American poet and essayist John Perry Barlow took a modern twist on an old English proverb when he said, “Any powerful technology has sauce for the goose and the gander.”
Until recently, the “sauce” of Open Banking—the opening up of banks’ networks to non-bank third parties—has been poured primarily on the retail side of banking. Merchants are gaining advantages from their new ability to use application programming interfaces (APIs) to access a consumer’s financial data (per consent) and accept payments directly from consumers’ banks without the need for gateways, merchant acquirers or other intermediaries—all to deliver more relevant and convenient customer service. Such savory advantages are also now finding their place on the commercial side of banking.
Small- and medium-sized (SME) businesses and larger corporates are already making moves to tap into the growth opportunities presented by Open Banking. Of the nearly 700 corporates we polled in our recent Open Banking for Businesses Survey, 77 percent already participate in Open Banking ecosystem platforms or plan to do so next year. Their intent: Expand their ecosystems in search of more innovative banking services and extend their market reach. And, they expect banks to help them do it. In fact, 68 percent of companies globally would prefer their bank to provide them the ability to access an Open Banking ecosystem.
Banks get it. Many of them are using APIs to offer additional commercial services, such as account aggregation and working capital management, directly through third parties. More than 85 percent of banks in our survey have already undertaken Open Banking initiatives for commercial clients or plan to do so in 2019. It’s significant because incumbent banks tend to lag in their digital transformation, cost efficiency and product innovation, which limits their ability to offer differentiated offerings while keeping costs low. If banks remain slow to change and fail to offer Open Banking’s benefits to SMEs and large corporates, then they risk losing this valuable segment to newcomers. While 44 percent of corporates told us they are mostly satisfied with their organisation’s business software with regards to payments and banking, they are interested in looking at other third-party solutions.
77% of corporates already participate in Open Banking ecosystem platforms or plan to do so in 2019
Non-bank third parties are ready to serve commercial clients with personalised, integrated and bundled value-added financial services. Amazon and Shopify, for example, offer online business services, including payments. Accounting software platform providers, including Sage, Xero, Exact and Intuit have all integrated banking services into their offerings. LendingClub, Kabbage, Tide, Paypal, iZettle and other fintechs now offer instant credit for SMEs, while ERP software providers like SAP are integrating cash management into their offerings to help corporations lower working capital.
Banks have a bit of time to defend their trusted primary relationship positions with commercial customers, if they act now. One of the first things they need to do is amp up their data-driven insights to thoroughly know their customers and better match their offers to what corporates need and want. Banks must also monetise APIs by making relevant enterprise IT systems, services and data easy for outsiders to consume as a channel, product or service. Then, as value creation is now taking place within platform plays, commercial banks should look to conduct banking-as-a-service to more quickly assemble solutions that meet corporates’ expectations. It all requires formation and execution of new strategies, business models, partnerships and technology.
I invite you to read the full report for details on our survey findings and to learn more about how banks can apply the Open Banking sauce to delight commercial customers just like it’s done in retail.