The implementation of open banking and PSD2 in Europe has already forced banks towards being more customer centric. However, while some may have initially seen this as a challenge, this shift is providing an excellent opportunity for banks to offer far greater value to customers and unlock more revenue opportunities than ever before through platformification.
By Danny Healy, financial technology evangelist, MuleSoft
We are amid a complete transformation of the banking sector, affecting the way that we, as consumers, will access and use financial services for years to come. The banks of tomorrow will no longer define how financial services are delivered – the demands and expectations of the markets they serve will. Customers won’t be tied to a single bank, but instead will access financial services wherever they want, whenever they want, and however they want.
Building a platform on APIs
Data is key to tapping into these new opportunities, offering huge potential for banks to build personalised customer experiences in partnership with other service providers. PSD2 and open banking encourage banks to do precisely this, prompting them to develop APIs that open up their capabilities and data for others to build upon. The more open that banks become, the more opportunities they have to join new value chains.
Platformification and open banking present an opportunity for banks to establish themselves as a hub where customers and providers can come to select the best products at the right price. They can capitalise on this and enable more revenue to flow through their business by building a platform of reusable APIs that connect to third parties. HSBC, for example, was one of the first UK banks to realise this vision with the release of its Connected Money app, bringing in data from more than 20 rival banks to create a hub from which customers can manage all their bank accounts.
Opening up to new opportunities
For banks to position themselves as modern financial services hubs, they need to reimagine their business through platformification. This can best be achieved by unbundling and repackaging their digital assets as a set of capabilities exposed via APIs. It certainly seems that many are on the right track, as the Connectivity Benchmark Report 2020 revealed that those in financial services were amongst the most likely to be using APIs – 85% versus the cross-industry average of 80%.
In time, this will lead to the emergence of an application network, composed of applications, data and devices. Every asset on the network becomes pluggable and reusable for any team that requires them, even for third parties. This lays the perfect foundation for future success, enabling faster innovation and greater collaboration between banks, FinTechs and other service providers.
With the implementation of an application network, traditional banks will be able to create new revenue channels by sharing their core banking capabilities and customer base with authorised innovation partners. Mastercard, for example, has turned many of its core services into a platform of APIs.
Into a more open future
As banks continue moving towards this vision, it is critical that they understand that going it alone will not maximise value for customers. Success can best be achieved with an API-centric mindset that accelerates integration and innovation and provides seamless banking experiences. Unlocking data through APIs and an application network is ideal for achieving a competitive edge as the pace quickens in the race towards a more open future for banking.