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 2 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 3 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.