How Can Business Benefit from Open Banking?

How can business benefit from open banking?

Host: Jonathon Traer-Clark

Co-hosts: • Alex Yang, Director CashPro Product Manager • David Voss, Director Treasury Product Manager

Jonathon: 00:00 You're listening to the Treasury Insights podcast. This podcast is part of our broader objective to foster a treasury relationship that prepares you for the future, supports more strategic decision making, creates efficiencies and helps manage risk. Put another way we want to give you the power to see what's next. Open Banking promises a new wave of financial industry innovation, competition and productivity. Enabling valuable new payment and other financial services, both businesses and individuals. The term Amazon effect is a term increasingly used to represent a digital first business model where interactions are web based. I'm Jonathon Traer- Clark, Managing Director, Global Transaction Services, and with me is Alex Yang, Director CashPro Product Manager and David Voss, Director Treasury Product Manager. Together we will examine the efficiency and automation driving, where things are going and how Open Banking prepares our clients for the future. Hi gentlemen. Let's start Alex, if you don't mind with you basically what is Open Banking?

Alex: 01:07 Thanks for asking me and inviting me on your podcast. Open Banking is both a set of regulations, as well as the spirit behind them, which is to promote data exchange with anyone who may potentially make use of that data for the benefit of the underlying account holder. It started in Europe from the European economic area under the not so marketable name, payment services directive, and the UK improved upon it and called it Open Banking. That sort of spirited letter has effectively rippled outwards to many countries in Asia, as well as now, potentially Brazil and Canada.

Jonathon: 01:43 Oh, wow. Thank you, Alex. Why is that link considered to be a digital revolution?

Alex: 01:48 It's the first time that really any financial institution has been forced by the regulators in that country to promote more competition among technology providers to say the account holder, in many cases, it is the consumer or retail account holder shall have the opportunity to dictate how their data must be made available to the technology service providers that could potentially offer new products and services for that account holder. The overall intent is to help improve the financial lives of consumers. It also has the ancillary benefit that this idea of Open Banking of making data more available has also increased the collaboration between financial institutions in general, especially for us here at treasury. We talk a lot more with our peers and with industry organizations because of the strength behind the Open Banking movement.

David: 02:39 You've got PSD2, not a very marketable name perhaps for regulation, but at the same time in Europe, the GDPR, General Data Protection Regulation, came into force, which really laid the groundwork not just for Open Banking, but all parties involved in processing data on behalf of data subjects, private individuals, and giving those data subjects a range of rights in terms of how that data is used including deletion of the data correction of the data portability of that data. That framework was really essential to allowing the open banking regulations to be successful, setting that framework for the different participants to interact and ensure full data control for the individual concern.

Jonathon: 04:17 Thanks, David, and just sticking with you. You've mentioned Europe, but these governance procedures are actually global?

Alex: 04:25 For Global Treasury customers, they should realize that Bank of America as a whole, we evaluate the regulatory landscape wherever we happen to do business. We consider it not just in the context of commercial and corporate banking, but also any regulations that would impact account holders, and that's where this idea that we will support and embrace Open Banking, not just because the UK says, consumers in the UK have this benefit, but we apply that underlying technology for our customers, and we work with standards and international organizations to say, let's take this a step further beyond the regulation. We see as most beneficial, most secure, most effective in one country or region, we're going to apply it globally because that way, we don't have to do as much work when we all comply with all regulations everywhere. Also, this concept of Open Banking, it is the latest fruit to be borne by the open development environment. The idea that people examine technology, people examine concepts, and improve and iterate upon them. What the UK did in prescribing certain ways for communicating between the banks and any technology providers. That was examined by Australia; they implemented their own version of it. The regulations do improve over time. The data access helps technology companies help the consumers to encourage them to actually bank, to become customers. In that way, more people can participate in financial markets. And that in turn is spurring a new set of regulations called Open Finance; savings, investing and to better our customer's financial lives.

Jonathon: 06:08 That's great. Thank you, Alex. I've heard of apps like money dashboard, for example, which I think is a UK app that helps you do some of the things that you talked about in the consumer space. There's a numerous accounting packages like free agent or whatever else the small businesses can use to get similar access. Let's just say, I'm a business. How does this help me? Can you give me kind of a high level view on what it means for me as a business?

Alex: 06:31 As a business or as a treasury customer, for example, Open Banking means

that your data can be used however you want. If you want to come directly to the bank, the underlying technology is APIs, and you had a very good podcast about APIs and why getting data in real time is beneficial. The concept that they can now work with a third party, in many cases, an enterprise resource planning software vendor, or a treasury management system vendor to now form connections with various banks around the world in order to provide cash forecasting capabilities or that, for example, gives them more insight into their money in ways that any one bank may not have envisioned, but instead allow someone else to attempt to present their version of reality for what may be happening with their data and their cash.

David: 07:25 To add another example, we've talked a bit around data provision, data aggregation. Another example of where Open Banking is really powerful is payment initiation. It's a feature of the Open Banking provisions in Europe and also in parts of Asia. You can also access yourself an API that allows you to initiate payments. Ultimately, today when I make payments, I may have rigorous upfront checks, manual processes, data entry, depending on the system that I'm using to make those payments. And all of that comes with a certain cost and also potential risk challenges as well, having an API that helps me initiate payments in real time and in a very automated way. Payments initiation is something that we believe is very powerful coming out of Open Banking, where APIs will be used more and more.

Jonathon: 08:12 David just sticking with you. That's interesting. I'm going to call it - information reporting. But it's also; you can execute instructions as well, through these channels. You're not constrained to executing an instruction with one bank. You actually execute it through any of the banks that you deal with because they all operate to common standards.

David: 08:29 Ultimately that is the panacea. That's what we're aiming for, and as you say, these can be transactional as well. For a number of years now, we've used APIs for example, to generate virtual credit card numbers and to manage virtual cards. Those are longstanding technologies, which are very powerful, and they can be accessed directly by our clients or by other service providers. APIs allow you the option to have essentially a middle layer of integration. You can have a single point of entry for the API codes that you're doing, multiple rails to consume and initiate activity with more than one bank on the backend. This additional simplicity in terms of integration is one of the biggest advantages of Open Banking. Now, each different institution may have slight differences within their APIs. One of the challenges there have been in the market is that somebody like the European Banking Authority who was tasked with drawing up the rules around Open Banking was asked to stay technologically neutral, as well as setting all of the rules and systems around Open Banking.

Jonathon: 09:31 Thank you. Alex, you mentioned about having better insights into how

customers are using the information that we provide and essentially enabling you to focus your investments on enhancing that particular service. I'd love you to expand on that a little bit. How does that affect the relationship aspect of it?

Alex: 09:49 That's a very good question. One of the things that Open Banking, both in the letter and the spirit of the regulations is the idea that the financial institutions still should know their customers. This data access simply allows those customers to do their work better. I don't think we'll ever get into a situation where we comfortably enable functionality that allows account holders to open and close their accounts at financial institutions without ever knowing who they are. That's certainly not in our nature, not in our culture, and I think would be a difficult sell at any other bank.

Jonathon: 10:24 How does the client maintain the relationship with the bank?

David: 10:27 Absolutely. There is clearly a role for Fintechs and new providers and neobanks who are coming in with extremely attractive solutions, very good UX user experience, whether it's on a mobile device or on a desktop. There’s important knowledge and know how that those kinds of players bring to the market. And that's where we are looking to partner with them, be that on cashflow forecasting and the way that Alex mentioned earlier, or other services that, that those kinds of Fintechs can provide. It's probably worth bearing in mind as well though, that banks have also invested a huge amount in their own digital channels, in their own user experience. Think of it from an Open Banking perspective. If I'm able to empower another organization, a third party to come in and view all of my financial transactions, I can simply grant that access to another financial institution to a different provider. They're able to do that really without any manual intervention. We see big application for Opening Banking, for example, in credit checking, in underwriting, filling out a credit card application and all of those kinds of user journeys where it's going to really assist corporate clients and consumers with the processes that they go through in their financial life.

Jonathon: 11:37 You both mentioned financial lives. We're talking here about, not just the bank providing information, but actually the consumer or the business themselves also providing information. Your tax return, perhaps any invoices or receipts or anything else, or actually all of, if you like the features that come through using a full service ERP solution that you touched on from the beginning, Alex. The ancillary benefits of just having open access to your transactional information from your banking provider also enable you to manage the other aspects of your fiscal flows as well. Would that be a fair observation?

David: 12:11 Absolutely. It's very wide reaching. You mentioned there around, for example, accounting information, tax returns, all of these are applications

where we're seeing Open Banking emerging as the platform. The original intent of the regulation to create those kinds of solutions, they can be very powerful indeed. But think also about other functions, corporate audit, for example. Again, a consumer of data looking for a single version of the truth, and again, a potential use case for consuming Open Banking data.

Jonathon: 12:39 If I was to say, why not now? What's the future of Open Banking from your prospective?

David: 12:44 Well, let me go first because I suspect nobody wants to make too many predictions, the future of Open Banking, I think we see it as a got huge potential and it's definitely going to evolve further. Earlier we were talking about the role that some regulation has had in that. Regulation, in many cases, will continue in those markets where it's primarily been about driving increased competition in financial services, I think that will increase. There's probably going to be more regulation about the kind of services, the kind of data and actions that financial institutions will be compelled to enable through Open Banking. What's interesting is to look at other data that is available in the corporates and other systems that are being used. When we talk about having an ERP, when we talk about having an accounting system, or even frankly, an email schedule or a calendar for our appointments, all of these business tools that are used, all of them are generating data. We come to really the big data argument, because we can begin to think about linking those APIs, uh, more and more upstream with other business processes.

Jonathon: 13:51 Thank you, Alex, what are your thoughts?

Alex: 13:54 I would love to see a day where Alexa is doing Amazon banking and Siri is doing Apple's banking and it is a very aggressive, optimistic look of how consumerization affects the business. Where we can expect more and more in our professional lives to benefit from incremental improvements that we receive and realize in our daily lives, because wouldn't it be nice to have a digital assistant or artificial intelligence inform us of that decisions? I think Open Banking is going to factor into more governmental programs. It'll inform decisions on aid to small businesses, to families because of the current pandemic. It will help us plan and really be realistic about the impact of such an event on our various economies. The open exchange of data will help financial institutions reduce losses and help businesses survive downturns as well. The future of Open Banking will also be the fact that we will commit to continuous improvement about how data should be used responsibly and what to do when things go sideways. Because when fraud is perpetrated, the focus on exactly who authorized those transactions will lead us to question, how much do we trust that digital identity? That's something that Open Banking needs to address.

David: 15:20 Something else I would add on the future of open banking, perhaps a bit more nearer term and tangible. In Europe specifically, it's probably no coincidence that Open Banking has come about at the same time as other initiatives to use real time account payments as a potential solution for making consumer purchases and other payments, both at the point of sale and in an ecommerce environment. The payment initiation API we talked about earlier is certainly an opportunity to add an additional option into the payment environment, whether it's at the checking out on an ecommerce website, or indeed it's the use of a mobile token on a mobile device. Certainly many in Europe are looking at that as a potential option for a lower cost payment option to have available in the market by using an API to initiate a bank payment from the consumer's bank account into the merchant's bank account in real time with real time confirmation. So it's a concept that's currently being pursued by the European payments initiative here in Europe. It's certainly one to watch over the years to come.

Jonathon: 16:26 That's the EPI innovating around the API. Gentlemen, incredibly informative! As a former treasurer, I would say that if I think about the evolution of treasury and being a treasurer and the roles that we have to play, one of the things that's always been constant is the need for greater information in a more timely fashion. The API thing for me, really kind of take that concept and steps it up a level. Then if you go with the concept of Open Banking, then you're really enacting an ability to provide more information in a quantitative way. And to your point, Alex, connect it with business outcomes and business operations in a much more transformational way. Ultimately, as I think you said David, to enrich the client experience, I mean, that's what we're all about at the end of the day. I think we'll end it there. David, Alex, thank you very much for your insights. We'll all be watching this trend and these developments in this area very, very closely over the months in the years to come.

Alex: 17:24 Thank you for inviting us.

David: 17:25 Thanks very much.

Jonathon: 17:26 You've been listening to Treasury Insights. I'm Jonathon Traer-Clark, Managing Director, Global Transaction Services. My co-hosts are Alex Yang, Director, CashPro Product Manager, and David Voss, Director, Treasury Product Manager. As each day brings innovation and opportunity, we are dedicated to working with you to turn technological advances into intelligent treasury.

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