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Open Banking: the Race to Deliver Banking As a Service

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Open Banking: the Race to Deliver Banking As a Service Open banking: The race to deliver banking as a service A briefing paper in association with 2 MIT Technology Review Insights Foreword from the sponsor It is just three short years since the term ‘open banking’ emerged in financial services. Open banking is now a global trend - driven by the pace of fintech innovation, progressive regulation and continued consumer demand where customers want control of their data alongside a great digital experience with relevant and personalized offerings suitable for their life stage and needs. In today’s digital-first marketplace, opening the bank is a necessity for any financial institution and a means to enabling an ecosystem strategy for new business models. Open banking represents a huge opportunity for banks to accelerate digitization and make the shift that consumers are quietly demanding. According to a 2018 global survey conducted by Oracle, today’s consumers demand smarter and more relevant digital experiences. Some 69% of consumers want their entire financial lifecycle on digital channels and 30% are open to trying a fintech or challenger bank. With top platform companies organizing themselves around customers’ lifestyles to earn a fee, banks are exploring how they can also go beyond traditional retail banking, to distribute services and increase customer touch points. Many are using API frameworks to share data with strategic partners and accelerate innovation. Looking forward, banks will need to differentiate themselves beyond basic online and mobile offerings by implementing business models that drive new revenue streams and customer engagement. Deeper consumer insight at every stage of the financial lifecycle will allow banks to anticipate needs and respond faster and more accurately. Embracing open banking means, quite simply, giving customers fewer reasons to shop around. Also, by moving towards ‘frictionless’ customer engagement, banks can benefit from greater efficiency and cost savings. Becoming an ‘open bank’ will continue the pressure on banks to step up business transformation efforts – from organization and decision-making through to infrastructure and culture. Part of this is to accelerate the integration of the front and back offices, working together faster and more seamlessly than ever before. In the future, we see the banks that are able to tackle all of these challenges gaining first mover advantage to establish a strong presence on the digital playing-field. On the other hand, those that fail to act quickly enough could find themselves increasingly on the bench. Find out more about how to jumpstart open banking initiatives with Oracle’s open API ready, digital banking platform at www.oracledigitalbank.com. Sonny Singh Senior Vice President and General Manager Oracle Financial Services © Copyright MIT Technology Review Insights, 2018. All Rights Reserved. Open banking: The race to deliver banking as a service 3 Preface To produce this study, MIT Technology Review Insights conducted a review of the innovation and transformation taking place within banks to respond to the regulatory and market shifts towards open banking. Our research was based on a series of interviews in May and June 2018 with senior executives directly involved with open banking initiatives. The report is sponsored by global software company Oracle. The report is editorially independent, and the views expressed are those of MIT Technology Review Insights. We would like to thank the following interviewees for providing their time and insight: Jason Bates, Co-Founder, 11:FS Gerard Florian, Chief Information Officer,ANZ Deniz Güven, Global Head of Customer Experience, Standard Chartered Bank Abhishek Seth, Head of Open Banking and API, APAC and EMEA, Global Consumer Technology, Citi Frank Tong, Global Head of Innovation and Strategic Investment, HSBC Alex Weber, Head of International Markets, N26 Group Derek White, Global Head of Customer Solutions, BBVA Tomofumi Watanabe, Joint General Manager, Sumitomo Mitsui Financial Group © Copyright MIT Technology Review Insights, 2018. All Rights Reserved. 4 MIT Technology Review Insights Contents 1. Executive summary 5 2. Defining open banking 6 3. Intelligent services 9 4. The challenge at hand 13 5. The road ahead 15 6. Conclusion 16 © Copyright MIT Technology Review Insights, 2018. All Rights Reserved. Open banking: The race to deliver banking as a service 5 1. Executive summary pen banking is a major shift in the retail banking programming interfaces (APIs) – the technology Oindustry to give customers greater control over used to package and move the data - and their data and create a new connected ecosystem third-party collaborations. The promise of where banks, fintechs and other third parties to open banking is that banks can deepen their collaborate to deliver seamless financial services. relationships with existing account holders as From Australia to the UK, Japan to Germany, open well as boost new customer acquisition. banking will create difficult strategic questions for retail banks in all major markets to answer in the • Uncharted waters years ahead. There are many uncertainties in how open To understand how the industry is interpreting banking will unfold, and ultimately where it open banking and taking advantage of the new will lead. Banks are in the process of creating opportunities available, we interviewed chief strategies for open banking, thinking through information officers and heads of innovation, how it will develop globally versus locally, investment and digital banking from leading banks and putting structures in place to assess the around the world. We asked how they are gearing potential of new APIs and partnerships. up and tackling the challenges that stem from a • Technology and culture rapidly changing marketplace and business model. For traditional banks, legacy mainframe These leaders share the following insights about technology hampers their ability to scale new how open banking will create a new ecosystem that initiatives quickly. Innovation itself must be delivers banking as a service: managed carefully, since any disruption to banking services could have huge implications • Regulation as a driver of innovation and damage customer trust. Where regulation often plays a catch-up role in putting guidelines around unfettered industry development, in terms of open banking it is seen as setting the pace. There is an extraordinary amount of collaboration happening between banks and regulators worldwide to create frameworks for open banking. • Customers in control Consumer interest in protection, privacy and control over their personal data has never been stronger. Open banking has forced banks to rethink the issues of ownership, storage and use of that data. • Intelligent services of the future Giving customers greater control of their financial data inevitably leads to a wider choice of financial services and forces banks to rapidly accelerate service innovation. Digital banking is part of this innovation as are application © Copyright MIT Technology Review Insights, 2018. All Rights Reserved. 6 MIT Technology Review Insights 2. Defining open banking n major markets worldwide, retail banking is inspired by Europe’s PSD2, Japan’s revised Banking Iundergoing rapid transformation and fundamental Act requires financial institutions to develop APIs disruption brought about by pace-setting regulation that can be used by external businesses. The and fierce competition, the result of which gives Japanese government has set the goal that 80% of customers greater control over their data and the country’s banks have APIs in place by 2020.2 financial services. Similarly in Australia, the federal government Open banking, as this trend is known, involves is driving an open banking regime under which the banks shifting from closed systems and acting as big four banks (Commonwealth Bank, Westpac, data gatekeepers to open systems where sharing ANZ and NAB), which together hold an estimated data with more third parties will allow customers 95% market share) will have to make banking data to get the most of their financial data and use the available to consumers on all products by July financial services that best suit their needs. To 2020.3 facilitate these services and the sharing of data, U.S. regulators are yet to implement any banks are building APIs and deploying them through directives around open banking, but there is already collaborations with third parties. change in the air. Several industry bodies have issued guidelines and lists of APIs for development, An unstoppable advance which are intended to spur the ecosystem and give consumers greater control over their data. In Europe, the UK is furthest ahead in its drive towards an open banking system. The regulatory framework open banking, launched in January 2018, covers the country’s nine largest banks and provides standards for how data should be shared “Several years ago, with third parties. Europe’s Payment Services Directive (PSD2) will be implemented across the people would have European Union by the end of 2018 with the same mandate for banks to open up but does not define never guessed that regulation the standards for how data should be shared.1 would be one of the drivers of In Asia, executives interviewed for this report describe Singapore as leading the way in terms innovation. PSD2 and GDPR of its open banking ecosystem. The Monetary Authority of Singapore has worked with the have created a starting point for country’s leading banks to develop a standards companies
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