Just over one year ago, the Competition and Markets Authority (CMA) celebrated the official launch of open banking in the UK – and developers have wasted absolutely no time transforming what was once considered a relatively arbitrary concept into a cornerstone of the global payments space. But why is open banking so crucial for industry, and how is it starting to reshape treasury functions?
Over recent decades, the expanding roles of treasury teams have been repetitively stifled by fragmented financial data. Reliance upon incompatible financial management platforms, bank accounts being held across starkly contrasting jurisdictions and a lack of transparency from large incumbents surrounding data storage and transaction information have created seemingly insurmountable hurdles for treasurers – which is why last January’s implementation of PSD2 by the EU has been a total gamechanger for multinational organisations.
Aimed at improving competition and services across an arguably stagnating banking sector, the legislation has subsequently forced banks to develop and implement open Application Programming Interfaces (APIs) that allow third-parties to access and integrate bank reporting features, product information and data feeds within their own systems. This means that, using the right solution, corporates should no longer have to manually extract, normalise and analyse data in order to manage their cash positions.
Open banking and APIs essentially allow for fast, frictionless cash management, and are ultimately expected to replace traditional connectivity protocols like SWIFT and FTP as the default link between banks and TMS and ERP platforms. Bearing in mind the phenomenal level of benefits that accompany these open APIs, it’s little wonder financial institutions and developers across a variety of industries are seizing upon this brave new world in order to bring incredible innovation to the sector in 2019.
Earlier this month, Swiss financial software firm Temenos announced plans to ‘revolutionise’ its line of banking products with the launch of two new cloud-native and cloud-agnostic products centred on one of the sector’s most all-encompassing deployments of open APIs to date. Front office omni-channel solution Temenos Infinity and core banking system Temenos T24 Transact offer FIs the unique opportunity to leverage key data from 3,000 banks in more than 150 countries – subsequently giving sprawling institutions the chance to combine multiple siloed banking channels and legacy apps into a single, cloud-based and easy-to-use system.
Other European-based fintechs are already kicking off 2019 with major expansions. Earlier this month, the UK-based start-up and API developer TrueLayer announced a huge move into Germany, striking partnerships with Deutsche Bank, Sparkassen and CommerzBank to develop and provide open APIs that support key functions like account verification, KYC processes, account aggregation, credit scoring and more.
Despite the fact that financial institutions are only bound by law to share data in a few key jurisdictions such as the EU, over recent months banks and payments providers operating in markets across the globe appear to be warming up to the idea of shared APIs, too.
At the start of January, Chinese payments giant UnionPay announced the launch and its new open UPI Developer platform, which enables third-party developers access to UnionPay APIs in order to offer bespoke product integrations for partner organisations.
Likewise, the Hong Kong-based cash machine giant JETCO celebrated the launch of Hong Kong’s first-ever API exchange platform last week. The new JETCO APIX tool provides access to more than 200 APIs from 13 banks – covering a range of product and service information from deposit and forex, to loans, investment and insurance products. More important still, the platform is designed to double as a sandbox for third-party users to test their new products and ideas.
At the end of the day, it will be the innovation taking place on these types of exchange platforms that could ultimately spark the biggest sector shifts of 2019. After all, while offering up access to APIs is currently a mandatory requirement for many of the globe’s most powerful FIs, the advent of open banking also presents incumbents with a huge opportunity to test and deliver new products faster and more efficiently than ever before.
In a survey conducted by Accenture at the end of 2018, 77% of businesses told researchers they were either already participating in open banking or were planning to do so in 2019. Likewise, more than 80% of banks across the globe reported significant investment in open banking use cases last year, and 90% of banks are ready to build an ecosystem platform in 2019 with third-party services for their commercial customers.
In the payments space alone, large incumbents are already utilising this new, open banking ecosystem to broaden the types of payment channels they are able to offer to include real-time, B2C services that are going to be increasingly attractive to large businesses that are heavily reliant upon the provision of frictionless user journeys and simple cross-border payments.