Ecosystems in the era of Open Banking
In my role with Temenos, I have been privileged to work with a huge variety of banks and financial institutions across the globe and to see the amazing things that our customers are doing to reinvent the way we as consumers, access, manage and improve our finances.
Having been in the technology world all of my career, the disruption I see emerging looks a lot like the disruption we saw in technology in the areas of Cloud and Analytics.
With the emergence of the Open Banking movement spurred on by PSD2 and with similar legislation being adopted around the world, the need for technology skills in banks has never been higher and the type of skills, has never been more diverse and outside of the traditional “normal” operational and organizational skills set. This need for new types of skills in banking has contributed to an “arms-race” for talent. Banks are increasingly driven to innovate new digital services for customers expecting an “always on” means of interacting with their money.
These days banks are hunting for skills like user experience designers, API Operations and even social scientists and psychologists to evaluate the optimal user interaction strategies. The implications of this transformation are clear: move forward proactively or get left behind.
Building a Digital Ecosystem
So how do you avoid being marginalised in a competitive and increasingly dynamic market for innovation? Building a digital ecosystem is critical and the definition of a banks’ ecosystem is dependent not only on its features and options, but also one that supports its brand and most importantly its customers. This need for innovation at pace and scale, as well as the increasing demands in the market for developer talent, is leading to the growing adoption and expansion of partner ecosystems to support the delivery of innovations to both customer experiences and process improvements.
This has put the developer at the heart of this exploding digital ecosystem. It has increased the need to provide effective support to developers for integrating tools and experiences into the bank’s existing infrastructure, a challenge in itself. How do you give developers outside a bank access to the tools and information they need to integrate ecosystem applications whilst providing a means for supporting internal innovations that leverage both external partnerships and internal skills?
Supporting internal and external developers delivering innovative programs in this sense means empowering them with published APIs and the necessary tools, workbenches and frameworks to name but a few. This has led to the obvious and rapid proliferation of Developer Portals across the banking landscape with many of the major institutions rolling out their own version of API hubs and developer portals.
Open Banking and leveraging APIs
Open Banking mandates the use of APIs to open up data to other banks and 3rd parties. This requirement has driven the development of APIs that match the regional specification for Open banking legislation that has either been developed or is being developed. In order to use those APIs the bank must logically publish them and make them publicly available for anyone to access and use. A developer portal is the most common vehicle used to give developers’ access to those APIs, their documentation, along with sandboxes for experimentation. A good portal is the means to build relationships with a developer community that can in itself provide new ideas, new innovations and provide early identification of any issues with integrations.
In this rapidly evolving ecosystem, speed is of the essence and variety is the key to differentiation for banks. I tell customers that it is not a product that gets the new breed of customers through the doors to their institution, it is the experience with the bank that generates the customer engagement. Unfortunately in the past, banks have often focused on developing multiple products for segments only, ignoring the experience or the desire for more personalised, more relevant products. However, this has been changing over the last ten years or so as banks seek to reflect changing customer needs and changing customer behaviour.
What is not going to change is that the banking customers will continue to seek the best experience, the best price, the best relationship. It could well be that the ecosystem of digital services means that a banking customer will have a portfolio of banking services dependent on their specific needs. It’s already conceivable that some of these financial services could be provided by challenger banks, others by existing relationships with the big technology providers, dedicated payments services alongside their existing more traditional banking relationship.
Re-engineering Innovation Strategies
All of this rapid change and push for innovation means that some banks need to be brave and re-engineer their innovation strategies to identify the best way to deliver new products and services to market. The method itself, published APIs, partnering with fintech technologies, or building them in-house or indeed a hybrid of all three is rapidly becoming less important than the fact that institution is supporting these different methods of execution.
Why? The competition from many challenger banks is often borne from a customer need and without the burden of legacy systems and thinking, they are able to quickly iterate to identify the best way to service this need. It is this context that requires more traditional banks with legacy systems to think outside the box and meet this customer centric approach with an innovation program that meets their customer needs in new ways. It is also the driver for letting go of legacy thinking about the internal systems of the bank itself to move toward newer platforms and Cloud-based solutions.
Solving the Challenge
The complexity of banking, banking regulations, security, and a competitive market means that it is not unusual to come across scenarios where new capabilities are needed by banks, but there isn’t the desire, resources, or time to build the solution internally. Banks are increasingly looking to their ecosystem of technology partners to deliver these new capabilities through integration. Where gaps in capabilities may exist, smarter hybrid solutions using partners to supplement a banks’ technology can offer the deep knowledge of a specialist area which could otherwise be cost prohibitive to build themselves.
These ecosystems often coalesce logically into a financial services Marketplace, which offers new fintech technologies to banks and the bank’s customers, delivered in a controlled way, and with a level of pre-verification that ensures the banks are not starting their due diligence from scratch. This means of “pre-verifying” partnerships helps to short-circuit the regulatory process and speed up the adoption of a new partner without spending months in audits and reviews. This is critical because often the gap in the market to be filled won’t wait for regulatory processes to catch up!
Whatever the need there is no doubt that API strategies, API enabled innovation programs, ecosystems of partners and providers, developer portals, are all here to stay. I look forward to supporting and developing our abilities to deliver comprehensive and effective developer communities in the banking industry and helping support these new approaches to the demands of open banking.
