ERI Banking Software: Emerging Trends in API and Open Banking, Implications for Asia

Adrian Williamson, Director for Asia at ERI Banking Software, is a believer. His credo is that the key driving factors on the road to winning customers’ trust and to providing better products and services include data, process and policy transparency, while at the same time maintaining data security. To achieve these goals, it is vital to adopt, invest in and implement new open banking systems. He told the audience at the Hubbis Asian Wealth Management Forum exactly why they too should put their faith in this evolutionary trend.

“My mission today,” Williamson began, “is to highlight the latest trends in how banks today can use open banking technology to accumulate and manage data, while at the same time building transparency, and always being mindful of preserving the rights of their clients.”

Sweeping the world

Open banking is a new phenomenon that is sweeping the world, he reported. It is widely accepted in the European region, Australia, East Asia, the US and Canada with the leading banks implementing open banking as a platform. And the regulatory authorities are drafting guidelines, in-line with PSD2, to ensure implementation of a regulated and evolving platform.

This is a great opportunity that drives our FinTech industry,” Williamson elucidates. “It provides a great opportunity to drive innovation in banking and also payment services.”

Open to the future

Open banking he explained is a platform with a network of financial institutions and services available through Application Programming Interfaces (APIs), based on the revised Payment Services Directive (PSD2). This allows the bank to securely unveil the bank’s data and allows for the inclusion of a variety of financial services, providing customers with a better user experience and the most relevant choices.

“What does this mean for businesses?” Williamson asked, rhetorically. “It means access to additional customer data, an increase estimated at almost 50%. It means a 65% improvement in time to market for new products and services. And it means an estimated 20% to 30% enhancement in revenues for financial institutions.”

Adoption rules

He also highlighted how with open banking or any kind of new technology, adoption is the key. “What we can see around the world is that the banking industry has generally embraced open banking with open arms.”

As to the latest emerging trends in API/Open Banking, Williamson explains that based on the current industry practices, key trends can be classified into a three-phase approach towards Open Banking implementation.

Step by step

Phase one, Williamson reported, is standard, involving the most basic compliance to the guidelines that have been issued, adherence to all the basic PSD2 implementation in progress.

Phase two is more important, as it involves the single marketplace and data insights. “Marketplace, or open banking, by nature, is data-intensive,” Williamson observes. “If banks must rightly place customers at the centre of their services, it is critical to understand customer behaviour, patterns and expectations. By doing this, the bank becomes a one-stop shop when managing the relationship between themselves and their clients and this allows them to seamlessly manage the user experience between them and the client from a holistic standpoint. Hence, the crucial need for data analysis and insights.”

Phase three involves data sharing. “The sharing of customer data within the marketplace and digital consent management lies at the heart of open banking,” he reports. “And the end game for this whole process is the monetisation of this B2B data.”

Keeping it clear

Williamson emphasises the vital need for transparency. “Data transparency and data security are conceptually different from an open banking perspective,” he elucidates. “Data transparency and data security have an overlap and building transparency while keeping customers’ interest and rights central to the mission is one of the key focus areas. With consent management, customer rights are preserved, and the customers have full privileges to choose the kind of information shared. So, we maintain customers’ focus on open banking services rather than concerning the customer with worries over how and where their data is being used.”

Scalable and impactful

The impact on banks is significant. “Tier 1 and Tier 2 banks across the globe have built dedicated departments, horizontally and/or vertically, to cater to open banking needs. This clearly infers that these financial service providers treat open banking as a scalable and beneficial approach.”

As to the investment process and commitment, Williamson comments that the implementation of a phased approach is the optimal protocol.

Be realistic

“The investments required in the platform are significant,” he notes, “especially for a conventional bank, in order to incorporate an open banking platform. The banks must recognise that return on Investment (ROI) cannot be expected for at least 12 to 18 months from the time of implementation, and the outcome for the first one or two years will mean a reduction in non-interest income component, with system expenses and operating expenses rising at the same time, so this is a hurdle the banks must accept and live with.”

There are always regulatory, and compliance implications to anything a financial institution does these days. “The challenges and intricacies behind open banking are constantly evolving,” Williamson notes, “as there are continual amendments to the regulatory guidelines, so compliance departments must regularly track the guidelines, understand the impact of changes and translating them into actionable steps.”

Building the internal proposition

Williamson also observes that the FIs must continuously enhance expertise. “It is vital to explore ways to optimise captured data so that there is maximum utility to better serve the customers and enhance transparency. Many FIs are creating a new position of Chief Data Officer to build their expertise and to optimise the use of information as an asset. Moreover, one of the key success factors for a successful open banking platform lies in data management, hence the requirement also for a strong analytics platform.”

Williamson also noted how for projects of this nature, change management is going to be very important. “Change management internally as well as externally,” he explained. “Banks need to put in place a change management process in order to message the changes that impact them within the organisation to all stakeholders.”

Analytics expertise

And as with any new implementation, they also need a robust analytics platform. “A new technology requires a genuine understanding of how best to use it. In order to fully monetise all the information that you have in place, you need to have a strong analytics platform to enable the monetisation of the information collected.”

And he advises FIs to create both internal and external awareness. “FIs should ensure that their internal and external staff and customers are aware of the developments and their implications,” he reports. “It is an extensive investment, with respect to time and effort, to bring all the aspects - system, people, process and technology - of a financial institution to be open banking ready.”