Navigating the trillion-dollar Open Finance Landscape: The Imperatives for Success

An opinion piece by Chad Davis, Senior Subject Matter Expert – Financial Services, F5

In the ever-evolving landscape of financial services, a powerful force is shaping the future of transactions and interactions. Open finance, with its transformative capabilities, is redefining the way financial services engage with account holders. From Banking as a Service (BaaS) to embedded finance, these pioneering exchanges are meeting new digital consumer expectations, while also showing promise of emerging revenue models.

In fact, a recent Twimbit analyst report predicted a trillion-dollar growth opportunity created by open finance globally. This should be of no surprise to most, as open finance is kickstarting a new and appealing-to-consumers digital ecosystem, highlighted by large digital transformation investments in legacy firms meeting and seamlessly interacting with agile FinTech innovations. It’s true that value lies in making the everyday life of the consumer easy and frictionless. There is an opportunity for open finance to become globally ubiquitous and democratize access to financial services. Exciting times, for sure.

Yet, amid a promising frontier with vast potential, within the open finance realm lie sizable challenges, like how the massive volumes of API calls generated can cause security issues—in addition to increasing performance and reliability costs in legacy environments. Plus, ensuring compliance with strict regulations gets more challenging with each passing year—due to standards such as the European PSD2 (Payment Services Directive 2) directive for electronic payment services or the U.S. Personal Financial Data Rights announced last year by the CFPB.

With the associated challenges of open finance in mind, I’ve prepared the following list of imperatives to consider for success.

Open finance success imperatives

  • IT modernization in distributed environments
    • Legacy infrastructures create multiple dependencies and delay the execution of projects, especially in an era where more financial services institutions are moving to multiple cloud environments. An API-led approach enables more hybrid integration and reduces the risks associated with ongoing transformation.
  • Developer platforms and sandboxes
    • Credit unions must future-proof products and services in a simulator environment. This approach identifies any anomalies, risks, and conflicts of interest before exposing the product to the public. Application security should be intrinsically integrated into the application development lifecycle, regardless of architecture, cloud, or framework.
  • API architecture and lifecycle management
    • A robust, resilient approach to API management is necessary to withstand both immediate and long-term volatilities, help to stay compliant, and open new revenue streams and market opportunities. Consider API gateway and management solutions that can adapt to support virtually any deployment model. They should be able to separate management and data planes to maximize performance and scale.
  • Revenue sharing models
    • Banks need to create revenue sharing models that clearly define the distribution scope and customer relationship, reducing the cost of new customer acquisition and pressure on interest incomes. Financial services organizations should not underestimate the power of consumer choice in these models. Consumers are choosing FinTech applications, and they want them to seamlessly interact with their credit unions.
  • Partner ecosystems
    • Digital ecosystems enable banks to become more efficient by giving them access to innovative capabilities that would otherwise be prohibitively expensive to develop or operate on their own.
  • Security
    • Financial services data is among the most sought-after types of data by cyber attackers. That’s why it’s more critical than ever to secure and safeguard your applications and the data within them, without stifling innovation. Institutions must implement a robust application security strategy for 360-degree protection of customer data that goes beyond testing for software vulnerabilities and provides a secure customer experience. A strong cybersecurity strategy and approach inherently aligns with maintaining the latest open finance-related compliance requirements.
  • Data strategy
    • To propel healthy progression in open finance evolution, credit unions must implement a holistic data and analytics strategy as a catalyst in delivering more contextual and connected member experiences instead of just placing it as an aspect of its API strategy.
  • Data monetization
    • Financial services organizations can utilize data to generate insights into customer behavior and understand how macroeconomic factors impact saving and spending patterns in creating hyper-personalized value propositions.

Banking and financial services organizations that do not invest properly in open finance risk being outmaneuvered by competition and could lose significant market share, as well as being much more vulnerable to increasingly complex cyberattacks. Securing APIs and ensuring high API performance and availability, while navigating compliance requirements, are critical components to open finance success.