make little difference to profitability?
Certainly, open banking has an evident impact on financial growth. A technology like this can turn operational challenges into opportunities to cut costs and fraud risks, improve employee productivity and become more strategic overall. Furthermore, with real-time data fed through from corporate bank accounts, finance directors can better understand spending patterns, react with greater agility and gain the insight they need to run their businesses more efficiently. I believe we are only getting started.
Thus, financial institutions risk missing out on the new opportunities provided by APIs, while fintech startups or large tech firms continue to take market share and inhibit organic growth. Banks such as Standard Chartered have capitalised on the increase in consumer demand by introducing over 100 APIs and publishing a comprehensive standard catalogue that is aligned with international API standards. We are also building on our API investments to continue building on our sustainable banking and financial inclusion goals.
Furthermore, we have championed a series of digital-only banks across eight markets in Africa, the latest launch of which was successfully implemented in Nigeria. In less than a year, Standard Chartered has seen accounts open via the digital bank grow by over 150,000.
How do you assess the plusses and minuses of Open Banking to ensure the positives greatly outweigh the negatives for banks and customers?
The benefits of open banking are evident for the industry – improved customer experiences, new revenue streams, and a sustainable service model for underserved markets. According to PwC, an API-based architecture can improve integration with third parties, potentially making it easier for a bank to support a portfolio of product options – even those provided by partners. Simply speaking, banks today can use their platforms to make certain customer data available to non-bank third parties such as retail stores, giving banks the extraordinary opportunity to expand their ecosystems to cater to the retail industry.
The largest benefit that arises from open banking is the power to enhance the development of service platforms, as well as financial services. Open banking also serves as the ideal approach to foster collaboration between Fintechs and banks, as no single entity is able to provide a comprehensive catalogue of broad offerings that customers have shown a demand for, such as retail, mobility and delivery services.
However, with the rise of open banking adoption, cybersecurity is an area of concern as Fintechs that use APIs, and that do not require human authorisation at a transactional level, would be able to access proprietary data from banks and would result in a significant increase of risk to the institution. This can be addressed through a robust risk management function and progressive cybersecurity measures.
Will Open Banking lead to consolidation of financial services due to natural economies of scale from big data and network effects?
Open banking certainly has the potential to lead to the consolidation of financial services as banks now have the opportunity to import aspects of the technology to extend their services beyond those that they have traditionally offered, as well as broaden their proposition and provide more comprehensive customer journeys. Open banking is also making it easier for banks to embrace the range of product and service opportunities offered by FinTech startups. Big banks have increasingly been seen partnering directly with Fintechs to share knowledge and work together to develop and provide amplified services for their customers.
What does the move to Open Banking mean for banks in terms of risk assessment and liability?
Customer protection is a significant issue to ensure long term sustainability of this technology given the fact that, in a digital world, the degree of sophistication of clients and their awareness varies. This means that clear guidelines on permission, usage, perpetual storage, and destruction of data is key to ensuring the safety and security of both institutions and consumers, as many Fintechs could have short life cycles and are not regulated.
It is important to note that data privacy is not only about the customer taking responsibility; the infrastructure must be secure, and the technology has to be compliant with data protection laws and regulations. This ensures that only approved and regulated providers have access to the open banking ecosystem.
As industry disrupters fight the lingering trust issues concerning data and privacy, banks that have established their reliable services over the decades are in a comfortable position to innovate and address consumer expectations. Additionally, regulators must recognise this challenge and should insist on robust authentication mechanisms, which would ensure customer awareness and concurrence before accessing and using this data.