I have already written a great deal about open banking, but as it has quickly become the latest hype in the banking world it is time to revisit the topic. With PSD2 close to coming into effect, an increasing number of banks are lining up to open up their platforms, forever changing the digital banking landscape as we know it.
To fully embrace an open banking strategy, banks need to adapt to a different mindset. Where the banking industry has approached digital with a share of wallet approach, banks need to transition from maximizing the number of products through few proprietary channels to establishing number of relevant touchpoints. At the core of a successful platform strategy is to offer your customers the freedom of choice, and owning the customer interface will become deserving to be the customers primary interaction point(s). At the end of the day, an open banking strategy is a platform strategy.
If you are new to the subject and wish to learn more, check out these blog posts:
- Open banking: An introduction
- Open banking: The nature of digital ecosystems
- Open banking: Getting the business mode right
- Open banking: An introduction to APIs
- Open banking: A key turning point in the digital banking revolution?
- Open banking: A playbook for banks and fintechs
To succeed with an open banking strategy, it is crucial to have top-level ownership. An open banking strategy is not a business unit or technical strategy, and need C-level commitment as well as organizational support from every level of the organization. With that in mind, an open banking strategy can be perceived as confusing and challenging to communicate, as it will be dynamic due to an ever changing environment.
This approach, if executed correctly, should also have some clear thoughts on how to utilize the network effects of a successful platform strategy. How will each stakeholder of your digital ecosystem benefit from expanding the reach of the ecosystem? A rule of thumb is to make sure that every relationship in the ecosystem is mutually beneficial.
With this regard, what role will you play in your won ecosystem? Will you take the position as a back-end provider of products and infrastructure and allow third parties to build numerous applications on top of your platform? Will you excel at user experience and consume data from third parties to enrich your won data and provide end-user services? At this point, most major banks with a digital presence is attempting to pursue both roles. This should also be reflected in your operational setup, as the skills and minds required to run the factory (back-end) and the distributor (front-end) differs.
At Skandiabanken we are exploring both ends of the scale ourselves. When we allowed our customers to integrate their cryptocurrency holdings through Coinbase to our online banking platform, it was to take the first step towards exposing third party data in the digital banking experience.
Soon we will launch our developer portal at https://utvikler.skandiabanken.no/, where customers can develop their own front-end applications based on their own data. Make sure to sign up to get early access.
What about the business model? There are several potential business models to pursue in an open banking world, but you should not be preoccupied with attempting to model the perfect monetization engine before building a user base. At the same time, be vary of giving away everything for free at an early stage.
Going from planning and strategy to executing also required some operational concerns. Do you have the right competence to follow up third party interactions? Is the governance model and necessary processes in place? Do you have the necessary legal agreements towards both end-customers and third parties? Is there any unforeseen risks related to your strategic options? Are your tactical moves compliant? Do you have a sufficiently scalable infrastructure? Both in in your front-end applications to handle the potential traffic if one is to succeed in establishing a digital ecosystem that is used frequently as well as do your back-end systems handle the necessary traffic? Are your vendor contracts fit for purpose, or are you at risk of encountering unforeseen technical limitations and commercial terms as data traffic increase exponentially as compared to today’s volumes? These are just some examples of the many questions that arise in an open banking strategy. As you move from thinking about open banking to executing, you should be prepared to have the answer to these questions.
As open banking is moving beyond the hype, I for one am done talking about open banking. I’m executing on open banking.