The Hammer Finds Its Nail: Open Banking and Commercial Cash Management
Globally, the Open Banking story has been shaped by Europe, thanks to PSD2 (The Revised Payment Services Directive) and the effect that it will have on us as everyday consumer banking clients. This will forever change our experience with financial tools for the better.
The banks that have traditionally served us will modify their models to support the foundational layer of a new ecosystem of co-invention and partnership. This story is all well and good, but so far most – if not all – of the discussion has surrounded the consumer experience and has neglected where the most fertile ground for change and disruption lies—corporate and commercial banking.
Corporate and commercial banking provide fertile ground for change
Traditionally speaking, advancements in consumer banking find their way into the commercial market in 5-10 year horizons; there have always been early technology movers, however the market itself traditionally trailed as change wasn’t embraced by all.
That said, as the technology-driven revolution in the consumer space has accelerated over the past 10 years, so too has the adoption in the corporate space. What was once a 5-10-year window has conceivably shortened to 1-3-year timeframe, and the chance for “leap-frogging” in technologies and practices has arisen as small tech startups are suddenly turning into corporate clients.
The chance to capitalize on the trend of Open APIs to help deliver net new experiences—direct to your clients—could not be more well-timed in the history of the market.
The US offers a different path for open banking
Unlike the regulated markets in Europe, where open banking models supported by Open APIs are being mandated at the consumer market level, the US has an opportunity to apply this technology and learnings to the area where the greatest opportunity lies. This is because those clients in the commercial banking space don’t start with the “Free Checking Account” product. The expectation in this market is based on service and experience, and the willingness to pay for both is not lost on either party.
When you look at the potential value of being able to break down various products into services that can be packaged and delivered to each customer uniquely, the pandora’s box of potential springs open. The utopian promise of individually-tailored solutions appears within reach, and the best thing about it is that the bank may not even have to know what the experience looks like on the corporates’ end – just that the information they need for the cash management services they are supporting is being delivered to their systems.
In a way, this is a continuation of the direct bank connection model (albeit on steroids) as it can be consumed by commercial clients of all levels, so long as they have the right technology folks or vendors sitting on their side. That’s the beauty of Open APIs; they are intended to be consumed by non-subject matter experts, whereas the APIs of yesteryear required deep levels of product knowledge to even start using them.
Where does that leave us? As the Open API revolution is well underway globally—and that is true for here in the US as well—it is time to roll up our sleeves and ‘get dirty’ with this technology trend. Almost as importantly, it’s time to prepare your organizations for the cultural shift that Open APIs bring with them, because the innovation may just as likely come from outside your walls as from within!
The payments industry is going OPEN – open technology (APIs), open collaboration (partnerships), and open choices (more customer options). The impact will be more innovation and greater competition. Read more in our paper “Open Payments and Their Impact on Banks”
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