Open banking: Collaboration is the path to success for fintechs

Open banking: Collaboration is the path to success for fintechs | Articles

10 September 2019 by Julieta Atanasova

“Open Banking will make things simpler, quicker and more convenient. The innovation that new technologies make possible is endless and over time could create new forms of value we can’t envisage today.” – Roger Vincent – Head of Banking & Innovation at Equifax

The open banking model came into force in January 2018 and is still very much in its infancy, but significant groundwork has been done to pave the way for future innovation. With all the changes in the financial services industry led by open banking, along came the challenges.

Open banking is fuelled by regulation and governmental drive, as well as the changes in consumer behaviour. While it is gaining momentum worldwide, the extent to which different markets are ready to support the success of open banking varies widely.

According to the World Fintech Report 2019 fintechs believe they are better prepared for open banking. Likely because of their focused priorities and strategies. Across parameters, banks’ readiness is significantly lower than that of fintechs’, same study shows.

“Participation from fintechs and rising customer expectations are some of the best things that have happened in the financial industry. They force incumbents to leave their comfort zone, change their business model, culture, and technology architecture, to trigger a digital transformation tsunami.” – Siew Choo Soh, Head of Consumer Banking and Big Data/AI Technology, DBS

Open banking offers consumers access to new competitive services, thus building and maintaining a secure environment is vital to its growth. The main concern is that with the adoption of Open Banking traditional security barriers will come down.

The Which? survey shows 92% of the public don’t know what open banking is or how it could affect them. Over half (51%) of respondents said they would be unlikely to share their financial data, even if it led to products and services more suited to them, concerned about their privacy.

Players will have to develop and adopt standardised technologies and overcome security challenges by working with specialists and regulators. Banks can no longer ignore IT system upgrades, and fintechs will face pressure to develop standardised and secure information access modules.

Both data security and customer privacy are a challenge, especially for banks, as a breach could mean loss of customer trust and result in massive fines.

These concerns are increased by the poorly defined or non-existent data protection laws across multiple adoption regions.

The biggest challenge faced by both banks and fintechs is often the struggle to find the right partner for open banking collaboration, which can make product commercialisation difficult. With fintechs not managing to scale up operations and some banks struggling when it comes to effective fintech collaboration, structured collaboration offers a pragmatic path forward. Banks and fintechs will need to work cooperatively with other ecosystem players to clear concerns and obstacles around open architecture implementation and adoption.

Collaborations many times fail because participants are unable to find a partner to match their business requirements. Only 26% of surveyed bank executives and 43% of fintech executives say they have identified the right partner. The ability to find the right partner and to address technology capability gaps may require specialised third-party support.