The following article is an adapted transcript based on the audio recording of Season 3, Episode 2 of the Mr. Open Banking podcast. The audio version is available here.
Despite the doubts of skeptics, the open banking movement is here and it’s evolving quickly. Right now, over 50 regions around the world are in various stages of implementing open banking, while some are already moving into the next stage of the progression: open finance.
In the most recent episode of the Mr. Open Banking podcast, I sat down with Amit Mallick, the Global Open Banking Practice Lead at Accenture, to discuss the threat posed by open banking, and how major players like big banks can respond as they adjust their strategies to compete and succeed in the new financial ecosystem.
Amit has over 20 years of consulting and technology experience in the financial services industry. In his current role, he engages with many of the top international banks and regulators in addressing the open banking and open API agenda.
He has managed multiple international projects involving open banking strategy, regulatory models, GDPR, consent management and program delivery. A frequent speaker at industry conferences and contributor to thought leadership articles, Amit’s expertise extends well beyond open banking into the realm of APIs, including API technology enablement, program management and the building of open data ecosystems on it.
During the episode, Amit shared his perspective on exactly what’s at stake as we transition to an open data economy ($416 billion in bank revenue, to be exact), how banks can best respond to the coming disruption, and how to discover entirely new kinds of opportunities.
Raising the stakes
According to a recent report from Accenture titled Catching the Open Banking Wave, up to $416 billion of banking revenue is at stake in the transition to an open data economy. I asked Amit to explain how the team at Accenture arrived at this figure, and why it’s important that big banks, other stakeholders and especially, skeptics, pay attention to it.
“We looked at banking revenue pools and different geographies. We looked at the percentage of transactions which originated from other channels beyond banks or an existing channel. We looked at demographics in a given region to try to understand the propensity of customers who would adopt open banking or embrace open banking. We looked at businesses and large corporations who would have a tendency to build these APIs, which would support the open banking agenda. And when you start crunching all of those numbers, all of those revenue pools, you start formulating a view of the revenue pool which open banking might attract.”
Around the world, different regions are at different stages of the finance transformation. Open banking is morphing into open finance, which will ultimately transform into the world of open data. Eventually, all financial services will be accessible through APIs, which means that industry players who weren’t able to tap into financial data in the past will soon be able to manage customer data to launch more integrated journeys for customers.
According to Amit, this is where the real threat lies.
All the right stuff
With so many players all trying to stake a claim for this revenue, what should big banks be doing to ensure they don’t miss out on their market share?
Amit says big banks should be thinking about three things: new use cases for open banking that can be improved upon, the open banking ecosystem and their role within it, and finally, getting the right operating model and organizational structure in place to support the new framework.
“You really have to have the mindset, you need to have the partnership mindset. You need to be agile and nimble to be in this space. And last but not least, you need to have the right technology stack.”
According to Accenture’s report, the problem can be broken down into four core capabilities:
- Data Custodianship
- Data Management and Analytics Mastery
- Agile Partnership
- Trusted Security
Strengthening these four capabilities is a key part of open banking success.
Investing in APIs
Another feature Amit often discusses alongside these four capabilities is investing in APIs and the developer experience. Thus far, many big banks have adopted the view of APIs as products, but few have invested in them and in the developer experience in the same way they might invest in a credit card or a mortgage.
According to Amit, this is because many of the big banks are still too focused on the old legacy systems to fully embrace the API-first mindset.
“I think larger banks have been too focused around dealing with the intricacies of their legacy, their existing system of records, and trying to grapple with the complexities around extracting data on services which might save them a 24-year-old system and making it available to the external ecosystem at the moment because of all of the other challenges they face. It seems to me that this is lower down the priority in terms of things to do. I think the API-first mindset or the lack of it is also contributing to this.”
With this in mind, banks in emerging markets hold an advantage over banks with a strong legacy because they’re more agile when it comes to adopting a digital mindset.
Blurring industry lines
One of the keys to unlocking the full value of open banking is embedded finance. Amit agreed with this sentiment, and even took the idea a step further.
“I strongly believe that open banking is a two-way street. So it’s about having your banking capabilities available to other channels and better than other digital experiences or actually apps consuming services from other experiences and really enhancing your banking experience. I believe that there are great examples of how banks have been embedding financial services into other charities and I suppose how banks have been connecting it to other industries and bringing those services into banking.”
The competition doesn’t just come from fellow banks. Increasingly, we see non-banks like big tech and telcos moving into banking in response. We even see some of the more ambitious banks moving into non-banking sectors, like ride-hailing or travel. The lines between industries continue to blur.
From open banking to open data
As we’ve already explored, the open data revolution is the final step in the open banking movement. Amit offered an explanation of what it truly means to have an open data economy, and what we can expect to see moving forward.
“I think over the next few years there will be access to a range of data, whether it is banking data, whether it is retail data, whether it is telecom data, whether it is data from other industries. And this is what we talked about looking at all of the data. I think nobody knows exactly how to utilize this data and what sort of innovation or improvement it can drive, either with existing journeys or incompatible journeys. Which is why I say the battle ground will be data people, organizations, or people who are able to understand that and build new products and services which use this new available data.”
This kind of economy will ultimately open the door not only for non-banks to get into banking, but for banks to get into non-banking services to address their customer’s daily needs.
As partner networks grow ever more complex, the difference between a bank and a non-bank will become little more than semantics. Amit offered some advice on how to grapple with this shift in the future:
- Remember the four core capabilities: data custodianship, data management and analytics mastery, agile partnership and trusted security.
- Remember to treat your APIs like real products and your developers like real customers.
- Remember who you’re doing all this for: the people who trust you to be their bank. Always be sure you’re making their lives better.
- The final piece of advice is this. Think big—$416 billion big. The change that’s coming will alter banking forever. If you’re a bank, your challenge is how to turn this threat into the opportunity of a lifetime.
The rise of open banking is going to change financial services forever, and we will be covering that story every step of the way.
Learn more about Amit and his work here.
Visit Mr. Open Banking @ mropenbanking.com.
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