By Philip Parker, Head of Architecture and Integration, Devoteam UK
Open Banking, an initiative from the Competition and Markets Authority, builds upon PSD2 (Payment Services Directive) by not only mandating that banks must open up a set of data and functions to third parties, but must do so in a secure and standardised fashion via APIs. This will lead to greater adoption and quicker time to market for projects in the UK that consume Open Banking products.
Despite there being a high number of competitors in the UK retail banking industry, customer churn remains relatively low. It is anticipated that Open Banking will increase fluidity in this market because of the ease with which customers are able to move between products.
Furthermore, Open Banking reduces the barriers to entry to other financial institutions and disruptors.
I am reminded of the words of Professor Klaus Schwab, founder of the World Economic Forum: “In the new world, it is not the big fish which eats the small fish, it’s the fast fish which eats the slow fish.”
Banks will either need to embrace the opportunities Open Banking presents or risk being disrupted and lose market share, as we have witnessed recently in the retail industry where many high street retailers have seen their revenues decrease due to online retailers, such as Amazon.
At the time of writing, the UK’s nine biggest banks and building societies are forecast to be compliant with Open Banking regulations. This article will therefore focus on challenges, opportunities and lessons learned in order to help those having to comply with PSD2 across Europe and other countries that adopt Open Banking in the future. We will also look at the key ongoing opportunities that Open Banking presents.
Business challenges and opportunities
Understanding customer behaviour helps customise experience
Through the aggregation of data available via Open Banking, financial institutions can adopt a Netflix-like marketing strategy towards their customers. In the immediate future banks will use the available data to ascertain a greater understanding of credit risk and propensity to buy other financial products.
Customer experience – now more important than ever
Historically choice of bank was heavily influenced by friends and family, proximity of branch and gateway product offering, such as student loans. Increasing fluidity will see customer experience become of primary importance to the success of financial institutions. Central to customer experience is the satisfaction with digital channels. There are elements of first mover advantage, usability, latency and intimacy.
Customers still worry about security – banks need to take advantage of their brand now
Despite the very public banking IT failures we’ve seen in 2018, consumers continue to trust their bank more than organisations in other industries. There is a window of opportunity here…
I know I’m still going to trust a bank over a brand that isn’t in the financial industry when looking after my financial information. I’m thinking of one of the basic things that Open Banking will give me: a holistic view of all my financial information across banks in one place.
However, as adoption grows this fear will lessen just as we saw with the cloud, and so the opportunity for banks to gain market share with new products and services lessens as the competition increases.
Technical challenges and opportunities
Functions and data made available – use APIs and API management and monitoring
Initially banks will need to ensure that internal functions and data required by Open Banking are made available in a well-described and easily consumable manner.
The standard and recommended approach is to use APIs to create interfaces that expose said functions and data either using microservices or integration products. These functions and data must be secured and well governed. An API management and monitoring platform such as 3scale or Apigee provides this capability.
Risk is a major consideration when opening up APIs to the internet. This can be mitigated by using recommended security protocols and mature platforms.
So you’ve got a API management platform – what now?
Some banks already had an API management platform, others will have had to procure one. In both cases after implementing the platform they will have a capability that provides agility and security to respond quickly to market changes.
Some organisations will do the minimum to demonstrate compliance with Open Banking. The opportunity here is to exploit this platform in other areas by making it a strategic capability. Whilst many organisations drive the use case for an API management platform based on externally facing APIs, there are significant benefits in using it both internally and externally.
In a recent example of best practice the API management platform was mandated for use with all APIs. The primary advantage it delivered was extensive reuse across the organisation. This drove adoption within the developer community as it lowered the barrier to entry and moved the organisation away from duplicate siloed functions and shadow IT.
The result was faster, lower-cost, high-quality project deliveries which had a direct impact on transaction completion rates and improved customer experience.
The race to be compliant – know what you’ve got, all the time
When the Open Banking regulations were published in 2016, banks were at various stages of API maturity. Some had platforms in place already and the relevant functionality was available in some form. Others had neither the platforms nor the knowledge of what capabilities they had, so the first long and painful step was to complete a current state assessment (As-Is) to understand the data and technical capabilities required. Without this there was no visibility or certainty around the costs and timelines for implementation.
It is recommended that organisations mitigate this by understanding the ‘As-Is’ Architecture of Integration and Data in order to draw a baseline which in turn allows the creation of a roadmap for implementation.
Existing integration platforms are the foundation for change at speed
Now more than ever integration platforms are either a fundamental enabler or a blocker to the success of the business. Historically the consequences of moving slowly were limited. However, this is about to change and means integration should now be top of every CIO’s agenda.
The scope of the integration discussion should go beyond the technology platform or product to include:
- Standards, guidelines, patterns and best practices
- Project methodology
Open Banking should been seen as an opportunity rather than a tick-box exercise to demonstrate compliance.
There is a current window of opportunity where banks have an advantage over other market entrants. However, with that opportunity comes competition and disruption which removes the monopoly they have enjoyed previously.
The foundation of any company that wants to move fast to avoid being disrupted is a mature integration platform and the practices around it. This includes APIs and API management and monitoring. The other critical success factor is to create and maintain an accurate picture of the overall IT landscape.
With these boxes ticked banks can move fast at this critical point in time for the industry.
Devoteam works with organisations to help them understand their current landscape and maturity and develop a roadmap for adoption and increasing the maturity in line with their business drivers. An API maturity assessment will identify the areas for improvement across people, process, technology, culture and governance. Devoteam helps organisations meet compliance and regulation requirements including GDPR and Open Banking. Our clients include a large retail bank based in Edinburgh, which we assisted in its journey to become compliant with PSD2 using API management platforms.
To discuss how Devoteam can work with your organisation on integration, APIs and microservices please contact Eelco Gelton (email@example.com), Senior Integration Consultant at Devoteam.