Would it surprise you to learn that, in a recent survey of financial service executives worldwide, more than one-third said that they have some Open Banking initiatives already in place? Are you there? Or are you in the early steps of your Open Banking journey—like half of the executives we polled?
Open Banking is an umbrella term that includes legislative changes, open data, enabling technology, and new innovation poised to disrupt the financial services industry. This fusion of data, technology, and people have the potential to change banking like never before.
There is a huge synergy between Open Banking and Intelligent Empowerment, the application of machine intelligence to enable businesses, customers, and employees. An Intelligent Empowerment approach to Open Banking enables innovative enterprise change for business, consumers, and society.
But most financial services providers are still working to create Open Banking models. Internally, banks have plenty of ideas and varied expertise needed to innovate in the new economy facing unprecedented legislation like GDPR on one front and new business models on the other. But most legacy financial institutions are so large and complex that innovation doesn’t happen quickly. Banks require new courageous leaders, partners bringing an inclusive culture, energy, and 'know how' to break down these barriers.
New entrants like OakNorth in the U.K. and Seed in the U.S., jump the tech hurdles quickly and are able to digitize the customer experience in delivering straight through seamless customer journeys without consideration to re-engineering the product and channel strategy. They start and end with customer value creation, and business models follow. Open Banking is about embracing the opportunity that change brings.
The future will be open
Facebook’s sharing of user data. The rollout of GDPR. The ubiquity of AI and Machine Learning. It’s impossible to go a day without reading a headline about data, transparency, and its impact on people, companies, and societies. Data is now a currency and that, in combination with transparency as a fundamental business expectation, along with an increasingly interconnected world, means that collaborative models such as open banking will become the mainstream, reshaping traditional industries and institutions as a result.
The augmentation of technology with human creativity across all aspects of society is traveling at a faster and faster speed. Intelligent Empowerment is the augmentation of human creativity and machine learning. With Intelligent Empowerment, our lives are truly integrated with tech and data. As our life has become open to connected machines, devices, across sectors, brands, services, functions, so society has augmented with tech.
The user journey has fused from one moment or interaction to the next. This causes a multitude of problems centered around data breach, privacy, and consent. Consent is quickly becoming the currency of the person as new models challenge the old commercial company “ownership” of personal data. Facebook’s sharing of user data is the tip of the iceberg as people begin to realize the double-edged sword for free services.
The data breach and misuse news won't fade away, people are demanding and consuming services, outputting more data and arguably much more personal, niche and individual. Data so valuable to business that connecting and sharing of this new currency under consent will be fundamental to most commercial models.
Even worse, old era, non-data, and disconnected business will die fast as others accelerate to the new data economy. The opportunity to bring collaborative models mainstream, reshape traditional industries and institutions, as a result, is greater nowhere than in the Financial Services industry with the concept of Open Banking.
In fact, a number of organizations are already in the process of transforming for that collaborative future. In a recent Thoughtworks’ survey, 36% of financial services executives indicated they have some open banking initiatives in place, while another 50% said they are still in the beginning stages of the open banking journey (but on the journey nonetheless!).
While banks have been utilizing APIs for quite some time it is the confluence of several at-large factors that are pushing open banking to the forefront of the financial services industry:
The legislation is demanding it
With GDPR going live and PSD2 already in place, transparency into which parties have access to one’s data during a transaction will be a requirement, punishable by significant fines. It may seem counterintuitive that regulation would, in fact, help aid collaboration and innovation but by requiring financial institutions to be more forthright with their data GDPR and PSD2 will be forcing organizations to adopt behaviors and develop capabilities that are core to open banking.
New personal data models built around transparency, trust and fair returns for the use of valuable personal data. Educating people on data, harnessing more company collaboration. The ideal? A federated, sovereign digital identity across different customer journeys, serving as an enabler to an open data policy that would sit on top of outdated Terms and Conditions where company use is, visible, clear, unambiguous, understood and can be changed at any time.
Technology is enabling it
With APIs no longer as nice-to-haves but rather as must-haves, organizations have begun to properly integrate and build the digital platforms necessary to enable the ongoing development and evolution of the technical capabilities required to successfully exist as a true ecosystem player. Technology has also been required to keep pace with the regulatory changes driving data transparency and as a result, now have data that is not only accessible but also usable.
Customers are ready for it
Seamless, friction-less, when it comes to customer experience organizations know that is what they have to deliver as customers have come to expect, nay, demand interactions that are not only simple but delightful. But there’s something else that often is overlooked when discussing the customer experience, customers want to feel in control of and confident in their decision making, especially with financial transactions. GDPR, PSD2, and Open Banking will bring that control back to the consumer.
Transitioning to open banking - changing the model
With the emergence of new digital technologies, ability to leverage data in new ways, and the ability to create new ecosystems of value, there is the opportunity for traditional providers to rethink how they reach out to new and existing customers with holistic digital bank solutions.
What is the role of the bank? How do you build trust? How can you uncover new ways to make money for the business while looking out for your customer? These are old questions with new answers due to the emergence of digital technologies.
So how do we begin to embrace open banking?
While making the move to open banking requires organizational change across multiple fronts, one of the fundamental shifts involves the change in product service models. However, it really is more than that as an organization’s product service model is often emblematic of the firm’s leadership style, culture, and technology.
The primary shift when moving from traditional banking models to an open model is the shift from a control-based process to a (you guessed it!) process based on collaboration. We call this out because many organizations still operate in the control-driven model, as our recent survey confirmed with 50% of the executives describing their company culture as being control-driven where there is predictability and stability, 20% describing their culture as collaborative - driven by teamwork and diversity and another 20% describing theirs as competence-driven, where strategic directions are driven by efficiency and skills.
Traditional product services models have typically consisted of the following characteristics:
Design it then build it
Focus on utilization
Control at all costs
Failure is avoided
Focus on completion & adherence to plan vs. value created
Exhibit 1. Traditional banking model product service flow
Collaborative product service models look much different and possess the following characteristics:
Begins with defining customer metrics
Transparency (of priorities, workflow, and feedback)
Flexible - the only constant of the plan is the change in the plan
Failure equates to learning
Amplify feedback (customer & employee)
Deliver incremental change
Exhibit 2. Open banking model product service flow
Culture is critical for success
Given the differences between these two models, making the transition to an open banking model is not an easy task, but there is a key factor upon which it depends - culture. Financial institutions must embrace the core tenets of open banking and embed them within their organization’s culture.
Transparency and trust
The model depends on it, and therefore, so does the culture supporting it. Sharing feedback (customer & employee), data, code, the success of open banking relies upon all the players not just adhering to GDPR and PSD2 but also exhibiting it in how they go about creating products and services, configuring technology solutions and communicating change both within the organization and to customers. The more open the organization can be the smoother the transition will be.
Banking and flexibility are not two words often heard together, in fact, upon initial reflection one might think “I don’t want my financial institution or its employees to be flexible!”. However, define flexibility through an Open Banking lens, and it immediately becomes clear why this is such an important cultural aspect for institutions. Flexible doesn’t mean fast and loose but rather open-mindedness, looking to design a process or create an API in the manner that enables the most possibility, it maximizes the opportunity to create value rather than restricts it within the tightest set of parameters.
Finally, continuous learning should not just be for our algorithms; it is a mindset that should be fundamental to enterprises moving to or already operating within an Open Banking model. That means not only keeping the feedback channels open between customers and partners but actively listening, learning and monitoring for any trends or patterns that appear. This learning mindset also goes hand-in-hand with transparency and flexibility because if the former two are not in place, the latter will be impossible.
Open banking - How are you preparing?
While open banking is still in its early stages, it is steadily becoming a reality due to technology’s AI boom, changing customer expectations and regulatory mandates driving towards greater transparency and individual data autonomy. Banks and their leaders can position themselves to win in the future with open banking by moving forward now and developing the core service model characteristics and adaptive culture required for success and becoming the custodians of trust that customers need and deserve.
Disclaimer: The statements and opinions expressed in this article are those of the author(s) and do not necessarily reflect the positions of Thoughtworks.