Open Banking and the Golden Era of Financial Services Innovation

The word “open” in “open banking” carries significant meaning.?Traditionally, banking has been “closed” – financial institutions have maintained control over customer and member information and have used this to define relationships within their physical and digital walls. Open banking democratizes information and puts control into the hands of consumers. Information flows freely (with consumer consent) in an open banking paradigm, allowing third parties the opportunity to add and compound value, resulting in enriched financial services experiences.?Open banking threads a needle that enables consumers to bring those that are impactful closer and aggregate with trusted partners.

Open banking facilitates open innovation, with capabilities driving digital experience coming from not only a single financial institution, but also a community of innovators.?In this new world, relationships with customers and members are mediated by multiple parties all participating in the delivery of a unified digital experience.?No longer does a single institution “own” the customer or member relationship.?What they do own (or could potentially own), is the ability to fully articulate next generation digital experiences that matter when, where and how for consumers.

In thinking about open banking, strategies can be either defensive or offensive.?Financial institutions on the defense open the door and comply with standards – “Come in, we are open.” ?In this situation, institutions are enabling their customers and members to work with third parties and have these third parties ingest information that is being held.?Being on the defense, institutions are being subsumed into other experiences, and not innovating on their own.

Offensive open banking strategies do the opposite and bring third parties (including other financial services providers) into digital experiences and journeys being mediated and/or powered by financial institutions themselves. The FinTech scene has spawned a plethora of innovation, in areas such AI, data, and machine learning – capabilities that are waiting to be leveraged. Facilitated in the right manner, these composed experiences are “power plays” – endearing journeys that are meaningful, add value, and are frictionless.?When we speak of experience in this manner, we are also speaking about the shift from digital banking primarily being transactional in nature, to being a trusted companion.?

Playing offense however is not accidental – technology leadership is required to establish the prerequisite framework for ongoing innovation.?While a shift from legacy dependency is not going to happen overnight, a platform strategy must be adopted that enables institutions to shift over time to modern digital delivery.?With consumers in control, institutions that neglect changing expectations will be left behind. Customers and members will eventually migrate to where they are better served.?

With the enabling of consumer directed finance, the market power leveraged by financial institutions independently will be greatly diminished, and “closed banking” will be turned on its head – rather than being a place of comfort, closed ecosystems will become increasingly constraining, both for those who expect to be served, and for those serving.?Transformation is defined by Oxford as “a thorough or dramatic change in form or appearance” – with open banking, we are at a turning point in finance, and now is the opportunity to be transformational by leveraging an ecosystem of best of breed capabilities to deliver digital experiences a new and meaningful manner.