Open Banking: Strategies and Implementation

Banking will change dramatically with the advent of open banking. Customers, banks, and FinTechs will all benefit from its global implementation. The European Union, as well as the United States, Hong Kong, India and other countries, has already come up with the implementation framework and thought papers to implement open banking. PSD2, GDPR, open API specifications and Swagger are the guiding design and regulation/compliance principles behind open API banking. Considering all the developments so far, the logical questions for the banks and FinTechs include

  • What is your strategy for implementing open banking services?
  • How will you monetize open banking services?
  • What are your plans for microservice architecture, security and data standards around open banking design and services?
  • What is your selection of open API functions?

Let’s explore these questions a bit further to better understand how banks and FinTechs can fully utilize open banking.

The potential of their financial data can be unlocked only if opportunities to monetize the value of new services are defined. This FIS white paper has some good ideas on monetization.

Customer data (such as card use, demographics details and spending patterns) will enable banks to enhance collaboration with FinTechs to launch new product portfolios (such as rewards and loyalty products) and apps that will generate new revenue for banks. Banks need to evaluate their role as service providers and enable third-party providers to offer flexible payment and other service options using their digital channels. Banks will be able to authorize payments originating from multiple digital and social media and e-commerce sites. Improved omnichannel seamless payment experiences for customers based on payment authorization APIs is another quick service banks can implement. Know Your Customer data for customer identification and validation will result in better customer experiences and increase speed to market of deposit and loan products. Banks could generate revenue by using their internal customer data to provide validation and authorization services. APIs that can speed up loan origination or streamline loan servicing could lead to more income. Customer service can be improved to increase customer retention.

APIs that could enable predictive and cognitive analysis provide deeper insights on customer buying patterns, financial discipline, savings, and spending patterns for customizing products for specific customer groups. That information can help banks suggest relevant products throughout the customer lifecycle.

This openness and transparency will result in better customer satisfaction through better product comparison. Banks could use transaction data in applications to analyze customer income and spending patterns and help customers with tax planning and future planning.

Banks also need to understand the customer segments they are targeting with the APIs, as well as the bandwidth the APIs will consume. The enterprise architecture needs to be modular and have microservice-based components and a flexible API product management framework.

Banks should evaluate their current integration plans with their current product portfolios and associations with current Third party providers and FinTechs. Another step could be interviewing consumers to understand what apps they would like the bank to offer. Banks can develop trusted partners to provide unique and better customer experiences. Banks should prioritize APIs, evaluate their usability by FinTechs, and discuss building strategies with their partners.

Currently representational state transfer (REST) and JavaScript Object Notation (JSON) are the architectural bases used for designing these services. For security, the authentication of bank site and the integrity and confidentiality of data, transport layer security (TLS) authentication, authorization of customer, and OAuth 2.0 are crucial standards.

All banking functions can be categorized into product and service information, new applications for products and services, account information, transactions, and customer services.
Some indicative use cases for each of them could be as follows:

  • Retrieve product details for all bank products
  • Process requests for new applications/banking products
  • Retrieve existing account information for account holders
  • Process payment -elated requests such as funds transfers, bill payments, credit card payments, and so on

To summarize, banks need to change their operating models and implement a flexible open API banking platform to develop and distribute their services and products to both FinTechs and end consumers, giving power to customers as trusted financial partners as well as boosting their own revenue streams.

Neeraj Kumar Swansi

Senior Consultant - Banking and Financial Services, Virtusa. Neeraj Kumar has worked with a variety of clients from different industry verticals but has a special focus and experience in the banking and financial services industry. For nearly 5 years, Neeraj has been involved in delivering transformational solutions for banking technology companies in addition to also supporting banking and financial services companies in implementing solutions across different products and platforms including those for corporate banking, retail banking, project finance, foreign exchange, payments and Risk Management. He has worked with Credit Card providers to improve their operational efficiencies, time to market and effectively handle customer disputes by streamlining the case management capabilities to enhance the overall effectiveness of the case and dispute resolution processes. Neeraj holds an undergraduate degree in Mathematics from St. Xavier’s and MBA from IIM Calcutta.

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