Why banks want to collaborate now on open banking standards
- In 2018 there will be more one-off data sharing agreements, but the industry will also begin developing cross-industry standards for controlling and moving data
- U.S. banks want to get ahead of their own regulators when it comes to creating data exchange standards -- "it’s better that we prescribe it as the industry than let outsiders come in"
The race is on to standardize open banking. And banks have learned the lesson that collaboration is better than competition — at least when it comes to this area.
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. Banks have spent all year learning how to share customer data among themselves and other third-party financial firms — and monetize that data. API-based data sharing agreements like the deals Fincity signed with Wells Fargo and Chase this year are evidence of those efforts. But banks need to move beyond those one-off agreements if they’re going to create a full suite of financial services to offer customers through a true open banking platform ready for customers to use.
There will be more of those one-off agreements in 2018, according to Julien Courbe, financial services advisory leader at PwC, but the industry will also begin developing cross-industry standards for controlling and moving data to different parties as well as consumer protection standards — which is necessary to build an open ecosystem of financial services. Banks traditionally aren’t good at sharing any of the goings-on of their individual organizations, but they’ll have to work together (as well as with the startups they began embracing this year) on this before someone else imposes new rules on them.
“If we don’t do it now organically, with everyone cooperating and collaborating, then at some point, some entity — government or otherwise — will order us to do it,” said Kevin Kohut, global API strategy lead at Accenture. “And they may or may not prescribe the best way to do it.”
Every U.S. banker is watching their European counterparts react to the looming Payment Services Directive, or PSD2, which will come into effect in 2018. When that happens, banks will lose their monopoly on customer data as merchants and retailers like Amazon will be allowed to retrieve customer account data from the banks (with customers’ permission).
Now, U.S. banks want to get ahead of their own regulators when it comes to creating data exchange standards. It can take 18 to 36 months to get a framework in place, Courbe said, but banks know they need to start exchanging data with other companies today.
“It’s better that we prescribe it as the industry than let outsiders,” like regulators or giant retailers slowly encroaching on the financial services industry, “come in,” Kohut added.
Even by embracing and eventually building a robust open banking platform, they might not get the kinds of “monolithic” customers that’ll buy every service on the platform, Kohut said. Banks need to “granulize” those services and profit in ways that also allow third parties to package and present their own services however they want, he added.
Any standardization model also needs to be consistent across the world for giant companies like Bank of America that have serve many clients internationally.
“You need to globalize that at consistency so you don’t have different standards for each country in Asia, for example,” said Cynthia Murray, a managing director at Bank of America. “You can’t do it on your own, that’s why collaboration is so important. You can’t change the industry just because you might be the biggest in banking. The providers as well as consulting groups have a role to play in bringing the banks together.”