Guest blogger Conrad Sheehan, expert on core retail and corporate payments, discusses Open Banking and opportunities within commercial banking.
The trends of Open Banking and instant payments are converging into the global phenomenon of real-time commerce. Enabled by API-powered services, it is beckoning value and growth for most industries. Large corporations and small- and medium-sized enterprises (SMEs) see it and are looking to cash in on it—initially for accounts and payments-related functions. In fact, 35 percent of the commercial bank customers in 11 countries we surveyed already participate in Open Banking ecosystem platforms.
Global market momentum at various speeds
Though the convergence is ramping up globally, is it unfolding across markets in diverse ways and at varying speeds. In the US, for example, it is being driven by free market dynamics. As such, banks are compelled to pay attention to what their commercial clients want and try to build the right Open Banking or API-enabled solutions to deliver it. For example, Bank of America’s Global Treasury helps businesses manage their finances by opening up banking services to third-party ERP integration1—a capability that 71 percent of North American businesses say they want.
In Europe, regulators are dictating at a galloping pace when, where and how Open Banking advances. Mandates from the European Union’s PSD2 and the UK Competition and Markets Authority’s Open Banking regulation means that players are basically taking the same actions, but at the speed of country-driven regulatory compliance. We are seeing similar pushes start to occur in Asia Pacific and Latin America as countries investigate Open Banking and instant payment initiatives. Even with the differences, nearly two-thirds of businesses across the globe (64 percent) and in North America (62 percent) prefer their bank to provide an Open Banking ecosystem.
It’s a fascinating and present opportunity for banks to be more relevant, innovative and profitable. Over two-thirds of the North American banks polled in our survey plan to invest up to $20 million in Open Banking for large corporates and SMEs, expecting payments to be a top value-added service. Banks that approach Open Banking for corporates in a test-and-learn mode—piloting, launching, learning and adapting in an iterative fashion—can make the right connections now and reap first-experimenter advantages like brand recognition, customer loyalty and new revenue streams. Banks should also not underestimate the value of “intra-bank” API enablement in simplifying internal application integration.
Four key steps to Open Banking
There are thousands of processes and applications that a bank could make available to third parties via APIs to deliver easy, seamless, integrated solutions for corporates with one-stop-shop convenience. But, which ones, when and how?
We recommend four steps that banks should consider when delving into Open Banking offerings:
- Create your North Star strategy. Who are your target customers… large corporations or SMEs? What do they need and what nuances distinguish their needs? Which of these needs will you solve via Open Banking initiatives? How consistent is this with your business model and brand? How can you monetize it?
- Determine your API governance and framework. Fintech collaboration can play a key role in inspiring what’s possible and fueling efficiency, speed and value. Fintechs often offer new services or simplification-enabling technology to address customer needs. It’s a win-win proposition in which each party focuses on what they do best. A couple of examples: Citizens Bank’s work with Fundation2 to make it easier for small-business customers to apply for loans; the JPMorgan and Plaid Inc. announcement of a data-sharing deal to allow customers to more easily and securely send banking data via APIs to third-party apps as part of managing their finances3.
- Create your technology roadmap and execute. First, make the significant decisions on the technology software and architecture that will construct the product. Then organize around them. This includes governance to keep the execution plan on course and in alignment with the business strategy, and to ensure agreement among stakeholders on what to build and how to monetize it.
- Operate efficiently at scale. APIs and developer communities are living solutions with evolving innovation. Banks will need ongoing capabilities to manage and optimize them post-launch for sustainable value.
The open and interoperable innovation that is improving customer experience in retail banking—from hyper-relevant offers to greater efficiencies to faster payments—can deliver the same for commercial customers. Banks that deliver Open Banking to corporates, one wise pilot at a time, can expand their own ecosystems and reach to reap new growth.
Download our Open Banking for Businesses Survey for more on what commercial banking customers want from Open Banking.
1Bank of America, “Bank of America Merrill Lynch Launches API Gateway” 1/24/2018
2Citizens Bank, “Citizens Bank’s Digital Business Loan Collaboration with Fundation Wins the ‘Best of FinXTech Partnership’ Award” 5/17/2018
3Pymnts.com, “JPMorgan and Plaid Inc. in Data Sharing Deal” 10/23/2018