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December 19, 2016
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The Business and IT Implications of the UK Open Bank Standard…

The first post in this series (https://hortonworks.com/blog/banking-innovation-uk-open-bank-project/) discussed the emergence of the Open Bank Standard Working Group (OBWG) in the United Kingdom. The goal of this standard is to encourage the open and secure sharing of banking data among providers – via open APIs-  thus providing more banking service choices for consumers. 

 Open Banking Standard will spur immense industry changes..

The Open Banking Standard (OBS) represents a vast opportunity for banking organizations in multiple ways. First off, Bank IT has the luxury of using the regulatory mandate to slowly re-architect hitherto inflexible and siloe-d business systems. Secondly, doing so will enable Banks to significantly monetize their vast data resources in several key business areas.  

This will need to change with the introduction of Open Banking Standard. Banks that do not change will not be able to derive and sustain a competitive advantage. PSD2 Compliance (Payment Systems Directive – 2) – which will be mandated by the EU is one of the first layers in the OBS. Further layers will include API standards definitions for business processes (e.g View Account, Transfer Funds, Chargebacks, Dispute Handling etc). 

The OBWG (Open Banking Working Group) standards include the following key constituencies & their requirements [1] – 

 1. Customers: defined as account holders & businesses who agree to sharing their data & any publishers who share open datasets 

2. Data attribute providers: defined as banks & other financial services providers whose customers produce data as part of daily banking activities 

3. Third parties: Interested developers, financial services startups aka FinTechs, and any organizations (e.g  Retail Merchants) who can leverage the data to provide new views & products

Business Implications

The five business implications of Open Bank Project –

  1. Banks will be focused on building platforms that can drive ecosystems of applications around them. Banks have thus far been largely focused on delivering commodity financial services using well understood distribution strategies. Most global banks have armies of software developers but their productivity around delivering innovation has been close to zero. Open APIs will primarily force more thinking around how banking products are delivered to the end consumer. The standards for this initiative are primarily open source in origin, though they’re widely accepted across the globe – REST,OAuth etc.
  2. However it is not a zero sum game, Banks can themselves benefit by building business models around monetizing their data assets as their distribution channels will go global & costs will change around Open BankTo that end existing Digital efforts should be brought in line with Open Bank Standard  The best retail banks will not only seek to learn from, but sometimes partner with, emerging fintech players to integrate new digital solutions and deliver exceptional customer experience. To cooperate and take advantage of fintechs, banks will require new partnering capabilities. To heighten their understanding of customers’ needs and to deliver products and services that customers truly value, banks will need new capabilities in data management and analytics. Using Open Bank APIs, developers across the world can create applications that offer new services (in conjunction with retailers, for example), aggregate financial information or even help in financial planning. Banks will have interesting choices to make between acting as Data Producer or Consumer or Aggregator or even a Distributor based on specific business situations.
  3.  Regulators will also benefit substantially by using Partner APIs to both access real time reports  & share data across a range of areas. The lack of realtime data access across a range of risk, compliance and cyber areas has been a long standing problem that can be solved by an open standards based API framework [2].  E.g.  Market/Credit/Basel Risk Based Reporting, AML watch list data and Trade Surveillance etc.
  4. Data Architectures are key to Open Bank Standard – Currently most industry players are woeful at putting together a comprehensive Single View of their Customers (SVC). Due to operational data silos, each department possess a siloe-d & limited view of the customer across multiple channels. These views are typically inconsistent, lack synchronization with other departments & miss a high amount of potential cross-sell and up-sell opportunities. Data lakes and realtime data processing techniques will be critical to meeting this immense regulatory requirement.
  5. Despite the promise, large gaps still remain in the Open Bank Project. Critical areas like project governance, Service Level Agreements (SLA) for API users in terms of uptime, quality of service are still left unaddressed.

 Open Banking Standard will spur business immense changes..

Prior to the Open Banking Standard, Banks recognize the need to move to a predominantly online model by providing consumers with highly interactive, engaging and contextual experiences that span multiple channels—branch banking, eBanking, POS, ATM, etc. Business goals are engagement & increasing profitability per customer for both micro and macro customer populations with the ultimate goal of increasing customer lifetime value (CLV). The Open Banking Standard brings technology approaches to the fore in terms of calling it out as a strategic differentiator.  Banks need to move to a fresh business, data and process approach as a way of staying competitive and relevant. Done right, Open Bank Standards will help the leaders cement their market position.

The Open Banking Standard will also steward the development of layers of guidelines (API interoperability standards, data security & privacy and governance) which primarily deal with data sharing in banking. The belief is that this regulation will ultimately spur open competition and unlock innovation. For years, the industry has grappled with fundamental platform issues that are native to every domain of banking. Some of these include systems are siloe-d by function, platforms that are inflexible in responding to rapidly changing market conditions & consumer tastes. Bank IT is perceived by the business to be glacially slow in responding to their needs.

The next post will delve into the key portions of the standards and the downstream IT implications.

REFERENCES…

[1] The Open Banking Standard –
https://theodi.org/open-banking-standard

[2]Big Data – Banking’s New Weapon Against Financial Crime – http://www.vamsitalkstech.com/?p=806

 

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