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The Open Banking or API banking economy is here to stay, egged on by the increasing adoption of Open Banking by markets across the globe. This technology trend has heralded the next phase of disruption in the banking industry with many governments making it mandatory to comply with Open Banking regulations (CMA UK Open Banking, Berlin Group, Stet, Polish Bank Association, Slovak Banking Association, NACHA, Association of Banks in Singapore, Honk Kong Monetary Authority). Among the many benefits from Open Banking, financial inclusion, customer experience, and business innovation make for a compelling case. The UK, Singapore, USA, Sweden, and the Netherlands are regarded as pioneers in OpenBanking readiness, while France, Belgium, Finland, Australia, Germany, Spain are followers, and India, Italy, South Africa, China and Brazil conservatives, according to an assessment from the World Payments Report.
The essence of Open Banking lies in enabling better and healthier collaboration within the financial ecosystem of banks and financial institutions, third party providers (TPPs), and FinTechs. Open Banking provides a platform for information exchange through APIs between two or more parties, usually banks, and FinTechs and TPPs. Traditionally, core banking was the forte of banks while TPPs and FinTechs drove much of the technological innovation. However, this will change in the Open Banking era, thanks to sharing of customer information between the various players. Herein lies the opportunity for banks, that up till now acted as stewards of customer data, to capitalize on the huge potential of this securely guarded vault of data.
Conclusion: Open Banking is both a boon and a bane for FIs, depending on how adept they are with innovation. Not adapting to the open banking disruption will severely restrict banks from expanding their customer base, since TPPs can now start competing with larger banks thanks to better, more open sharing of customer data. To succeed, FIs should shake away the cobwebs of conventionalism, and build a third-party provider mindset. Not only does this set them up to compete with other providers but improve their brand identity by focusing on efforts to become truly customer-centric.
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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Modernization does four things at once: It stimulates growth, eliminates depreciated functionality, replaces outdated design constructs with modern equivalents, and pays off technical debt.