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Embracing Open Banking: Navigating the Shift in Financial Services

Open Banking is revolutionizing the way financial products and services can be offered to both individual and business customers. Open Banking will allow traditional banks, Fintechs, Neobanks and others to innovate and transform the customer experience in all areas of digital banking, including on-boarding, account opening, account management, lending and financial management. The accelerated adoption of Open Banking is driven by two core principles:

The Benefits of Open Banking in the Digital Landscape

When you think about Open Banking, what is key, is to view Open Banking through the lens of the customer and in this context, customer refers to both individuals and businesses. Customers have little interest in the technology foundation that provides these capabilities but will take note of the impact it has on how the “do banking.” Below are few examples.
Allows customers to access all their financial information in one place, making it convenient and efficient to view, manage and make informed decisions about their finances.
Fosters innovation by allowing third-party solution providers to create new applications and services that enhance user experience and address specific financial needs. You see a growing use of this in lending products and services.
Open banking APIs enable customers to leverage various financial management tools, such as budgeting apps and automated savings platforms, leading to better financial decision-making which is aligned with the convenience of the customer to make financial decisions
With the help of open banking APIs, banks can facilitate quick and secure payments, across multiple payment platform options, eliminating the need for cumbersome transaction processes. This enhances the overall user experience by providing a frictionless payment experience. This can be applied across all spectrums of payments; P2P, Merchant, Bill Payments, etc.

Neobanks challenging traditional banking institutions:

Digital-only banks, unburdened by legacy systems, have capitalized on open banking to offer customers a fresh, user-friendly banking experience. They are leveraging open banking APIs to provide personalized financial services, innovative features, and competitive rates.

Revolut, a leading neobank, has revolutionized the banking sector with its digital-first approach. By integrating open banking APIs, Revolut empowers customers to manage their finances effectively through a range of features, including budgeting tools, instant spending notifications, and international money transfers at competitive rates.

Despite the rise of fintech banks and non-banking entities entering the financial sphere, traditional banks maintain a strong allure for consumers, particularly when all factors such as products, services, and digital capabilities are equal. Customers still have a lot of confidence in the security of traditional banks. Nevertheless, the challenge lies in modernizing IT eco systems to meet the demands of today’s digitally driven society, ensuring accessibility and real-time service provision.

Industry analysts advocate for the transformation of traditional core processing systems towards a more connected and digitally proficient infrastructure. Concepts like the “connected bank” by IDC and the “digital core” by Forrester underscore the necessity for banks to evolve their foundational systems. Unlike channels, these core banking systems serve as the custodians of customer data, highlighting their pivotal role in the open banking ecosystem.

At the heart of enabling open banking lies robust API Management Gateways, acting as a technological interface to facilitate secure access to a bank’s IT ecosystem. Financial service providers are increasingly investing in open banking capabilities, with three primary approaches evident in the market:

Traditional core systems providers such as core banking or cards systems, are accelerating their investments to be API driven systems. This comes through a blend of acquisitions, partnerships and re-architecture of legacy code. There has been a new generation of core banking providers to enter the market over the last many years that have been architected from the “ground up” to be API drive and service a digital first customer experience.
Digital banking players are deploying solutions atop traditional or modernized core systems, offering a layer of external capabilities. However, challenges persist concerning the depth of functionality within a channel provider’s portfolio. Historically, channel capabilities have been limited to what the back end systems could provide. But in this new generation of digital architectures, modularity and micro-services, the digital layer can provide a “middle office” set of capabilities to offset challenges in back-end systems.
Entities like Cap Gemini present propositions to banks for API-enabling existing environments or constructing new functionalities where necessary, further driving the open banking agenda.
In Summary, Open Banking does provide significant benefit to both financial service providers and customers. However, these capabilities must be moderated by the regulators and financial service providers to insure:
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