Banks are missing the point of open banking

Executives from PNC and Bank of America said Tuesday it's not that they're not ready for open banking -- it's that their customers aren't. Open banking is what will allow banks to compete with other industries for the best customer experience. With APIs, or application programming interfaces, as the connective tissue, banks would allow companies to interact and share data with them more easily so customers can manage their financial lives however they want through whichever channel or app they want. “We’re ready, we’re in process of implementing APIs with customers,” Christopher Ward, head of product management for PNC’s treasury management division, said of the bank's corporate customers. “I would proffer most customers are not ready for it.” Ward highlighted that companies’ enterprise resource planning systems are still as archaic as some of the legacy infrastructure burdening the banks, citing a customer that recently stressed paying employees in physical checks. “We are certainly ready,” said Cynthia Murray, Bank of America’s head of global treasury product platforms and eChannels. “There is so much inefficiency… so much opportunity to have consortia and technology suppliers to provide solutions that can revolutionize the way we do corporate banking.” Murray added banks' corporate customers looking to build and collaborate with banks don’t want a proprietary API solution either from any one bank — they want an industry-led solution, and preferably one that works across jurisdictions as well as across organizations. But a lot of banks aren’t as ready as they think they are, according to Kevin Kohut, global API strategy lead at Accenture. You may see product announcements here and there from banks’ chief innovation officers embracing open banking, but Kohut, who works with their enterprise architects to actually put the technology and infrastructure in place, said banks still struggle to recognize the platform as a necessary component and say “we’ll just put that in later.” “There’s a lot of hesitancy to jump on board,” he said. “A lot of banks are insistent they don’t want to do anything public; they want to do internal APIs only and want to spend 18 months getting that all figured out.” Reality check Whether or not banks are ready depends on interpretation and perspective. It’s the job of regulators to determine whether or not a bank is compliant; it’s the job of the bank to determine how it will deliver open banking solutions that are compliant. But banks seem to be missing the more important point of open banking, which has come a long way from merely sharing data through application programming interfaces, according to Simon Paris, deputy CEO of Finastra. “Open banking in a lot of circles means ‘open up the banks and share the data with your competitors,’” Ward said. “Does it make sense that Amazon should give all its shopping data to Walmart? Is that open shopping?” Not really. What Amazon has done that banks can and should apply to their own business is embrace a platform business model that enables independent third-party merchants to sell their goods on Amazon’s platform to Amazon’s customers, Kohut said. Amazon can sell its own products, like the Kindle and Fire TV, while selling Apple and Microsoft and Samsung devices. Open banking isn’t specifically about financial institutions and startups opening up different capabilities to peers and competitors, it’s broadly about being able to power a “banking economy,” in which people don’t need the bank itself — just the expertise they can provide invisibly. Ward added that to him, open banking is about making it easier for customers to do business with PNC and execute transactions with more straight through processing. For Bank of America, “it’s an operational efficiency play,” Murray said. “That’s where we’re going to leverage APIs and open banking.” An entire financial journey Banks often think they’re ready because their payment information services and account information services are compliant, Finastra’s Paris said. But open banking isn’t about letting a customer pay for her mortgage through her Starbucks account, it’s about providing any and all types of services for a customer’s entire financial experience, without necessarily owning all of it. For example, a customer wanting to buy a house needs help determining what house she’ll buy and where, what she can afford, how to structure her payments, how it fits into her financial plan if she has one and negotiating the mortgage, even if it doesn’t come from her bank; when she gets the house she needs help optimizing the utility bill. A bank would provide her the mortgage. That they embrace customer centricity is a good sign but they’re still product-centric. “If I’m a bank and I own that customer’s trust, why do I only sell her a mortgage? Why wouldn’t I sell her utility requirements, telephone, broadband, television requirements, moving-in services? Why wouldn’t I offer a platform-based service to her for the one of the most important events of her life? Because I want to sell my product.” What happens to brand is one of the biggest internal conflicts banks will deal with in the year ahead as they navigate their identity crisis: becoming the invisible brand on the back-end while maintaining enough of its brand strength to continue owning customers’ trust — which is required of every financial institution no matter how their roles evolve. It’s a fine balance, but they can do both, Paris said. Ward isn’t concerned that PNC might lose the customer relationship. “If something goes wrong on Venmo, who do you call, who’s giving you your money back?” he said. “There are certain things that banks by regulation have to provide as capabilities; marrying those duties and obligations with an open environment actually makes it a richer experience for the customer.” Banks must always be competent at allocating cash, maintaining capital and managing risk, but their capability may be more than just product-based financial services. “What banks have to own is customers’ trust,” Paris said. “What they have to sell is anything they feel like.” Image via Citi Developer Hub