By Benny Boye Johansen, Head of OpenAPI, Saxo Bank
As the world collectively ponders on how COVID19 will create a new normal, industry luminary Chris Skinner has already dished out some great insights on his blog The Finanser. One of his articles directs us to this slide set from Finch Capital, The Future of Disruptive and Enabling Financial Technology post CV-19, which offers some considerations about what the crises will do to the economic performance and valuation of fintech companies as well as their access to future funding.
What stands out is Finch’s assessment of the future winners:
- Digital-only becomes the new industry norm in financial services, accelerating the current trend.
- Financial Institutions turn to tech companies rather than in-house to accelerate digital transformation.
- Fintech enablers:
- AI: bots for call-centres, account opening procedures; loan automation
- KYC: increased need for safe digital ID given volume of digital business transacted and robust solutions required to protect client assets.
I have previously been advocating that Open Banking is “more than PSD2”, pointing out that a quite important, but seldom discussed sector “trading and investing” is also a key Open Banking constituent. Reading the articles around COVID19 however made me realize that Open Banking is much more than just the technology closely related to the management and exchange of money and other financial assets. Open Banking is in fact everything that allows a financial institution to conduct its business digitally in the best possible, most efficient, cost optimal manner.
Be open to Open Banking
If Covid19 has done one thing, it is definitely accelerating digital transformation, making Open Banking more top-of-mind for financial markets players – the future is digital. APIs are of course critical when it comes to supporting account aggregation and payments, initiating loans and supporting trading and investing. But for a bank that wants to fully digitalize their entire business (and now it is evident that this is the only viable option), “Banking” is no longer just “Banking”, but “Open Banking”.
A bank must realize that almost all of its operations must and will increasingly rely on technology, services and platforms delivered by someone else. To effectively digitize client onboarding a bank must digitally open itself to partnerships with external identity providers, provides for KYC validation, AI-supported customer service etc. To effectively assess and process loan applications a bank must digitally open itself to partnerships with providers of credit assessment. To effectively provide a competitive solution to wealth management and trading and investment, a bank must digitally open itself to collaboration with suppliers of market data, exchange connectivity, trading platforms, risk management systems, or a comprehensive solution provider, such as Saxo.
I have always believed that any leader in the financial industry must put Open Banking, IT and partnerships at the top of their agenda, and COVID19 and this unprecedented situation have sped this up. This is because we know that digitalization is a magnifier and scale enabler. Whatever you are good at, you can do more of and use to win market with. Whatever you fail at can significantly hurt your entire business. And whoever creates the “winning formula” could be a serious contender in a “winner takes all” game.
Mindset and culture will drive success
However, opening up digitally, pervasively and at scale is hard. The success of today’s banks will increasingly depend on how well they are able to enter into relevant technical partnerships. Such partnerships are hard to create and manage, because they require collaborations amongst employees with many diverse skills and responsibilities.
Take the most simple example of a bank wanting to partner with a digital provider of identity. To establish such a partnership will require participation from (at least):
- Purchasing and legal to ensure you get a good agreement
- Legal, Compliance, and the Data protection officer to make sure the solution chosen is actually suitable and viable.
- IT infrastructure, IT Development, architects and project management to design and later integrate the solution.
- Business Owners, Business Analysts etc. to ensure the service is used in the correct way in the organization
Setting up strong project teams can be difficult in itself and gets more complex as you start integrating with more and more external partners, to bring them in the same direction. Further consider the challenge that in such integration, a project team will make decisions and tradeoffs. On one hand you need the team to be as self-sufficient as possible so it can execute at pace. On the other hand, you must ensure that these independent teams work towards the same overall vision.
In the past, where business relationships were fewer and required less diverse skill sets, coherence could be managed by centralized direct oversight. Today, the only viable coordinating factor is vision and culture.
A well-communicated vision and strategy can help teams make independent and informed decisions efficiently. It helps teams weigh pros and cons against a consistent set of values and benchmark metrics, and each decision made will always be aligned to the company vision of where it wants to be.
While the company vision shows the direction and guides decisions it is culture which determines the speed and quality of execution. Delivering on many of the complicated (open banking) integration projects requires a lot from employees. They must be good at communicating, comfortable sharing, excellent at collaborating and committed to the company’s vision. There must be a culture of trust, honesty, emphasis on facts, and mutual respect. This was important before COVID19, now it is essential.
So while open banking often refers to bits and bytes and APIs, it’s really a mindset. To be successful any business – including banking – must ‘digitally open up’ an increasingly larger share of its value chain to partnering. For many executives at established players increasing dependency on external partners is challenging enough. Add to this that any such strategy also requires delegating responsibility for many complex integration decisions far down the chain of command and it becomes obvious why some are still hesitant to embrace it.
I am however convinced that digitalization and partnering is the only way to go. Adoption of open banking and integrated systems thinking was already on the rise. The current crisis has just accelerated this trend significantly.