GROWTH THROUGH COLLABORATION

Akber Jaffer, Chief Commercial Officer, Marketplaces and TEMS, Finastra

 

Open Banking has been slowly incentivizing change in financial services from digital transformation to greater collaboration and data sharing.

Recent research conducted by Finastra (prior to the pandemic), based on the opinions of over 750 banks worldwide, found that 86% of global banks surveyed plan to use open APIs to enable Open Banking in the next 12 months.

This is an encouraging trend but, as we learn to live with COVID-19, the march to digital transformation has accelerated significantly. Banks and financial institutions are navigating how to squeeze what would have been years of innovation into months. It’s no mean feat but Open Banking is one area which is helping banks better serve customers with digital services.

Open Banking is exploding the offerings from banks and single-service fintech providers alike and the pieces are falling back to earth and taking on new forms as they do so. What has been unbundled is now being re-bundled in brand new ways. Digital platforms are providing a framework in which these new bundles – or ecosystems – can organize themselves.

 

The move to platform

A platform-based approach enables the industry to evolve beyond traditional business models and to build more expansive and flexible ecosystems that better serve customer needs. It gives banks and financial institutions an opportunity to provide not just the products and solutions they develop themselves, but those of complementary third parties.

In this business environment, we need dynamic and nuanced business models. The move to platform allows a change to take place in the way fintechs and incumbent financial institutions relate to each other – blending fintech creativity with traditional banking experience and scale.

Platformification can be broadly delivered through three models. These are:

  • One-to-many – This is where large banks such as Santander have made their proprietary platforms available, exposed their APIs and invited application creators to create services for end-users.
  • Many-to-many – Vendors like Finastra offer open technology and customers across retail, capital markets and corporate banking, and act as an intermediary between financial service providers and application creators.
  • Startup – Providers such as the UK’s Starling Bank open up platforms to allow fintechs and application creators to provide functionality for their customers.

 

To succeed, these platform models need open architectures, providing flexibility and resilience to expedite the adoption of new technologies at reduced operating costs.

In this scenario, banks must define what they want to achieve and lead an incentivised project from the top. A platform-based business without a clearly articulated goal is unlikely to succeed.

 

Freedom to innovate

To succeed with a platform model, banks and other industry players need the freedom to invest in R&D within a favourable regulatory environment. But can this final critical element be realized?

Our research also found that regulation is perceived to be tighter than a year ago, with industry and government support required to foster innovation.

Almost half of those audited believe that regulations are holding back innovation: 48% stated that ‘regulation is too tight’, 10% more than in 2019. We also found that the cost of fintech development or R&D is of particular concern in the USA, UAE and APAC regions.

Like the restrictive conversation describing the traditional relationship between banks and fintechs, the concept of innovation being siloed off into the realm of regulatory sandboxes is perhaps becoming out-dated.

83% of financial institutions and banks agree that regulations regarding fintech innovation should be harmonized between different geographies. It’s now time to create joined up regulation and invest confidently in R&D to power financial services through these turbulent times.

Open Banking and open APIs, critical for the platform model, will enable fintechs, big techs and banks to collaborate and innovate. We must, at this time, broaden the conversation as financial services becomes ever more democratized, and we must encourage creativity and co-innovation wherever possible.

 

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