Open Finance
7
min of reading
August 26, 2017

What is Open Banking and why it can make all the difference?

Lucas Tempestini
Global Marketing Manager
Developing Marketing Strategies and Communications throughout a very complex global strategy.
More about the author

Think about a while ago, when banks started to offer digital services, like Internet Banking or apps. How did you feel? Comfortable, modern, with a first-class service?

Before that, could you imagine yourself performing a bank transfer from anywhere, with a mobile device?

Now all those features are deployed in the main banks applications! They started to offer services like that, and it was only the first step.

Digital Transformation is like a wheel that when it starts to spin, it will never stop and each turn it gets faster and faster. .

Imagine yourself accessing your banking information in apps on a daily routine. For example, your favorite expense control application automatically synchronizing with your bank account, accessing all your expenses on your credit card and checking bank statements, creating a very precise control to you, and also suggesting really useful services.

And all of this without any concerns.

This trend has a name: Open Banking. But what is it? A simple definition (and that I really like) is:

Open Banking is the possibility of creating new digital business and ecosystems through APIs provided by the banks.

In other words, when banks start opening its APIs (or even exclusively to partners), the possibilities of generating business is widely increased.

But how will the banks do that? What kind of advantages can the banks and Open APIs’ combination have?

Well, it only depends on the banks creativity and the people that are consuming those APIs. If APIs were entirely open, there would be the phenomenon that we know as Open Innovation.

But you are now thinking: “What? But does the bank have to open our data to anyone? It doesn’t make sense, everybody will check my bank statements!!!”

It’s not like that. APIs being used in banking business and technology are a perfect fit, and you’re right, security is a great issue, but keep up with me and I’ll tell you how this is being addressed.

Why opening data?

Well, there are many advantages, and I will show you the main ones, answering the question “What is Open Banking?”.

The security question is extremely important too, and I’ll talk more about that at the end of this article.

Advantage #1: Engagement with users

Which company doesn’t want to be remembered by making user’s life easier?

APIs in banks are the path to new ideas, and an ocean of possibilities. Considering that, the Bank’s brand will always be present during the day, and an increased customers base due to a much better user experience.

For example: if a bank provides an easy payment process with the largest e-commerces, and it is integrated with your favorite financial management app (cutting through the red tape), many customers would be inclined to open an account on that bank, and to use its services because of the finances’ convenience and automation advantages.

Advantage #2: Services Monetization

When you think about banks, you surely think about money.

And APIs applied to business open new revenue opportunities. And even better: there are several ways to charge for services consumption. Some companies create affiliate programs, while others, charge the partners for the amount of access.

A limit of calls for an application, per day, can be set, and when this limit is exceeded, a rate must be paid. It’s also possible to create a partner’s plan, which reduces the usage costs as the volume of calls increases.

The Integration through the automatic debit system, for example, can charge a partner per number of usage.

The idea is always generating more value to the customer, and creating partnership strategies through APIs might be the path to bring this value! So, with APIs in banks, it’s much easier to add value and bring useful services to customers.

Advantage #3: Innovative Positioning

Being a technology and innovation benchmark in your industry is a very privileged position, regardless your segment.

We already see the main banks declaring themselves as Digital.

Launching different services from your competitors will improve this positioning as an innovator, and  integration with as much applications as possible (or even better, with the right applications for your audience) will assure a long and prosper innovation path.

Right now, this position of innovator and “guardian of the future” has been strongly threatened by financial startups, known as Fintechs. Banks using Open APIs can be either a great advantage or a threat for them.

So, if you haven’t started this venture yet, it’s time to include your CIO or Technology Director to this strategic discussion: run, but do something different from the others in your industry.

Advantage #4: Prevent other companies from performing your service

Fintechs came to change not only how financial services innovate, but also the way most of the customers use financial services.

So, it’s inevitable that these players will release a bunch of  APIs, because there are already several companies that can offer some services that banks provide, but in a more improved and specialized way.

You just need to see the image below to understand how the banking industry spread and enabled the growth of the services that communicate through APIs. I already use Nubank, and I like it a lot!

The growth of this industry is stunning. There are a lot of Fintechs in Brazil, and this industry grows every day. As it is not a niche industry, but a transformation of an existing industry instead, the banks will also need to change, and the APIs provide a better way to do it.

Nowadays, some international banks are already able to compete with financial and technological services, offering great digital solutions in a faster and more specialized way. An example we always like to mention is Credit Agricole, a French bank that already exposes APIs to many of its services.

What about Security?

One of the main concerns about launching an Open Banking project is the security of the customer’s data, and also to prevent the bank itself from hacker attacks.

But how should they fight this? The answer is pretty simple: a good structure of APIs Design and great development practices, aligned with an extremely strict control of API Management FullCycle make all those security problems disappear.

Banks are already security-experts companies. And in a digital world, with APIs being used in banks, it’s natural that security tools already available are used in their best way.

Therefore, not only banks, but also every segment of the industry can have a fine control of its exposed services, improving all the functionalities.

From now on, you just need to think about the next features that technology will provide, and I’ll help you

What can APIs in banks achieve?

Thinking like this, I can imagine a world in which banks are not only integrated with partners and applications through APIs, but also can suffer a new digital disruption, changing the services and improving them.

This way, the banks can always be competitive, always improving, and being able to deliver to the consumers the best interaction experience ever, doing what Fintechs are doing, but inside the structure already known for years by them.

The Open Banking segment affects our daily lives, so it’s impossible not feeling the user experience differences, and not loving the digital transformation.

The entire industry will be in the digital path, delivering a better and more specialized service to the customers, besides providing a unique user experience.

Let’s chat about your digital strategies?

Thanks for reading!