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.
UK seeks G7 consensus on digital competition after Facebook blackout
LONDON (Reuters) – Britain is seeking to build a consensus among G7 nations on how to stop large technology companies exploiting their dominance, warning that there can be no repeat of Facebook’s one-week media blackout in Australia.
Facebook’s row with the Australian government over payment for local news, although now resolved, has increased international focus on the power wielded by tech corporations.
“We will hold these companies to account and bridge the gap between what they say they do and what happens in practice,” Britain’s digital minister Oliver Dowden said on Friday.
“We will prevent these firms from exploiting their dominance to the detriment of people and the businesses that rely on them.”
Dowden said recent events had strengthened his view that digital markets did not currently function properly.
He spoke after a meeting with Facebook’s Vice-President for Global Affairs, Nick Clegg, a former British deputy prime minister.
“I put these concerns to Facebook and set out our interest in levelling the playing field to enable proper commercial relationships to be formed. We must avoid such nuclear options being taken again,” Dowden said in a statement.
Facebook said in a statement that the call had been constructive, and that it had already struck commercial deals with most major publishers in Britain.
“Nick strongly agreed with the Secretary of Stateâ€™s (Dowden’s) assertion that the governmentâ€™s general preference is for companies to enter freely into proper commercial relationships with each other,” a Facebook spokesman said.
Britain will host a meeting of G7 leaders in June.
It is seeking to build consensus there for coordinated action toward “promoting competitive, innovative digital markets while protecting the free speech and journalism that underpin our democracy and precious liberties,” Dowden said.
The G7 comprises the United States, Japan, Britain, Germany, France, Italy and Canada, but Australia has also been invited.
Britain is working on a new competition regime aimed at giving consumers more control over their data, and introducing legislation that could regulate social media platforms to prevent the spread of illegal or extremist content and bullying.
(Reporting by William James; Editing by Gareth Jones and John Stonestreet)
Britain to offer fast-track visas to bolster fintechs after Brexit
By Huw Jones
LONDON (Reuters) – Britain said on Friday it would offer a fast-track visa scheme for jobs at high-growth companies after a government-backed review warned that financial technology firms will struggle with Brexit and tougher competition for global talent.
Finance minister Rishi Sunak said that now Britain has left the European Union, it wants to make sure its immigration system helps businesses attract the best hires.
“This new fast-track scale-up stream will make it easier for fintech firms to recruit innovators and job creators, who will help them grow,” Sunak said in a statement.
Over 40% of fintech staff in Britain come from overseas, and the new visa scheme, open to migrants with job offers at high-growth firms that are scaling up, will start in March 2022.
Brexit cut fintechs’ access to the EU single market and made it far harder to employ staff from the bloc, leaving Britain less attractive for the industry.
The review published on Friday and headed by Ron Kalifa, former CEO of payments fintech Worldpay, set out a “strategy and delivery model” that also includes a new 1 billion pound ($1.39 billion) start-up fund.
“It’s about underpinning financial services and our place in the world, and bringing innovation into mainstream banking,” Kalifa told Reuters.
Britain has a 10% share of the global fintech market, generating 11 billion pounds ($15.6 billion) in revenue.
The review said Brexit, heavy investment in fintech by Australia, Canada and Singapore, and the need to be nimbler as COVID-19 accelerates digitalisation of finance, all mean the sector’s future in Britain is not assured.
It also recommends more flexible listing rules for fintechs to catch up with New York.
“We recognise the need to make the UK attractive a more attractive location for IPOs,” said Britain’s financial services minister John Glen, adding that a separate review on listings rules would be published shortly.
“Those findings, along with Ron’s report today, should provide an excellent evidence base for further reform.”
Britain pioneered “sandboxes” to allow fintechs to test products on real consumers under supervision, and the review says regulators should move to the next stage and set up “scale-boxes” to help fintechs navigate red tape to grow.
“It’s a question of knowing who to call when there’s a problem,” said Kay Swinburne, vice chair of financial services at consultants KPMG and a contributor to the review.
A UK fintech wanting to serve EU clients would have to open a hub in the bloc, an expensive undertaking for a start-up.
“Leaving the EU and access to the single market going away is a big deal, so the UK has to do something significant to make fintechs stay here,” Swinburne said.
The review seeks to join the dots on fintech policy across government departments and regulators, and marshal private sector efforts under a new Centre for Finance, Innovation and Technology (CFIT).
“There is no framework but bits of individual policies, and nowhere does it come together,” said Rachel Kent, a lawyer at Hogan Lovells and contributor to the review.
($1 = 0.7064 pounds)
(Reporting by Huw Jones; editing by Jane Merriman and John Stonestreet)
G20 to show united front on support for global economic recovery, cash for IMF
By Michael Nienaber and Andrea Shalal
BERLIN/WASHINGTON/ROME (Reuters) – The world’s financial leaders are expected on Friday to agree to continue supportive measures for the global economy and look to boost the International Monetary Fund’s resources so it can help poorer countries fight off the effects of the pandemic.
Finance ministers and central bank governors of the world’s top 20 economies, called the G20, held a video-conference on Friday. The global response to the economic havoc wreaked by the coronavirus was at top of the agenda.
In the first comments by a participating policymaker, the European Union’s economics commissioner Paolo Gentiloni said the meeting had been “good”, with consensus on the need for a common effort on global COVID vaccinations.
“Avoid premature withdrawal of supportive fiscal policy” and “progress towards agreement on digital and minimal taxation” he said in a Tweet, signalling other areas of apparent accord.
A news conference by Italy, which holds the annual G20 presidency, is scheduled for 17.15 (1615 GMT)
The meeting comes as the United States is readying $1.9 trillion in fiscal stimulus and the European Union has already put together more than 3 trillion euros ($3.63 trillion) to keep its economies going despite COVID-19 lockdowns.
But despite the large sums, problems with the global rollout of vaccines and the emergence of new variants of the coronavirus mean the future of the recovery remains uncertain.
German Finance Minister Olaf Scholz warned earlier on Friday that recovery was taking longer than expected and it was too early to roll back support.
“Contrary to what had been hoped for, we cannot speak of a full recovery yet. For us in the G20 talks, the central task remains to lead our countries through the severe crisis,” Scholz told reporters ahead of the virtual meeting.
“We must not scale back the support programmes too early and too quickly. That’s what I’m also going to campaign for among my G20 colleagues today,” he said.
Hopes for constructive discussions at the meeting are high among G20 countries because it is the first since Joe Biden, who vowed to rebuild cooperation in international bodies, became U.S. president.
While the IMF sees the U.S. economy returning to pre-crisis levels at the end of this year, it may take Europe until the middle of 2022 to reach that point.
The recovery is fragile elsewhere too – factory activity in China grew at the slowest pace in five months in January, hit by a wave of domestic coronavirus infections, and in Japan fourth quarter growth slowed from the previous quarter with new lockdowns clouding the outlook.
“The initially hoped-for V-shaped recovery is now increasingly looking rather more like a long U-shaped recovery. That is why the stabilization measures in almost all G20 states have to be maintained in order to continue supporting the economy,” a G20 official said.
But while the richest economies can afford to stimulate an economic recovery by borrowing more on the market, poorer ones would benefit from being able to tap credit lines from the IMF — the global lender of last resort.
To give itself more firepower, the Fund proposed last year to increase its war chest by $500 billion in the IMF’s own currency called the Special Drawing Rights (SDR), but the idea was blocked by then U.S. President Donald Trump.
Scholz said the change of administration in Washington on Jan. 20 improved the prospects for more IMF resources. He pointed to a letter sent by U.S. Treasury Secretary Janet Yellen to G20 colleagues on Thursday, which he described as a positive sign also for efforts to reform global tax rules.
Civil society groups, religious leaders and some Democratic lawmakers in the U.S. Congress have called for a much larger allocation of IMF resources, of $3 trillion, but sources familiar with the matter said they viewed such a large move as unlikely for now.
The G20 may also agree to extend a suspension of debt servicing for poorest countries by another six months.
($1 = 0.8254 euros)
(Reporting by Michael Nienaber in Berlin, Jan Strupczewski in Brussels and Gavin Jones in Rome; Andrea Shalal and David Lawder in Washington; Editing by Daniel Wallis, Susan Fenton and Crispian Balmer)
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