Banks are beginning to see the opportunity in open banking to help them compete and innovate. But to get there, we must overcome roadblocks that are largely cultural.
Built into the DNA of most banks is risk aversion, and this seeps over into their culture. Banks pride themselves on being predictable and everlasting – values often coveted by the most successful.
However, in today’s fast-moving technology-driven environment, consumers’ expectations are evolving every day, not just for how their hail taxis and rent rooms, but for their banks as well.
As a result, banks around the world are finding that their risk-averse, unchanging culture is struggling to meet the constantly changing demands of the digital consumer.
Fundamental level
At the most fundamental level, banks need to get comfortable with change, to accept it as normal, and to build the capacity for change into their systems from the beginning.
As it applies to the business side, this acceptance of rapid change means learning to work with competitors and fintechs by extending their reach via broad ecosystems of partners.
New zone
This is a completely new zone for a bank. With a shift to open API strategies, you now have to treat developers like customers and treat the APIs you are exposing like products. It’s a new kind of discipline: not just releasing new features on mobile banking, but fundamentally restructuring for constant adaptation.
In a manner of response to this existential threat, every bank now is talking explicitly about becoming a platform, and this introduces the notion of standardization.
Not only do they have to move fast, but they also have to move fast in a way that works well and “plays nice” with others, connects to the outside world, and brings all those disparate digital experiences together.
Different motivators for adoption
Open banking has been largely market-driven in the United States. But looking at the different motivators for adoption and standardization in different parts of the world may hold the key to finding the rallying point for creating a common set of standards in North America.
Europe led the way in 2015 with the Revised Payment Services Directive (PSD2), essentially forcing a more open financial services market and open APIs.
The arguments were very much about the wealth and power concentrated in too few banks, opening the market up to more players and driving innovation by welcoming fintechs.
In much of South America now, the argument is often about the unbanked and welcoming more people into the financial ecosystem, similarly in India.
Philosophical level
On a philosophical level, Australia is unquestionably the global leader in its approach. Their standard, called the Consumer Data Right (CDR), understands fundamentally that open banking is the beginning of something larger – which is why they made their standard cross-economy from the outset.
Open banking, yes, but also utilities, healthcare, and so on. At the heart of the CDR is the notion that a consumer has the rights to control their data and how it is used.
Meanwhile…
Meanwhile, in North America, there are fears about screen scraping and the systemic risk posed by the unregulated financial activity. Alongside that fear, there are ever-growing worries that Big Tech is going to come in and eat the banks’ lunch.
All these reasons vary from region to region and are very much wrapped up in the relationship that people have with their banks and the surrounding culture.
What’s fascinating is that all these concerns point to the same solution: open banking. This clearly presents us with the last cultural barrier we need to overcome. And that’s namely coming up with a common set of standards for the secure exchange of financial information, backed by strong, explicit consent provided by the consumers – the people whom the data is about.
Potential
Open banking has the potential to democratize financial services and provide more financial ability and mobility to more people around the world. It can give financial service providers access to the kinds of accounts and customers they could never get to on their own.
If the banks can overcome their cultural hurdles, and we can overcome ours, then open banking will provide us with a sea of innovation just waiting to be discovered.
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This column does not necessarily reflect the opinion of FinLedger’s editorial department and its owners.
To contact the author responsible for this story: Eyal Sivan at esivan@axway.com
To contact the editor responsible for this story: Mary Ann Azevedo at maryann@finledger.com