Why open finance and open data are great news for ‘traditional’ banks – as long as they adapt

Why open finance and open data are great news for ‘traditional’ banks – as long as they adapt

Just 10 years ago, fintechs weren’t even a thing. Now, they’re disrupting the financial and banking marketplace through their innovative, digital-first offerings – appealing to a new generation of customers through convenience and accessibility.

So where does this new wave of market entrants leave the centuries-old banking institutions that once had branches on every UK high street?

Well, according to JP Morgan CEO Jamie Dimon, banks are “playing an increasingly smaller role in the financial system” due to the prevalence of fintechs. “Competition [for customers] will be intense and we must get faster and be more creative,” he added in a recent annual report.

With 41% of the Gen-Z population holding an account at a digital-only bank, it’s harnessing this wave of creativity and innovation that could be the making of new-look traditional banks, rather than disruptor brands simply taking their place.

Big Tech’s Big Advantage

It’s easy to see where the likes of Apple, Google, Amazon and Meta have a distinct head start over legacy banking brands, and it’s down to their datasets being so vast.

Already the usability of their consumer-facing products is incredible. That’s because every major aspect of our lives is captured by them – our phone data, internet usage, health data and now financial transactions through the likes of Apple Pay and Google Wallet.

The unsurpassed level of data that’s available to these organisations about our lives can, and will, be a gamechanger when it comes to personal and business finance – but Big Tech isn’t the only industry that has huge datasets.

Banking brands will be able to add to theirs through a wider sample that comes from Open Finance and Open Data. The difference is that many just aren’t being smart or brave enough in the way they use it.

That’s where partnerships between those with the financial data (banks) and those with the audience data (Big Tech) may be the answer.

How Data Is Forcing A Banking Culture Shift

From a technology capability perspective, not to mention the relative size of their customer bases, financial giants like Barclays, HSBC, NatWest and Lloyds are used to ruling the roost in the UK banking landscape. But that may be changing, whether traditional banks are driving the process or not.

As well as a huge technological challenge, Open Data (and the regulations that enforce it) is going to be a significant culture change too.

Banks have previously kept customer data a closely guarded secret, not to be shared around. But now it’s going to be up to the customer whether doing so is in their interests because old-style ‘data hoarding’, or charging for access to it, will be rendered obsolete. That means if any bank is not set up to share data in the way customers would like, they’ll simply take their business (and their data) elsewhere.

While it may seem like it from some perspectives, this new landscape doesn’t have to be doom and gloom for banks and technology leaders – in fact, it presents as many benefits and opportunities as threats, if their infrastructure can keep up.

A Non-Traditional Role For Traditional Banks

They say “if you can’t beat ‘em, join ‘em” so, rather than be left behind, some banks are starting to carve out new roles.

The race towards producing customer-centric frontend technology with well-balanced APIs that defines new fintech brands may be unwinnable in the short term for many, given how far ahead a few of the disruptor brands seem to be. So, instead, many banks are becoming the reliable, trustworthy support structures that give credence to these new names.

For example, Merrill Lynch and Goldman Sachs are providing the infrastructure to support Apple’s new ‘Pay Later’ personal financing tool, and there are many other examples popping up across the industry.

Mastercard and Amazon have joined forces to create a new payment option when making purchases through the online retail giant, cab-hailing service Uber are embedding Visa payments into their system and Capital One and Apple have created a new ‘Apple Card’ credit card that’s designed to work with Apple Pay and offers numerous customer benefits, like cashback.

As Citi Ventures’ Global Head of Venture Investing, Arvind Purushotham puts it, where fintechs “once saw themselves as… anti-banks” that's now changing as we enter “an era of a lot of collaboration”.

How Things Will - And Must - Change For Tech Leaders

In the banking sector, until recently, technology teams were typically the facilitators of innovation and not necessarily the source of it. However, looking ahead, this is going to change significantly.

Open Data will mean new information is so available and accessible, especially to tech leaders, that they will increasingly find themselves at the forefront of leading huge changes in their organisations and becoming genuine drivers of business growth.

The most important way technology leaders can prepare for this is by immersing themselves in the regulations, like PSD3, that will create this new landscape, which may be a somewhat alien concept to many.

However, in this case there is a lot they will need to deal with so they should be readying themselves as early as possible.

Many of the implications are going to be tech-centric - for example, Open Finance and Open Data will prompt a huge upsurge in the number of API requests, so tech leaders need to know exactly what APIs they have, what data they provide through them and how they are made available. By auditing APIs in advance, financial institutions can establish if they’re appropriate, secure, scalable and cost-effective - especially to avoid the common, inefficient and expensive pitfall that is throwing everything onto AWS.

Many tech leaders may also need to change their perception of Fintech. Often, more mainstream organisations have been dismissive of the innovative ‘fail fast, fail often’ approach fintech brands take to new products and services, which have actually yielded some incredibly successful developments over and above the mainstream’s failsafe approach.

When Open Finance pits these contrasting approaches against each other, tech leaders, who are somewhat stuck in their ways, may be left behind as others adapt.

There are benefits to all of this too, of course. For banks and their technology leaders, there will be significantly more data being made available by other financial services companies - not to mention other types of organisations that collect data - to help make better decisions for (and about) customers. These could include whether certain products are appropriate for them, decisions around providing credit lines and how to target their mortgages and savings offers.

All of this has the potential to increase profits, as well as improving services. For customers it will mean greater security and fraud prevention and more personalisation when it comes to issues such as insurance quotes, which in future could be hyper-personalised using health or financial data.

Adapting To Thrive

While there is still a lot we don’t know about how banking as an industry will progress over the next few years, there can be little doubt that Open Finance and Open Data will be two key catalysts for whatever change may come.

To successfully navigate this new landscape, traditional banks will need to adapt and be open to new ways of working. They’ll need to be smarter in the way they use and share data, as well as updating their tech stacks to cope with more data-sharing and hugely increased API calls.

To do this as quickly and seamlessly as possible, we’re witnessing previously unforeseen (even unimaginable) partnerships spring up, between banks and Big Tech, and there will undoubtedly be many more to come.


About Kevin Ryan and Openbox

Kevin Ryan is Co-Founder of Openbox, the premium digital experience partner to the financial services industry that seamlessly connects technology and customer. He has been leading and delivering technical projects for the likes of JP Morgan, Clydesdale Bank and RBS for more than 20 years and is invaluable for his ability to simplify and explain complex concepts to stakeholders at all levels.

Openbox is armed with decades of experience and our consultants work with you to deliver high quality digital experiences that meet industry regulations and customer expectations, every time. Our dedication to exceptional collaboration and communication, paired with our deep industry knowledge, sets us apart from other digital experience partners. We work with you to drive successful digital adoption, strengthening your customer acquisition and retention. Be the only choice for your customer with Openbox by your side and be the digital experience leader in financial services.