How thinking like a fintech can maximize Open Banking opportunity

The introduction of the European Banking Authority’s Second Payment Services Directive (PSD2) in Europe and the Open Banking regulation in the UK, is one of the biggest compliance tests the financial services industry has ever faced.

These regulations inaugurate an era of change which will require banks to evaluate their platforms and capabilities and to implement new ways of working and delivering services.

They have also opened the door for financial institutions to provide customers with new services in new ways.

Adopting a ‘Silicon Valley’ mindset

Banks will have to adopt a ‘Silicon Valley’ mindset, providing new products and services continuously and fast, something which fintech companies do regularly.

By adopting a ‘Silicon Valley’ mindset, banks will see the positive impacts of being able to innovate quickly, providing customers with new services and delivering more seamless, intelligent financial experiences that help drive customer loyalty.

Open Banking requires that banks build APIs (application programming interfaced) to make information available to third parties.

You could argue that this is the beginning of what will ultimately be an industry shift to API-based financial services. This will enable consumers to access financial information  whenever and however they choose

While current usage of open APIs to share financial information is low, it is likely this will reach a tipping point after the emergence of a game-changing company when change will accelerate 10 times faster and broader.

For financial institutions, customer relationships will be developed through the integration of financial services information and payment initiation into consumers’ daily lives.

Banks that take a broad view of Open Banking will realize that open APIs are a two-way street, allowing them to access information and bring more intelligent experiences to their customers within their interfaces. This changes the perspective that these regulations are a one-sided mandate to provide access to information to others.

The fintech characteristics of agility and responsiveness to consumer needs is key as it gives banks a compelling reason to think beyond compliance to consider other opportunities.

The API advantage

As banks evolve to not only building but delivering and maintaining APIs, a suggestion will be for banks to consider APIs as a product and to manage them accordingly.

By thinking of API’s as products, this will enable banks to manage them effectively while ensuring their services are available for integration into their customers’ lives as much as possible.

The availability to consumers of banking information and capabilities will drive satisfaction with the bank itself and is therefore is in the banks’ interest to offer accessible and useful APIs.

Industrializing the distribution, production and consumption of APIs could be one way for banks to develop in new digital financial services markets.

The appeal of outsourcing

We can see from Open Banking regulatory roadmaps that banks are going to be required to continue to innovate quickly to keep pace with what regulators require.

Focusing solely on initial compliance could lead to greater cost and time investment in the long-term but meeting a deadline for compliance is not the end game, it is merely the starting point.

Facing the prospect of continual change, some banks are starting to see the appeal of fully managed services. Hence, adopting platforms and practices that allow them to stay compliant and move at a faster pace, will enable them to implement and manage change smoothly, at a lower cost and with the least impact on the bank.

This has the added benefit of freeing up the banks’ internal resources to focus on other high-value work, which allows financial institutions to focus on the larger impact of Open Banking and its potential to change the way financial services will be delivered and consumed.

Going beyond compliance

As banks, regulators and the fintech community work together to deliver and meet the deadlines of PSD2 and Open Banking regulations through engaging third-party providers and the developer community, their impact will spread.

The banks that collaborate, partner, invest and support fintech innovations are ultimately the ones that will be ahead of their competitors to provide new services and experiences to the customers

Banks that are prepared to consider all the possibilities of Open Banking are paving the way for success regardless of the future of the financial services market.

Maximising Open Banking regulations will allow banks to provide customers with services that exceed their expectations every step of the way.