Legislative pressures and consumer demands are pushing the financial services industry toward Open Banking. But the path is not always smooth and even the most innovative companies ' the ones actively looking for ways to adapt and evolve as quickly as they can' often come across obstacles that leave all involved scratching their heads.
So, what are the biggest obstacles to implementing open banking and what can banks do about them?
Finding a new business model
A lot has been written about the threat to banks- business models. But most of it assumes that banks will react to open banking by doing nothing. Well yes, if companies do nothing as the market changes around them, their business won't be sustainable. Who thought otherwise?
If we don't assume that this is what banks will do ' and why would they?' then the future actually looks pretty rosy for banks, at least the good ones. Banks have something that fintechs need trust.
If you're a consumer faced with a proliferation of new fintechs, you may be tempted by their rates and their new products, but how do you know which of these services you can trust and which you cannot? In an open-banking environment, banks become valued brokers of trust and aggregators of services, for both fintechs and consumers alike.
One easy way to know, is to see which fintechs your bank implicitly recommends by actively partnering with them. In this way, the bank can leverage the services its fintech partners offer to win and retain customers. The fintechs, on the other hand, get a head start over their competitors by leveraging the bank's existing relationship with consumers. It's a win-win.
Large banks such as Citigroup and HSBC have already realized this, and have put fintech-partnerships at the heart of their digital transformation strategy.
Connecting legacy infrastructure with Open Banking APIs
Another obstacle to Open Banking, one much talked about, is the difficulty of connecting legacy bank systems with the Internet and specifically with new open-banking APIs. On the face of it, this does look complicated.
Many banks are running a complex patchwork of legacy systems, developed over decades to meet a range of needs, and sometimes even acquired and plugged into one and other during various mergers and acquisitions. How are banks to connect these systems to open APIs?
In fact, this is not as much of an unknown quantity as is often assumed. The fact that these legacy systems already work together shows that it's possible to connect them to newer infrastructures.
One option is to use an enterprise service bus (ESB) as a "wrapper", put around their legacy systems to handle the exchange of data between them and the open-banking APIs. Another, complimentary, strategy is to work in a secure but accessible, cloud-based sandbox environment which replicates the real-world banking platforms. This allows partners and banks to work safely together to develop compatible APIs, without threatening the stability of running systems.
Coping with the tech talent shortage
A serious concern for banks and other financial-services players gearing up for open-banking, is the shortage of tech talent. To take just one example, according to a recent report by the intergovernmental agency Asia-Pacific Economic Cooperation, there are currently an estimated one million unfilled tech vacancies just in the Asia-Pacific region.
In such a tight labor market, how can banks and other financial companies compete for the top tech talent they need to win at Open Banking? The answer is that they don't have to, at least not to the extent commonly assumed.
By working with the right outsource partners, banks and other FS-players can gain access to decades worth of market-leading technology expertise, as and when they need it. Increasingly, as you'd expect, there are companies which specialize not just in technology for financial-services, but specifically in open-banking implementation.
And other part of the solution is use a low-code development environment. Automating the development process does not mean doing without programmers altogether. Rather, it allows your best coders to rapidly do the majority of the work on a project, so that they can then concentrate on the most important 20% of work, the refinement and optimization, which adds 80% of the value and gives you the competitive edge you need.
Download our white paper, Open Banking: The New Customer Frontier to learn more about how Open Banking will revolutionize the banking and financial services industry.
We also examine what banks and other financial services companies can do to meet the initial challenge of transformation and then to go beyond that first step by developing new business models that will anticipate changing consumer demands and build the winning companies of tomorrow. Download here
Download our new white paper, Open Banking Beyond Compliance to learn about why monetizing Open Banking APIs is vital for long-term success.
In this white paper, Virtusa surveys the current Open Banking landscape and puts forward recommendations for effective API monetization, including API pricing models, risk and quality control mechanisms, potential new business models, and strategies for open banking. Download here
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Financial institutions, enforcement agencies, and regulators have been trying to evolve mechanisms at global, regional, and local levels to offer better collaboration while combating compliance issues with low code framework.