How open banking can foster innovation in the financial landscape

In a world that is adopting disruptive technologies such as digital cash, automation and artificial intelligence at incredible speed, it is incumbent upon companies to digitise and keep up with the pace of change.

Financial institutions are no exception.

As financial technology (fintech) and digital transformation continue to infiltrate the banking landscape, service providers must recalibrate their offerings to grow and retain an increasingly tech-savvy customer base. Open banking – among newer technologies – may emerge as a key differentiator for banks, who seek to leverage data to secure their foothold and unlock new revenue streams.

The benefits of the open banking initiative – which facilitates the secure sharing of a bank’s customer data with third­-party providers – are extensive; data sharing will enable and accelerate innovation and bring differentiated experiences to customers.

Essentially, it will foster banks and fintechs to coexist and create new products and services. It will also generate additional revenue for financial institutions in the form of commission or access fees. Open banking conducted via application programming interfaces will also consolidate the position of forward­-looking banks who – via data aggregation –
can create detailed customer profiles and offer relevant products to clients for greater engagement.

“The open banking movement is powered by application programming interfaces (APIs) that allow banks and their clients to integrate their applications at a far deeper level. It is a fast moving, global phenomenon, which will – eventually – transform the way we do business,” observes Noor Adhami, regional head of Global Liquidity and Cash Management, MENA and Turkey at HSBC.

VARIED ACCEPTANCE
Banks regionally and globally are warming up to the concept, on the back of regulatory compliance, revenue potential and long­standing benefits. However, depending on the country and the type of regulations, financial institutions may or may not be obligated to implement it. Therefore, open banking initiatives can either be unregulated, organic, or mandatory, a report by Moneythor suggests.

Regionally, several banks have started adapting the concept for greater viability. The National Bank of Bahrain partnered with open banking platform Tarabut Gateway to deliver open banking services to its customers. Tarabut Gateway also made its way into the UAE late last year. Meanwhile, local lender Emirates NBD launched its API sandbox in 2018, to enable open banking collaboration.

“Across the world, there are various combinations of products and services that fall within open banking, as well as differing timelines for implementation. HSBC has an active programme related to APIs and open banking, with a key focus on corporate and treasury APIs to provide both single and batch payments, as well as payment tracking and real-time account balance information,” notes Adhami.

As open banking becomes a potential revenue-generating source, enabling banks to monetise previously unexplored areas of business, it could set into motion a new wave of innovation that could forever reboot the global banking ecosystem