By Amber Sappington, Head of Data and Analytics, Finastra
Some decision makers in financial institutions are opting to wait and see how the Open Banking era unfolds before embracing open data as a key component of their strategic plan. If you’re one of those debating whether to be a leader or a follower, the reality is that you may already be lagging behind the world’s leading organizations. Delays in accessing open data through the cloud are putting many at a competitive disadvantage as others create plans designed to leverage the opportunities.
In June, Accenture’s ‘Catching the Open Banking wave’ report claimed that financial institutions have become complacent about the threat posed by open data to traditional business models. Their analysis was built on research covering 20 of the largest economies, responsible for over 75% of global GDP. The conclusion is that as much as $416 billion in revenue will be at stake as the open data wave arrives and this is likely to be captured, or defended, by players who recognize the opportunity early.
What are the biggest obstacles to accessing the new opportunities available from open data?
Many financial services organizations are grappling with the tension between a strong desire to access the opportunities while also managing their fears about digital transformation.
In the past, financial institutions have been reluctant to give other organizations access to their data. However, legislation has now shifted the mindset and the conversation has moved from ‘is this something we should do?’ to ‘what’s the best way to make this happen?’
In addition, the pandemic has altered people’s perception about accessing and providing information in the cloud. Working from home has presented new challenges and forced rapid problem solving. For example, increased security and flexibility was instantly required for employees to access a financial institution’s infrastructure remotely. Cloud-based computing enabled these developments and increased the efficiency for data movement and transformation, with increasing use over the last 18 months.
In relation to open data, I am now having more conversations about the opportunities it presents rather than fears about operational risk.
What does this mean for the financial services industry?
It means there is strong momentum behind open data, and open banking. This approach is being readily accepted rather than seen as something that may happen in the future. If you’re still worrying about cloud-based technology and data rights issues, there’s a risk you’re already behind the rest of the industry who are looking for ways to connect and collaborate.
What are the benefits to these institutions?
To be honest, there is a long, long list of benefits to organizations. Ultimately, open data allows them to improve their performance and deal with operational challenges more efficiently.
For example, legislative requirements can be automated, which saves time. An app like ‘Vector Risk’ uses our Treasury and Capital Markets data to help financial institutions complete fundamental reviews of their trading book, a regulatory requirement.
Extracting, manipulating and then presenting the data is a labour-intensive job. However, the app automates this process, enriches the data, and creates comparisons against a larger data set. The whole process is far quicker, and the results more meaningful than those from the manual processing that is typically required. Vector Risk enables financial institutions to focus on what they do best – building relationships with and delivering results for their clients, instead of spending time on compliance reports.
Can’t financial institutions just build these solutions themselves?
Yes, they could build these solutions themselves and some have tried in the past. There are several issues they always come up against though and there are questions which need to be answered when going it alone.
- Is it right to allocate resources away from product development, for example, into building technology solutions that are available through the cloud?
- Do they have a budget to maintain the consistent investment required to stay ahead of open data innovation and security?
- Do they have the expertise to create and implement solutions and manage the data in an effective way?
- Is the dataset large enough to take advantage of the opportunities?
We believe that financial institutions are better served by focusing on the things they are good at, such as managing large scale operations, developing solutions for customers and managing the regulatory requirements of a rapidly changing landscape.
By working with organizations which specialize in open data, financial institutions gain access to a larger data set, which provides more meaningful analysis. They can work with data specialists to get the information they need through bespoke reporting, visualization and advanced analytics. Finally, they become part of a collaborative culture between data providers, fintechs and global institutions, all intent on rapid innovation and development.
What are the benefits of collaboration?
Collaboration overcomes the problems of fragmented data storage, and improves data quality as there are no silos. Data flows through the platform, and by accessing the reports and apps through the cloud, users can combine disparate data sets and use advanced analytics models to analyze and derive value from that data. Trying to do this using on-premise data sources is much more difficult and benchmarking isn’t an option.
Our vision is to create cross-product analytics. We can take huge quantities of information from institutions around the world, structure it, classify it, put it through a governance process and open it up to developers. The fintech community, with experience in innovation, uses our APIs and datasets to create new solutions that financial institutions can access through the platform. To take advantage of these solutions, all financial institutions have to do is provide consent to share their data with these fintech partners.
Ultimately, this will drive innovation and we are already seeing the results with new applications being developed.
Using cloud-based data also provides greater levels of centralized access and control. This makes it easier than ever for data consumers across an organization to access the content they need at any time, anywhere in the world.