A guest contribution from Dr. Cyrosh KalatehRegional Director DACH at Tink.
In an increasingly complex world, both consumers and businesses are actively looking for financial services providers that help them achieve their financial goals in the simplest, most understandable and convenient way possible. The fewer steps it takes to solve a problem, the better. Open Banking offers financial services providers a unique opportunity to do just that – to change the way people and businesses manage their money and revolutionize the financial services industry in the process.
It gives courage in the first part of our 2020 Open Banking Report to see that this insight has reached financial executives – and has resulted in open banking investment hunger and Fintech partnerships. The number of European financial institutions with a positive attitude towards open banking has increased significantly. This is not just lip service, as the investments in open banking show. The recent study shows that the median expenditure on open banking is between 50 and 100 million euros, with 45 percent of financial institutions stating that their expenditure even exceeds 100 million euros. This is what I call a ravenous appetite for open banking!
Nevertheless, some financial institutions have not yet tapped the true potential. Those that approached open banking as a mere measure of PSD2 compliance rather than as a strategic initiative are now left behind. They do not see the big picture for their organisation and do not create value for themselves or their customers.
To be truly successful and reap the short and long-term benefits of open banking, financial institutions must look beyond compliance and be prepared to innovate. If they remain savvy, agile and open-minded, they have a great opportunity to stay ahead of the competition and improve their customer experience. But how can they achieve this?
An Open Banking business strategy must be
While our data show that there is a high level of confidence in open banking, it is also true that many financial institutions do not fully understand its benefits. This prevents them from seeing it as an opportunity. Ultimately, it is the institutions where managers are able to embed the opportunity of open banking in a clear strategy, those who will ultimately reap the most rewards for their efforts. Those who do not focus on immediate returns, but on medium and long-term strategies, are the ones who are ahead.
The good news is that, according to our data, 58 percent of financial institutions say they already have a clear strategy for open banking. The survey also shows that some financial institutions already see open banking as a long-term strategic plan. But there is also a growing number of executives who see the opportunity for short-term value creation with quick profits. The two are not necessarily mutually exclusive.
The truth is that open banking offers significant opportunities for financial institutions in both the short and long term. The benefits should not just be seen as something to be enjoyed in the distant future – some are already ripe for the picking, others need a little more patience. Regardless of whether an institution pursues a long-term or short-term strategy, both offer their own advantages. It is a journey that is likely to start with elementary use cases and develop over time into challenging use cases.
Specifically, the institutes are currently prioritizing the first phases of the customer journey. Many of them are considering Open Banking to improve the KYC process, simplify their onboarding and thus accelerate remote access and digital access to financial services. This is also where they expect the greatest short-term return on their investment.
Fintechs can help to implement open banking strategies
However, financial institutions must not only have clear strategies, but also invest time and effort to forge partnerships with Fintechs.
Search partnerships provide financial institutions with the necessary technology, expertise and vision to drive value creation in open banking. It is therefore extremely encouraging to see that across Europe, 69 percent of financial institutions have increased their number of Fintech partnerships in 2019. in addition, the vast majority of managers also state that they work with more than one partner – some even with more than five – to achieve their open banking goals.
However, before entering into a Fintech partnership yourself, it is important that you thoroughly examine the technology offering of a Fintech, while carefully scrutinizing its capabilities in terms of support, security and integrity.
For a partnership to really work and reap all possible benefits, Fintechs must be equipped to deal with the complex procurement processes and onboard requirements of many banks and be aware of the strictly controlled and regulated environment in which banks operate.
These types of high-quality, strategic partnerships will be crucial in creating both short and long-term value for financial institutions and, consequently, for their customers. Finally, the positive change in attitudes towards open banking is proof of the incredible work that companies have done to meet regulatory deadlines.
But there is still a lot to be done before they can take full advantage of the benefits. As the coronavirus, among other things, is accelerating the shift towards digital channels, I expect this positive attitude to continue to grow. More and more financial institutions will focus on the digital transformation of products and services. Open banking has come to stay.
To the writer:
Dr. Cyrosch Kalateh is Regional Director DACH at Tink. This year, the Swedish Fintech opened its first German location in Düsseldorf, which is managed by Kalateh. Previously he was he Vice President Partnerships is part of the management team of auxmoney.