It’s easy to forget just how rapidly technology has progressed in the space of a single decade. Today, virtual assistants can schedule appointments, while smartwatches monitor our sleep patterns and voice command technology turns off our house lights. The lives of consumers have changed in small but extraordinary ways as investments in disruptive technologies have grown exponentially.
Banking isn’t immune to these changes. Advancements in technology have increased demand for accessible and convenient solutions that meet consumers’ banking needs. The industry is aware of a new disruption that is brewing – one that will once again transform the industry over the coming years.
Across the globe, we are seeing a growing appetite for open banking models. In 2016, the EU passed the Second Payment Services Directive (PSD2), which requires banks to supply customer data to third-party providers to increase competition in the payments industry and open it up to non-banking entities. The Monetary Authority of Singapore has also developed a playbook for operating application programming interfaces (APIs), which third-party developers use to build open platforms. In the Middle East, the Central Bank of Bahrain has licensed Tarabut Gateway, the region’s first open banking platform, which allows customers to connect their account to any bank in Bahrain and provides a consolidated view of their financial information.
Open banking promises an improved customer experience, new revenue streams and a sustainable service model for underserved markets
A new approach
For those in the industry, the benefits of open banking are obvious. It promises an improved customer experience, new revenue streams and a sustainable service model for underserved markets. According to PricewaterhouseCoopers, API-based architecture can enhance integration with third parties, making it easier for banks to support a portfolio of product options – even those provided by partners. Banks can use their platforms to make customer data available to non-bank third parties, such as retail stores. This gives them an incredible opportunity to expand their ecosystems to cater to the retail industry.
Banks such as Standard Chartered have capitalised on this increase in consumer demand by introducing more than 100 APIs and publishing a comprehensive standards catalogue that is aligned with international API regulations. The bank is also building on its API investments to further its sustainable banking and financial inclusion goals. Standard Chartered has partnered with Ant Financial to offer a new digital cross-border wallet remittance service. Through mobile payment platforms such as AlipayHK in Hong Kong and GCash in the Philippines, the service enables 180,000 Filipino workers in Hong Kong to send money to their families in real time, securely and at a low cost.
Standard Chartered has developed its own open banking platform, aXess, which drives connectivity between developers, businesses and fintech firms. It was created to service an open community and facilitate the development of cutting-edge technologies. The interface promotes the co-creation of ideas by supporting new business models and sharing best practices, capabilities and tools. By opening up our sandbox, we are encouraging developers to refine their services and innovate for clients in our test environment. APIs on our platform include services targeted at corporate banking and retail banking, such as forex, retail products and custody services.
Protecting the customer
While banks have expressed their support for open banking, the general consensus is that there should be a level playing field with regards to data sharing. If fintech players are able to access data from banks, then banks should have access to the data that fintech players obtain.
One concern regarding the adoption of open banking is cybersecurity. Fintech firms that use APIs and do not require human authorisation at a transactional level would be able to access proprietary data from banks, thereby significantly increasing the risk to the institution. Regulators must recognise this challenge and insist on robust authentication mechanisms that ensure customers have consented to their data being used.
Awareness of data security can vary between consumers, meaning customer protection should be prioritised to ensure the long-term sustainability of this initiative. Because many fintech firms are not regulated and could have short lifespans, there must be clear guidelines on permission, use, perpetual storage and destruction of data to ensure the security of institutions and consumers.
Government authorities are beginning to apply these considerations to their legislative agendas and have proposed new measures pertaining to data restriction. This is particularly true in the EU, where there has been much discussion around data regulation. The European Commission has expressed its support of legislative action that pushes companies to share and pool their data. With the aim of limiting the formation of tech monopolies, these revisions will likely result in a more balanced data landscape for players of all sizes.
Trust the system
Consumers are already showing an interest in open banking. A 2017 Deloitte report on the topic found that 58 percent of consumers with a mobile banking app could be persuaded to switch to a mobile-only bank. The report also found that consumers are open to the idea of accessing their banking services through a third-party interface: 49 percent would trust a digital payments provider with this, while 43 percent would trust a traditional retailer.
By harnessing the power of new technology, open banking can serve as an accurate instrument in the undertaking of banking activities. In turn, the difficult task of digitalising a bank’s operations can be facilitated through the use of an API-based infrastructure, similar to the one implemented by Standard Chartered. The bank has launched a series of digital-only banks across eight markets in Africa, the latest of which was successfully implemented in Nigeria. In under a year, Standard Chartered has seen the number of accounts opened via its digital bank grow by over 150,000.
Given the demand from consumers, the rise of subscription services and the need to digitalise, the bank has enabled clients to onboard in under 15 minutes by using API technologies to provide services such as QR codes, peer-to-peer payments, loan and overdraft facilities, instant fixed deposits, and wealth management solutions for the African market.
The greatest benefit of open banking is having the power to enhance the development of service platforms
While there is no one-size-fits-all approach to open banking, we do know that it will create new ways of doing business. Thanks to this medium, retailers from car dealers to fashion brands will be able to showcase their products to bank customers through a digital marketplace, easily accessible via the bank’s mobile application.
However, the greatest benefit of open banking is having the power to enhance the development of service platforms. It also serves as a way to foster collaboration between fintech firms and banks, as no single entity is able to provide a comprehensive catalogue of the broad offerings customers have shown a demand for, such as retail, mobility and delivery services.
As such, Standard Chartered has pioneered the implementation of disruptive banking technologies across its global operations. The bank has introduced various retail banking products that aim to satisfy the demand from Africa’s digitally savvy population. A great example of this is SC Keyboard, a tool that allows customers to access a variety of financial services from any social or messaging platform.
As technology solutions continue to impact the finance industry, open banking will further evolve. Additionally, as industry disruptors fight the lingering trust issues around data and privacy, banks that have established their services as trustworthy and reliable over the years will be in a strong position to innovate and meet consumer expectations.
Digital banks and physical branches will begin to look like retail outlets powered by the latest technologies and driven by consumer convenience. While other technology companies, retailers and social media outlets are looking to capitalise on the growing demand for convenience, banks – through their conventional business streams – will have the upper hand, having already won the trust of consumers. However, as technological innovation reshapes the industry, the future success of banks will depend on their ability to champion openness in their business models.