Welcome to Open Banking – Era of Digital Disruption for Banking
Open Banking brings a platform for digital disruption to banking.
OpenBanking.services is a new best practice community. It is an emerging technology trend now breaching the mainstream, as this daytime TV slot demonstrates:
It will act as an accelerator of an already transforming industry, engendering highly disruptive business models that will shake up and ultimately destroy legacy institutions that don’t adapt.
As FinExtra writes banks are living through an “extinction phase” as they look to survive the asteroid that is digitisation and the new competitors it ushers in, warns Stephen Bird, global CEO, Citi, speaking at the Hong Kong Fintech Week conference.
“Within 12 years time, 80% of financial firms will either go out of business or be rendered irrelevant by new competition, changing customer behaviour and advancements in technology, according to a forecast this week from Gartner.”
Threats will come from all angles. This will include pure play digital banks – Revolut obtained a Swiss IBAN number to continue their aggressive expansion, and from new entrants leveraging their massive technology capabilities, like in Lithuania Google being granted an electronic money licence.
The threat is considerable. Not only do digital banks offer the type of convenient services that consumers crave in this day and age, furthermore new challenger banks are trusted more than the traditional big five.
Of course existing players can harness the same forces and utilize their legacy to their advantage. For example Western Union is digitally transforming themselves for a new era of global money transfers.
Open APIs – Foundation for Ecosystem Product Platforms
The keystone foundation are Open APIs and this foundation will make possible an entirely new generation of financial products and services.
ACI asks the core question of what Open APIs will mean for banking business models, and Cap Gemini explores a rethink of the new revenue models possible. For example Banking Technology highlights how better use of data could enable more SME lending.
Bluestone Mortgages launched the pilot phase of its Open Banking solution, saying it is the first specialist mortgage lender in the UK to incorporate the service as part of its core underwriting process.
Open APIs are the core component for building ‘Platform’ ecosystems but they alone do not represent achieving this business model. Tolga Tavlas makes this point writing for FinExtra, suggesting an evolution where Open Banking is the first steps of primary school and adapting strategically to a Platform model the progression to university.
This is a critical point repeated by Cap Gemini too – In their Open Banking article they highlights how Open Banking APIs are one step on a broader journey towards a digital marketplace model.
In short the trends that swallowed up industries like taxis and hotel bookings, that entirely obliterated traditional incumbents like Blockbuster videos, is coming to banking, and as such we’ll see the same scale of creative destruction and innovation.