The Art of Open Banking, Part 1: Laying Plans
Read Part 2: The Art of Open Banking, On the March
I recently had a great discussion with @digitalbankguru (aka Mark Ranta) and @Lui_Zurawski (aka Lu Zurawski) on what it takes to be ready for the revolution in Open Banking. It was a truly global discussion, with stories from North America, Europe and Asia; the conversation part philosophical treatise and part strategy roadmap. Following is a summary of the first part of our wide-ranging discussion on preparing for the Open Banking era.
Open-Mindedness and Open APIs Are Both Necessary for Success in the Open Banking Era
Rachel Hunt: Banks are investigating the pathways toward ‘Open.’ Whether driven by regulation, or the need to compete in the New Payments Ecosystem, one of the questions often contemplated is: “Will this help deliver better customer services?” But often the first hurdle is how to prepare the organization. So, Mark, first up, how can the banks prepare for this open philosophy?
Mark Ranta: Well you have two sides to this story. The technical side, in other words the underlying infrastructure, and the organizational mentality required. Let’s address the technical side first. How do banks prepare for a digital ecosystem and pivot from a very bank-centric, product-oriented environment to systems that can be broken down to individual services? There are thousands of options, but there is a prevailing way that seems to be gaining consensus. It involves focusing on a middleware layer that allows banks to disconnect small pieces here and there and connect into the New Payments Ecosystem, while isolating their core infrastructure from disruption.
How can this be achieved? First look at underlying systems and make sure they are capable; i.e. they can adapt to the real-time, 24x7 reality of today’s payment and banking services. Second, you need to choose the bits and bytes you want to expose, and the order in which you want to expose them. But as I mentioned, there is also an important organizational shift required, but I’ll let Lu talk a bit more about this.
Lu Zurawski: Yes, it’s an important piece of the puzzle. I have a favorite saying; APIs are a technology, whereas the concept of Open APIs is more a state of mind, or a philosophy. Embracing and preparing for a digital and open ecosystem is not just about learning the latest techniques. There is genuinely a new mindset needed, specifically around collaborating with potential partners, seeking out relationships with these partners, and embracing the open mentality. You have to recognize the positives and the potential in exposing services to potential partners in a way that is discoverable and easily accessible. This is a philosophy based on how an organization and its partners can collectively design new customer propositions, which could not be achieved individually.
Getting into that mindset is quite a big leap, and the only way to jump is to start playing; talk with your technology and business partners, and engage in work groups and industry initiatives – there are quite a few in the open banking world. And they are not limited to regulatory-type initiatives, such as the second Payment Services Directive (PSD2) in Europe, either. This spirit of open banking collaboration is happening globally.
MR: That last point on bringing parts of the ecosystems together to create new value propositions requires a fresh look at the broader banking landscape, and how it can create opportunities for new services. It’s not ‘just’ replacing a legacy system or launching products with a slight upgrade or twist. It is creating a net new value proposition based on a net new experience. The ability to deliver this, or the way in which you achieve a return on investment, is very different.
RH: On that point, do you think this new philosophy will impact banks’ ability to innovate rapidly?
MR: It is not just the bank, it is the whole New Payments Ecosystem that will innovate. Banks have to think beyond their traditional business models, service offerings and innovation cycles. When you force the industry to think beyond the payment transaction, it starts to create interesting value propositions. The whole is greater than the sum of its parts, right?
RH: And it is bigger than just ‘open;’ people are also talking about digital transformation, immediate payments… is it correct to see these trends as interlinked?
LZ: In the way people engage in everyday life – whether it is in commercial or social interactions – there is a clear trend toward a digital, always-on experience. If we look at this through the lens of banking and payments, it’s obvious that there is an expectation that real-time for financial transactions or services accompany these experiences. However, banking and payment systems predate all these digital interactions. Card payments predate the evolution of online commerce. Clearly, the card industry has done a great job in keeping up to date, with various layers of security adapted to online, card-not-present (CNP) transactions, but current digital experiences require more than work-arounds, if we are to maintain the foundations and enable innovation. Therefore, we are seeing emerging technologies, including real-time payments and Open APIs, that are geared toward opening up access to accounts and the broader ecosystem. They are ‘digital native’ technologies, so to speak.
RH: Mark, are we adding complexity to a bank’s payments architecture, or is this an opportunity to simplify?
MR: Well, we are adding complexity, but we are also simplifying! For the past fifty years, we’ve been undergoing a technological revolution, but as we introduce new digital services, we also add more silos and integration layers. Today, as we try and break the bank up into smaller service components, we are also adding a different kind of complexity. Big, monolithic silos can be broken up into sometimes thousands of individual service components. Think of it as a Lego set; we currently have many houses built on our green Lego base. Over time, they have grown into large buildings. What many banks are trying to do now is break down these buildings to their individual block components, and rebuild them with a simpler and cleaner architecture. There are endless configurations, and it’s up to each individual bank. Ultimately, you have the same number of pieces you started with, but in being rebuilt they are displayed and connected in a completely new way.
LZ: And THAT is the basis of the open philosophy: It is forcing banks and processors to rethink what individual building blocks look like when seen by the New Payments Ecosystem community. This philosophy is about saying, “OK, I need to think about architecture that it is easily accessible and consumable by my wider partner community.” The complexity lies the project, not the technology itself. Stripping back to those individual building blocks orchestrating the internal ecosystem with Open APIs will be simpler, but it feels counterintuitive in a banking context where usually ‘redesign’ means ‘adding complexity.’ But, with open banking, the redesign itself simplifies the business. That is the easy part, though it can be a painful process to get there!
Discover more about the turning open payments into opportunity: Watch the video with Lu Zuwaski
Read Part 2: The Art of Open Banking, On the March
Related Blog Posts
Instant Payments in Italy – And Beyond: Lessons from Il Salone dei Pagamenti
ACI was invited back to Il Salone dei Pagamenti – Italy’s premier payments event organized by the Italian Banking Association (ABI) – to participate in a panel, “SEPA Inst – the Future.” As expected, the session was packed with stats and advice for a more efficient roll out of instant payments – in Italy and beyond.
Dedicated Followers of Fintech: Why Transaction Banking Never Goes Out of Fashion
Taking part in a panel at a recent corporate treasury conference, I was introduced as a ‘consumer payments expert’ – not an obvious qualification for sharing stage-time with serious corporate liquidity and cash management folk, but as the talk track was on mobile wallets and Open Banking, I had some reasonably safe and relevant content on which to fall back.
Sibos Preview: The Five Trends Transforming Real-Time Payments
Real-time is now a reality, with more than 30 schemes live around the world. And real-time is in the spotlight as banks and financial service providers make their way to Sydney for Sibos 2018. What better time to look ahead at the key trends that are going to shape the ongoing development of real-time payments.
API Management: The Reason Digital Open Banking Can Fly
When it comes to thinking about the different roles that an API Manager can play for an organization, I personally think that an airport provides the perfect analogy. The customer is the passenger, the third-party organizations using a bank’s APIs are the airlines and the airport itself is the bank. I also think this analogy helps to visualize the variety of API management capabilities – including the role of an API gateway.
Can Corporate Banking be as Easy as Ordering Pizza?
ACI recently hosted Greenwich Associates on a webinar to discuss corporate banking. While not a topic that would usually make attendees salivate, the discussion turned toward ordering pizza (maybe, because it was close to lunchtime) and Greenwich highlighted how corporate banking should be as easy as ordering pizza.
Modernizing Cross-Border Transfers with SWIFT gpi
The customer experience for domestic payments – retail and corporate – has recently undergone a complete transformation. There’s still plenty more that could be achieved, but the advent of real-time payments in combination with open APIs has seen the launch of Request for Payment services and direct eCommerce instant payments in the UK and Europe. And it’s not just the PSD2 push in Europe that’s driving change – in the U.S., Zelle is moving beyond standalone P2P payments to become an integrated part of the retail banking app experience, as well as being included in new kinds of corporate disbursements.
Instant + Open Payments = A Winning Combination
I recently joined a panel discussion at EBAday 2018, alongside representatives from across the payments ecosystem, and the clear consensus was that real-time payments will be the new normal. This was evidenced by some of the interactive polls carried out.
Maintain Vs. Invest: What the Digital Era Ushers in for Banks
Taking place this week in Brussels, the European Credit Research Institute (ECRI) will host a high-level debate on how policymakers can build on the process of digitalisation of banks to raise competitiveness in light of increased competition from fintech start-ups and tech giants.
How the Merchant Payment Ecosystem Can Create Value in Instant Payments
Recently, ACI conducted some research into the appetite to make use of instant payments among corporates. The results were overwhelmingly favorable, but when we think about the benefits of immediate payments for corporates, it does seem obvious that they would want to leverage this new payment type.
Real-Time Payments Will be Europe’s Most Dominant Payments System – Are You Ready to Realize the Full Value?
Since the launch of the SCT Inst rulebook in November 2017, many more banks are live and offering real-time payments to their customers, with most of the rest committed to 2018. The buzzword at the recent ECB #TIPSapp Event in Frankfurt was ‘Interoperability,’ or as my friend José Beltrán from STET would say, ‘Reachability.’ No-one expressed this more clearly on February 6th than Javier Santamaria, President of the European Payments Council, when he reiterated his message from Il Salone Dei Pagamenti, the day after the SEPA launch; "We have launched the Pan-EU scheme, now it is up to you in the audience and beyond to take advantage of it and make it work."