The open banking landscape is filled with questions. They are not necessarily about the value that open application programming interface (API) integrations can deliver to financial institutions (FIs) and fintechs — that’s fairly well established at this point. Instead, they concern where tech spending dollars should be funneled for the greatest impact for customers and for banking institutions.
Open banking is an approach where information moves seamlessly between various financial services providers through APIs, allowing separate systems to communicate with one another. There are more entry points for open API integrations today than ever before: payments, account opening, loan origination, direct banking initiatives, crypto and fintech partnerships among them.
It’s tempting to want it all. But that makes it easier than ever to get distracted from what will deliver real value to your financial institution and its account holders.
Open Banking is a Tool, Not a Destination
Competition in financial services demands innovation. However, it also leaves institutions vulnerable to a lack of strategic planning — in this case, of identifying how they can best leverage the broadening suite of APIs to align with key priorities.
This is especially true of community and regional institutions with comparatively small tech budgets. They need to focus on payoff in a few core areas at a time, rather than diluting their budgets across too wide a range of services that may not deliver sufficient return to justify the investment.
Many financial institutions are creating new staff roles around strategic partnerships and fintech strategies to solve such challenges, guarding against “tech creep” to ensure that technology investments and implementations align with broader business goals.
Some of the smallest financial institutions in the country are following this thinking to great effect. They make careful choices. What they do they do not because everyone else is doing it but because each of those initiatives is tied to a specific goal: They want to attract younger account holders, grow share of wallet, capture more deposits and interchange revenue, or expand their digital footprint to eventually make in-roads with a brick-and-mortar presence.
The actual steps taken to meet those goals vary. They could include a new crypto offering; improved infrastructure to become a lucrative option as a sponsor bank; or a virtual-only offering in a market in which they have no branch footprint.
How to Set Strategic Priorities that Open Banking Can Enable
The crux of a financial institution’s strategic priorities within the context of open banking ultimately boils down to one question: With limited resources, is it more important to invest in back-office efficiencies that improve operations or to create entirely new products that may open new revenue streams?
Some organizations have the resources to do both simultaneously. But it’s just as often an either/or question in the short term.
It’s tempting to opt for the latter, to look at the competitive landscape and the suite of open banking offerings that create something new and exciting for customers and say, “We need that, too.”
Putting Results Ahead of Cool:
The better option may well be the simpler — and far less fancy — choice that answers the question, 'How do we make what we're already doing that much better?'
Asking that question will almost inevitably lead financial institutions to improve some of their most basic or traditional services and the back-office processes that govern them.
With the right set of APIs leveraged at the right time for the right product category, results may be seen almost immediately. They may become a catalyst for better customer experiences, business growth and a solid foundation for future product adoption and revenue capture.
- Open Banking: Catalyst for Banking’s Future Growth
- How and Why Frost Bank Loves Open Banking & Data Sharing
- Data Reveals People Don’t Trust Open Banking or Fintechs, But Use Both
How to Implement a Smarter Open Banking Strategy
In a recent CSI survey of several hundred banking executives and decision-makers, 39% of respondents said they have yet to adopt an open API strategy.
Among those who have set a strategy:
- 39% said they leverage open APIs to offer third-party products and services to customers in the form of platform banking.
- 21% said they embed their data, products and services into third-party workflows.
- 16% offer APIs enabling third parties to access their data.
- 15% enable fintechs or businesses to offer financial products.
- 12% use APIs through other financial institutions to improve services.
This data makes it abundantly clear that the road to adoption is far from universal — and for a significant cross-section of the market, has yet to begin. It also shows the myriad entry points into an open banking ecosystem and the potential barriers to entry that many are still trying to overcome. These may be lack of capital, a lack of tech strategy or both.
What's Stopping Your Progress?:
Decision-makers should home in on one or two specific problem areas getting in the way of meeting a broader set of goals.
For example, let’s say a financial institution has found through a survey that customer experience needs to be improved to retain account holders. It may look to open APIs to automate and accelerate identify verification during online account opening, implement real-time updates to account balances and launch a chatbot for basic banking tasks. These are all relatively simple open banking integrations that can immediately improve efficiency and customer satisfaction.
Here’s another example. Let’s say that same institution wants to grow its commercial lending business, a business line that historically requires much time, manual inputs and back-end reviews that make it intrinsically tough to scale. It could turn to APIs that remove dual entry for existing account holders during the application process, create and input a set of business rules that automate underwriting and decision-making for various loan products, accelerate identity verification, and automate KYC and sanction screening processes. Collectively, these integrations improve back-office scalability while altogether eliminating several customer pain points within an existing product.
Then it’s on to the next problem, and the one after that—and so on, until all the major barriers to growth through efficiency have been eliminated. In this way a banking institution can explore the adoption of entirely new products and services, ready to implement the same efficiencies and economies of scale that enable further growth.
About the Author
Tara Schultz leads CSI’s open banking and banking-as-a-service initiatives. She has more than 15 years of experience in the fintech and financial services industry through her time at Wells Fargo and CSI.