Partnering with the right people can help Banks succeed in their Open Banking journey, experts believe.
In the quest to offer additional services to their customers, banks can either choose to build their own Open Banking capabilities by themselves or form partnerships with fintechs and other third parties outside the financial services sector.
This decision will depend on the scale and size of your organisation, business strategy and the type of Open Banking service you are looking to establish - be it a standard offering or something more specialised.
However, many are opting for the latter, partnering with other industry players to add value for their customers.
Although the conversation around Open Banking has often pitted more traditional banks against tech-savvy fintechs, according Jacquelyn Painter, Senior Manager, Solutions Product Marketing for Financial Services at Okta, in many cases the two are actually collaborating to develop new products and services:
"The conversation at first was ‘fintechs: are they friend or foe?' but some of these legacy banks are now choosing to partner with fintechs so they can have a joint solution and offer products and services to their customers, while complying with Open Banking and PSD2. You have smaller, mid-size banks and credit unions and they need to be able to partner with a fintech provider as they just don't have the resources or bandwidth to implement such as big undertaking.
"Larger banks are doing a lot of this in-house, but there are certain aspects of Open Banking and Open Finance where it does make sense to partner with fintech providers depending on what use case or service they're looking to provide."
Hans Tesselaar, Executive Director at Banking Industry Architecture Network explained that it is not always necessary for financial services organisations to build all products themselves:
"When you look at car manufacturers, they don't develop everything themselves. It would be unnecessary to develop your own GPS if you have Google. So, if there are good things in place, then you should put all those different bits and pieces in place and connect them. As a bank you can pick and choose for all the offerings and create a best-of-breed whole.
"There are more resources outside the bank than inside, so, if you can pick and choose, cherry pick what you want and connect them to a best-of-breed solution, then you are the winner at a lower cost than developing it yourself."
Banks can bring reputations and a customer base to the table, whereas third parties can bring technical knowhow and may be in a better position to build new products at speed.
"What we're seeing is there is still a level of guidance that's needed" says Painter. "This is very complex stuff. It's not easy and it's very vague, especially if you look at PSD2 and RTS, they're vague and you have to read in between the lines. It's not like it gives you a checklist of what has to be done. And as banks, especially these bigger banks, look to go beyond Open Banking and look at Open Finance and embedded finance, and this Open Economy concept, they do need guidance.
"We've had customers say to us before, ‘we started building this on our own but now we need help as we're not in the identity business, we're not in the security business, we're in the banking business'. So, it's very hard for them to keep up with the evolving mandates and regulations and security enhancements that are needed."
However, it is important for banks to approach partnerships with care, as traditional banks' legacy systems, differences in organisational culture, and fears around banks becoming ‘dumb pipes' on which startups can build their services can create problems further down the line. As such, selecting the right partner is key.
Painter also highlights that it is important to have the flexibility to partner with multiple third parties to build an ecosystem that has interoperability at its core:
"It's really important to use a vendor-neutral partner. You want someone that you don't have to rely on fully for everything, especially if your strategy changes. Being able to make sure you have this best-of-breed environment, where you're picking and choosing, and having a solution that can integrate into all these different applications is crucial."
To find out more about the opportunities, challenges and future of Open Banking, read Computing's full report on the topic.
This content is sponsored by Okta