API Business Models

Open Banking: Successful Implementation Strategies

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Open Banking is gaining momentum globally and is quickly becoming the standard for leading Banks & FinTechs worldwide. It is set to disrupt traditional banking business models, but can also pave the way to new and innovative business models that drive customer acquisition and new revenue streams. 

I’d like to talk about specific aspects of accelerating digital, especially in relation to financial services, FinTech, banking and businesses, and share with you some use cases and examples from around the world where one-on-one digital has been working with banks to implement the solutions. Accelerating digital, and challenges that come with it are not new. Banks and financial services organisations have been talking about some significant challenges in relation to customer engagement and customer acquisition.

Challenge number one: it is what I call the “Engagement Challenge”. As an example, if a customer, the average person, has 20 or 25 apps on their mobile device, the most used apps tend to be social networking, sports, music, news, health and fitness, entertainment, games, etc. You will notice banking is not present and you all know why: you don’t get up in the morning thinking that you want to launch your banking app. So clearly, there is an interesting challenge for FinTech banking organisations on how they engage and build relationships with customers when their time is spent on other priorities and other cases. 

This obviously also leads to the second challenge, which is the Acquisition Challenge. While banks and financial services organisations have invested heavily on digital channels, you find that most of the activity on digital channels is transactions and services. People use the channels for inquiries, making payments and checking balances. Only very few new customers onboard through those channels and there aren’t many new customers sales. So what’s going on here is that you invest heavily on these channels, but the channels are being used as service channels. That’s because the channels don’t really have the capability or the attraction to onboard new customers or to drive sales. These are two key problems that financial service organisations are facing and have been for a considerable amount of time. 

Now, let’s look at how the rest of the market is doing and how the restaurant industry is doing. According to some research published by MIT, the “ecosystems drivers” are the most successful digital businesses. Essentially, businesses that are not standalone, but aggregate or bring together services from multiple parties to create a more compelling customer experience. And of course, APIs are the glue that allow businesses to create this ecosystem business models.

As far as banks are concerned, they have traditionally invested in an omnichannel via paper forms, internet banking and mobile banking. The omni channel has meant that if you want information or if you want to apply for a loan, you can come to the branch, apply through the website or the app but either way, it’s only available through the bank’s own channel. The customer is therefore expected to go to the bank channel and do all the work on that channel.  It’s quite restricted whereas if you have an ecosystem, there is a more compelling experience for the consumer who is trying to address a lifestyle in buying a home. The steps he will take will follow a more logical pattern: how do I find my home? Is it in the right location? Can I actually afford it? And would it actually appreciate in value? Is it close to the schools, hospitals, whatever? And what are all the other services I need? Oh, by the way, I also do need a loan. So the consumer’s mindset is about improving their lifestyle by buying a house rather than necessarily applying for a loan. This is perhaps one reason why the ecosystem business models are gaining more momentum. The customers’ interactions with the ecosystem app or platform are more meaningful and more relevant to them, compared to simple banking services. 

What are the ingredients that make these business models possible? And what’s the relevance of open banking? Now, the concept of this ecosystem business models has existed for a while but perhaps the introduction of open banking in different markets, what it enables, the sharing of data, is now making these models more possible and more feasible. So clearly, there is open banking and CDI as mechanisms of sharing data that allow people to draw insights and surface those insights on the platforms and on the apps on the user side. This means that banking as a service has become more commonplace now that it can be offered by banks and others and introduced into the ecosystem from the consumer side. Another very important ingredient is embedded finance, the idea of being able to integrate banking services easily into the ecosystem. To sum up, the combination of open banking, banking as a service, and embedded finance are three teams that are playing in this space, that are fueling the ecosystem business models, that allow banks, FinTechs and others to create more compelling propositions, and not just for licenced banks, but for anybody to be able to do that. 

If, based on the MIT research, ecosystem business models are the successful ones, then we have a lot of ingredients now readily available for us to be able to convert to that. Let’s take a look at what a typical ecosystem example looks like. This is just an example of a small business ecosystem which is quite interesting. As we have seen, many banks around the world are targeting this ecosystem. There’s a business in the middle, and the business has suppliers, customers, employees and family. By servicing the business more holistically, and seeing the interrelationships and the data that is flowing through between the business and the other parties, the service providers are able to bring together more meaningful sets of services, not just for the person in the middle, but also through them, acquire their employees as customers or their suppliers as customers and their customers as customers. You can see that the relationships that are created on a platform through an ecosystem are really important and significant for the financial service and those things can be enabled through the technologies and APIs that we are talking about. Let’s take an example: we did some work in Africa where we turned a traditional bank into banking as a service platform. The idea here was very similar to the example that I presented earlier on where there was no new customer acquisition or sales on the digital channel. By applying this business model, we essentially enabled the bank to provide APIs so that other businesses could embed those banking services in their apps. A number of different businesses, who already had existing pools of customers, are now including the bank’s APIs, whether it is for savings, deposits, payments, or loans into their applications, therefore making their business process and experience much more seamless. New customers are brought via the digital channel through partnerships of business using the APIs.

So what does a platform look like? You have to bear in mind that banking is not the main stage, it is just one of many capabilities that are made available to customers. Clearly, there’s a whole bunch of third party services or partner services that are brought together and are enabled to integrate banking and non-banking services. Being able to view and manage data and turn those data into insights enables apps to provide product comparisons, recommendations, product catalogues, and a whole plethora of services that can be easily embedded in, such as lifestyle centric use cases around employment, health, education, etc. This use case has come up because banks are offering their APIs to the outside world, and partners want to create their own use case by using the bank’s APIs. Those collaborations give rise to new ideas of APIs, that either the bank can source directly or from their partners to create a plethora of use cases. Another example: there’s a UK-based neobank. Their intention was to provide credit to small businesses but instead of creating a loan application, what they did was create a platform running all the functions a small business would need to perform on a daily basis, making the user spend more time on the platform. And of course, they can also let you apply for a loan easily because they have most of your data on the platform. This takes the friction out of everything and encourages the user to consume more. 

We have a second use case where an open banking integrated app is provided to small businesses to run their business. The users have access to a whole bunch of business functions such as the bank’s risk management platform for businesses, utilising the data coming from the app to make better credit decisions and make customised offers. It is not necessarily a big ecosystem play, it is more data being brought and being enriched and providing insight that sometimes even the business doesn’t have. 

101 Pay is a product we have created, seeing the need in the market for this style of products. 101 Pay is an app that is targeting small businesses, that integrates open banking data from multiple banks in the market, provides a view of cash flow, and provides a view of recommendation. It obviously compares a product you are using against others available in the market but it also allows small businesses to do their invoicing and payments using open banking rails so that it’s a cheaper payment mechanism than the cards and also, when you finally decide you need credit, it simplifies your application. There’s a complimentary app that goes with that for the employees of the businesses, it has all the open banking features on it, but also salary payments, available payslips, as well as access to health and well being services. This is a case where the employer of a small business is offering its employees a wealth of health and wellbeing services, maybe discounted, maybe through partnerships, but also engaging them on that app. It also provides great engaged visibility on data to the provider of this app, a bank or a Fintech, as it is not only data on banking. This platform allows you to aggregate open banking and third party services from other partners, and that aggregation layer allows you to draw insights, and then provide the services on an app. Obviously, these things can exist without open banking but it makes it much simpler.

Now let’s cover some examples of the types of things that are being done with open banking APIs in that space. First, we have Open Data, product information and CDI and that allows you to compare products and see the best possible offers. As far as loans are concerned for example, you’ll receive the best possible offers from what is available in the market based on the duration and amount you want to borrow. Secondly, giving the user aggregated view of accounts so that small businesses which tend to have multiple accounts, don’t need to log into all of them, it’s all in one place. And obviously, all of this comes with very valuable and rich data that can be used to offer better insights. Thus, if you combine the two things that we’ve just seen, you can say to the small businesses “here are your accounts and here are the products available in the market so you can potentially save some money by switching a product, which we can help you with”.

This format is not restricted to banking, you can do this across other platforms like in accounting, which tends to be quite common with the businesses to provide a consolidated view of receivables. This means banking and receivables are on the same platform, and insights are provided to help optimise wealth and then create linkages between small businesses and their related parties. In very simple terms, we’re combining recommendations based on market insight and accounts information aggregated on a single app from multiple banks. All of these functions are available on 101 Pay, the app that we have built and that we are offering almost free. It is a white label product or source code so people can take it and modify it. 

Finally, we have a collection of free APIs available at: https://openbankingaustralia.bank-api.net/  so if you’re interested, go there, give it a try. Let us know what you think. If you think that we can make some enhancements, also do let us know because we are very interested in supporting the digital acceleration and acquisition through these APIs. We are really serious about accelerating digital, and accelerating digital in relation to customer acquisition. In order to support that, we have got a collection of free API’s that we are providing people, and we are continuing to improve them. We also have a standard Neobank SDK, which is essentially a collection of APIs that can be used to create a neobank supporting ecosystem models to promote customer acquisition. Finally, we also operate https://openbankingdirectory.io/, which is a directory of all the fintechs banks and APIs from around the globe. So if you’re FinTech, bank, or associated business, please do put yourself up there, if you’re not already there. It’s a growing list of companies. It’s free. It’s simply provided to make access to APIs, and ecosystems convenient for the users. 

Q&A Section

Q:  There’s an ecosystem provider in healthcare that had issues when customers didn’t understand the degree of access that was going to be granted to their other services, even though it was disclosed in a long customer statement. For example, lawyers would contact them when they’re being treated for an accident. Has this kind of things happened to banks and/or will it?

A: Banks have been really good with that actually, maybe even too good as they tend to be overly cautious in that respect. It’s a blessing, and it’s a curse because it is one of the barriers stopping banks from adopting these business models. Banks do have to address those issues but they are very good at having the small print and the terms and conditions around their products. They will tread very carefully, especially when it comes to the grey areas of open banking and data sharing, which is why they are very slow in adopting the new ways.

Rana Peries

Rana Peries

CTO & Co-founder of 101Digital
A commercially focused, business & technology leader and innovator with over 25 years of experience in financial services (retail banking, insurance, SME & corporate banking) in developed and emerging markets including Australia, Africa, Europe and Asia. Well versed in Strategy, Transformation, Digital Banking / Payments, Business Model & Technology Innovation, Program Delivery, Vendor Management, Building & Leading High Performance Teams.

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