Seizing the Opportunity: From Open Banking To Open Finance – Part 2

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The Path Forward for Banks and IT Vendors

Open banking has the potential of bringing fundamental change to the value chain. However, it also rises considerable risks and opportunities for the financial industry.

As such, Celent provides several recommendations. On one hand, that financial institutions should look to follow to maximise their response [1]. On the other hand, that vendors should embrace to grasp opportunities from Open Banking and Open Finance ecosystem [2].

On the bank side:

• B2B or hybrid models. “Taking into consideration B2B or hybrid models may present new opportunities for banks that want to explore these models, such as supporting other banks or TPPs that wish to leverage the access that a regulated institution can offer”;
• Coping with the growth of the third-party provider ecosystem. “By viewing TPPs as viable partners to bring new capabilities to the banks’ businesses, and establishing partnerships”;
• Support the growth of the ecosystem. “Play an active role in shaping the industry conversation around open banking, notably in driving agreements over standards, dispute resolution frameworks and broader customer engagement campaigns”;
• Investing in the user experience. “Investing in services that move beyond either minimum regulatory requirements or market expectations to build the knowledge and capabilities needed to further succeed in this ecosystem, as well as providing a foundation for future monetisation”;
• Build plans to embrace Open Finance. “Begin to consider how to prepare themselves to both adapt and take advantage of Open Finance. In part, this will be a case of enablement; putting in place the technical requirements of exposing APIs on a broader range of products. Consideration must also be given to how to take advantage of the opportunity this presents. While this will initially build on the existing experience of Open Banking, the potential to become truly innovative is considerable”.

As with Open Banking, banks will need to test quickly and fail fast on Open Finance. Being a new business model, they will need to adapt and learn how to overcome barriers.

On the vendor side:

• Winning new customers and deepen existing relationships. “Open Banking has moved beyond being a question of exposing APIs to third parties and has already become a question of a long-term strategy for many institutions. This realisation is hitting others and creates opportunities for incumbent vendors. Particularly to help shape and build strategies for the long-term. These opportunities are likely to remain product-centric in the short term at least, which aligns well with the product-centric nature of the way that most vendors currently go to market”. The most important thing for vendors to consider is that we remain in the early days of the changes that open banking will bring;
• Move fast. “It is easy to see the challenges that Open Banking presents for both retail and corporate banking, and this brings huge opportunities for the vendor ecosystem. With banks across all major markets looking to shape their long-term response to Open Banking, vendors must view their current propositions through this lens”;
• Look to the TPP ecosystem when shaping their product roadmaps. “A growing number of ISVs are investing in some form of fintech marketplace, to provide clients with easy access to a carefully curated list of small and innovative potential partners. In almost all cases, these are pre-integrated to facilitate a rapid onboarding process for the bank client. As a strategy to deepen customer partnerships and build stickiness for key product offerings, this is extremely sensible”;
• Look to Open Banking as a vehicle for enhancing their offerings as well. “Large banks in particular struggle to bring fintech offerings into their technology stack, and this will present opportunities for trusted vendors with strong delivery capabilities to bring open banking-driven innovation directly into their existing product sets. Digital banking is an obvious area of course but is by no means the end of the story. Payments, lending, and even adjacencies such as accounting are all clear opportunities”.