Open Banking: a new mindset for future service delivery

By Christoph Berentzen, Head of API Banking, Commerzbank, addresses what Open Banking means to the Bank and how its proper implementation can redefine the way in which the banking industry approaches collaboration – and, ultimately, client services

As they have in years past, integrated banking solutions will undoubtedly continue to gain traction in 2021 and beyond, due to their almost limitless power to increase efficiency and enhance facility for banks and their clients. Indeed, Open Banking – and its underlying API technology – is one such solution that we believe can certainly continue to transform the delivery of financial services for the better.

Of course, the concept is nothing new. Banks have long been investing in its potential, but we expect, over the coming years, that the adoption of externally accessible interfaces will hit the mainstream – permeating into many more industry segments than we currently see today. And as such, we expect Open Banking to be an integral part of our industry in the future.

Indeed, this is a future where additional user value is created by allowing greater interoperability between software applications – allowing consented data to flow from customer to banks and selected third parties to create new possibilities, enhanced products or more efficient customer service.

Yet the question still remains: how can banks usher in this new era of value creation? In our view, bringing such solutions to life will necessitate a move away from siloed thinking, towards far greater interconnectedness. Bank-fintech collaboration – as well as corporate customer buy-in – will be critical. In the end, the concept of Open Banking will shift traditional client or partner relationships, to a much closer partnership on equal terms. Banks, in turn, must be ready for this shift.

Not just another platform…

First, what is meant by Open Banking? An oft-cited term, we found in our research that many corporates use the concept interchangeably with standardised application programming interfaces (APIs). APIs allow for seamless data flows between internal and external systems, and, thanks to standardised working, neither system needs a detailed understanding of the other for them to interact and communicate. If properly implemented, therefore, API technology provides greater flexibility but also helps to connect the myriad IT systems within an institution, and between institutions, without creating more dependencies.

While it’s true that Open Banking can bear similar results, for us at Commerzbank, the concept goes beyond just the practicalities of data-sharing or the process of building platforms. It represents a whole mindset that encourages innovation and competition among banking players. As such, its influence extends to all financial products, as well as their underlying processes exposed via APIs (such as consumer loans or corporate payments). In short, APIs are better thought of as a foundation for the broader concept of Open Banking.

The rise of APIs has been particularly accelerated by various regulatory initiatives – notably the Revised Payment Services Directive (PSD2) in the European Union, as well as initiatives in the UK, the US and Hong Kong. Even though most of these, and other regulatory initiatives, mainly focused on payment services, they prepared the ground for the proliferation of the technology across the financial services industry, and supported the emergent trend towards Open Banking, creating more integrated services across organisational borders.

Yet Open Banking’s principles, while partly fostered by regulatory action, have also been shaped by the demands of corporate clients. These entities perennially seek ways to improve their operations and financial management, as well as have high expectations for seamless integration into their systems. They often require a wide range of customisable banking services specifically tailored to their industry and needs.

There are already examples of how APIs are transforming the provision of banking services in the corporate space. Bank of America, for instance, is collaborating with Flywire – a payment platform focused on payment optimisation for universities, hospitals, and businesses – to further strengthen their cross-border payment capabilities for their corporate end-users. Yet, importantly, Open Banking holds more potential than a mere platform or payment solution: accompanying the technological advancements is a paradigm shift that entirely alters how companies organise their product offering and service creation.

…But a sandpit for innovation and a new approach to banking

And herein lies Open Banking’s primary advantage: it promotes collaboration between banks, technology providers and clients, which ultimately breeds innovation. Ultimately, such innovation is a result of the interplay between several distinct components: implementing the right infrastructure, using relevant data or information, following a collaborative approach, and instilling a culture of trust that encourages an open mindset and experimentation. Our expectations, in turn, are twofold: data sharing will grant banks better access to higher-quality information with which new ideas can be developed; and the emergence of equal partnerships – where each party can contribute their unique capabilities.

Given the considerable potential that Open Banking shows for our corporate customers, at Commerzbank, we began our API program in 2017 with a view to going beyond the regulatory requirements of PSD2. And though we started out using API technology to optimise internal information flows, Commerzbank soon discovered the significant potential of this technology to accelerate collaboration. Today, third parties and Fintechs can co-create solutions, based on our banking data, which corporate clients can subsequently integrate into their systems.

The process is not without its organisational hurdles, of course. Our advice to other organisations is to set up agile-minded teams. Our API program team was an early adopter of mixed agile teams with experts from business and IT following the “Spotify model”. Recently, the bank introduced a new delivery organization with more than 50 agile teams as a foundation for Commerzbank’s future business model with short innovation cycles and a customer-centric approach.

Second, entities should ensure that this transition to open thinking is gradual. In our initial talks with partners, many stated that corporates were hesitant about the concept. As such, we spent the first 18 months on internal API development, testing, and educating with focus on IT decoupling and efficiency aspects. However, we also acknowledged that focusing on internal operations would not be enough. Following the first proof of concept, selected partners were enabled to use Commerzbank APIs according to highest security standards and compliant with banking regulatory mandatories, to better understand how we can design and manage such partnerships.

Ultimately, when it comes to delivering banking services that address the specific needs of today’s corporate clients, creating user value will be the result of deep-rooted cooperation. As a way of working that extends beyond any single organisation, Open Banking is, therefore, a solid foundation for this new future. And, if done properly, the concept offers unprecedented possibilities for clients to take advantage of customized and more automated banking solutions, which address needs much more holistically. We ask you to take part in this development and begin by sharing your ideas with your partners and clients. It may just be the first step towards realising this vision.