Industry moving from Open Banking to ‘Open X’

Even though Open Banking has yet to reach maturity, the financial services industry is entering a new phase of innovation that will require deeper collaboration and specialisation.

The European Financial Management Association (EFMA) and Capgemini’s latest World FinTech Report called this Open X, and stated that it will transform industry norms and assumptions, with a move away from the product focus to an emphasis on customer experience; the evolution of data as the critical asset; a shift from prioritising ownership to facilitating shared access; and an emphasis on partnering to innovate instead of buying or building new solutions.

Based on a global survey encompassing responses from 116 traditional financial services firms and 40 FinTechs - including banking and lending, payments and transfers, and investment management - the report identified a dual challenge: FinTechs are struggling to scale their operations and banks are stalling on FinTech collaboration.

As a result, industry players are looking to leapfrog beyond Open Banking towards Open X, which is a more effective, structured form of collaboration, facilitated by Application Program Interface (API) standardisation and shared insights from customer data.

While customer data is already widely shared and leveraged in the industry, standardised APIs are not commonplace. Although requirements and regulations are complex, standardisation will help to reduce fraud, improve interoperability, increase speed to market, and enhance scalability, the document read.

Industry players are looking at two potential monetisation models for APIs – revenue-sharing (which 60 per cent of banks and 70 per cent of FinTechs think is feasible) and API access fees (supported by 46 per cent of banks and 55 per cent of FinTechs). However, only about a third of banking executives said they are currently well equipped to monetise APIs.

The research suggested the era of Open X will create an integrated marketplace, with specialised roles for each player that will enable a seamless exchange of data and services, improving customer experience and expediting product innovation.

When asked what concerns them about Open Banking, the vast majority of banks identified data security (76 per cent), customer privacy (76 per cent) and loss of control of customer data (63 per cent). FinTechs were more optimistic about Open Banking, but half of respondents still expressed fears over security and privacy, and 38 per cent were concerned over the loss of control of customer data.

When asked about roadblocks to effective collaboration, 66 per cent of banks and 70 per cent of FinTechs pointed to a difference in the other’s organisational culture, 52 per cent of banks and 70 per cent of FinTechs mentioned process barriers, and a lack of long-term vision and objectives were listed as gates by 54 per cent of banks and 60 per cent of FinTechs.

Only 26 per cent of bank executives and 43 per cent of FinTech leaders said they had identified the right Open Banking collaboration partner.

“Open Banking has long been regarded as transformational for financial services, but this report shows it is just one part of a much bigger picture,” said Anirban Bose, chief executive of Capgemini’s financial services division. “The industry is on the verge of a more comprehensive evolution, where there is opportunity to leapfrog into an integrated marketplace that we are calling Open X.”

Vincent Bastid, secretary general of EFMA, added: “In the era of Open X, ecosystem players will have to work together more effectively than they have previously – only by embracing collaboration and new, specialist roles can both banks and FinTechs thrive and best serve their customers.”

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