The Open Banking Playbook
4 de julio, 2019
Tiempo estimado de lectura: 25 minutos
Open banking is proliferating around the world, forcing banks to change their business models. Open banking is underpinned by the idea that ownership of financial data should be put in the hands of consumers, rather than banks. This opens opportunities for third-party providers (TTPs) like fintechs or other banks to develop new banking services and products, facilitating competition within the financial services market by making it easier for customers to shop around for the best deal. Because the outcome of open banking is ultimately competition, many financial institutions (FIs) have been reticent to take action; therefore, regulation has been the key driver of open banking’s spread. In the UK, for instance, Open Banking regulation mandated the nine largest retail and small- and medium-sized business (SMB) account providers to use open APIs to allow authorized TPPs to access customer-permitted data and initiate payments on behalf of clients.
The stakes in the UK are high: Open Banking-related services will account for 7% of total banking revenue by 2020 — less than two years after the rollout of Open Banking regulation. With Open Banking facilitating competition and greater choice for customers, incumbents need to move quickly or risk surrendering revenue to new players or fast-moving incumbents: Business Insider Intelligence estimates that, by 2024, incumbents are at risk of losing £6.5 billion ($8.5 billion) of revenue to new or existing financial services providers. To come out on top of the Open Banking shake-up, incumbents will need to overcome challenging regulatory, technological, and business hurdles.
This Playbook is designed to help banks navigate the transformation to open banking and give insight into how leading banks are having success. Here’s a high-level description of the major sections of this report, which includes links readers can use to skip ahead:
- Business Insider Intelligence’s Open Banking Digital Maturity Model allows firms to measure themselves across the four key dimensions of open banking maturity: functionality, end user experience, resource commitment, and business outcomes.
- Three key case studies show how different institutions are transforming their businesses to take advantage of open banking.
- Our case study on DBS shows how FIs can take advantage of open banking to collaborate and cocreate with external parties, including partner vendors and developers.
- Our case study on ING’s spin-off Yolt demonstrates how banks can leverage the open banking opportunity to offer customers new features and greater choice — in this case personal finance management (PFM) and access to products offered by TTPs.
- And our case study on HSBC’s Connected Money app demonstrates how banks can enhance their digital banking experience, in this instance with account aggregation.
- A market forecast of the open banking revenue opportunity in the UK — the most advanced region for open banking — signals the global opportunity as other countries catch up.
- In the UK, the revenue-generating opportunity for incumbents and fintechs will surge from £2.3 billion ($2.7 billion) in 2018 to £8.4 billion ($9.7 billion) in 2024 as customer adoption rises. Three-quarters of this revenue opportunity will come from existing revenue and the remainder will come from new products and services, highlighting that the pie isn’t getting significantly bigger, but rather that existing revenue could be redistributed to fast-moving incumbents and fintechs — and the stakes are high for those that fail to move quickly.
- In key regions across the globe, regulatory activity, competition, and shifting customer behaviors are forcing increased open banking adoption. In countries with less developed open banking regulations — including the US, Japan, and Canada — the opening of banking services is likely to continue inching forward, driven by customer demand and competitive pressure. While in areas with advanced open banking regulations — like the UK, EU, and Australia — these services will continue to catch on quickly.
Open Banking Digital Maturity Model
Business Insider Intelligence’s Open Banking Digital Maturity Model allows FIs to identify strengths and weaknesses in their open banking strategy by measuring their capabilities across key categories. Banks that fall mostly into the «low» stage are at the exploratory stage of their open banking transformation, with limited API use cases, limited capital earmarked, marginal improvements on customer retention rates, and negligible impacts on the bottom line. Those landing in the «intermediate» stage deliver some enhancements to the customer experience, such as by offering account aggregation and savings and budgeting tools, and as a result are able to better attract and retain customers. Banks in the «advanced»category are leading the industry’s open banking transformation: Their multiple APIs offer excellent developer usability, they leverage partnerships with third parties to build new products and services, and these efforts drive multiple dimensions of return on investment (ROI), including new revenue, cost cutting, and customer loyalty. For a more detailed look at the benchmark methodology and its 13 dimensions.
Our case studies aim to help firms looking to advance along Business Insider Intelligence’s Open Banking Digital Maturity Model by exploring the open banking-enabled capabilities of three incumbents at various stages of their transformation journeys. We focus on how open APIs give access to new data sets that can be used to create fresh products and services, with account aggregation, budgeting tools, and personalized products as a few examples. We also look at how banks can opt to open their APIs to external developers and partners to create an ecosystem where third parties can create new products, while banks can expand their reach and potentially tap into new sources of revenue.
DBS Developers: A Hub For In-Demand APIs
Business Insider Intelligence spoke to Bidyut Dumra, executive director and head of innovation at DBS Bank, about how DBS created a developer ecosystem by offering easily consumable APIs to external partners, which could then experiment and build new products and services across a broad array of markets.
Challenge: DBS saw success in developing APIs with partners, but wanted to scale its collaborations and create new propositions faster.
DBS’ foray into open banking started with small partnerships. For example, in July 2017, DBS Bank India partnered with Tally Solutions, an accounting platform that targets SMBs, to create an e-payment solution that helps Tally’s customers better manage, initiate, and track payments, as well as streamline accounting processes. This was achieved through an API that integrated DBS’ banking services into Tally’s platform. By simplifying payments and accounting processes for its clients, Tally elevated the customer experience, while DBS «gained a foothold into the SMB market and was introduced to new clients,» per Dumra.
Dumra said DBS knew there was something valuable to leverage in this model and the bank wanted to find a larger-scale approach to the API economy; to achieve this, DBS created a developer portal, which would allow «both the bank and its partners to create new products and to scale up quickly,» per Dumra. He added that «a portal would also encourage open innovation» by enabling external parties to cocreate with them.
Strategy: DBS probed startups on the usefulness of its APIs and created a dedicated innovation team to launch its API developer platform, DBS Developers.
To gain insight into the value of the APIs in its initial list, DBS started with a hackathon, where 15 startups were given access to dummy APIs to provide feedback on their usability. The hackathon became the foundation for the APIs the bank started creating, per Dumra. Dumra added that DBS looked to prioritize API use cases that benefited all involved parties — the customer, the bank, and DBS’ partners — and those that could be «replicated across multiple partners.» To scale, Dumra said DBS had a team responsible for presenting use cases to partners and attracting interest, while it also opened the developer portal so external parties could suggest new use cases.
When DBS launched DBS Developers in November 2017, it made a wide range of APIs available to third parties, such as corporates, fintechs, and software developers. It was the world’s largest developer portal, per Dumra, offering 155 APIs across over 20 categories, such as rewards and funds transfers, and had more than 50 partners, including AIG and McDonald’s, which enabled the bank to run multiple projects. Developers that plug into the bank’s platform can use its technology, toolkit, and sandboxes to experiment with APIs and build new solutions. Further, for the majority of DBS’ services and products, there is already an API in place, per Dumra, which means that a partner could effectively white-label a bank through DBS’ virtual sandbox. Dumra described the APIs «as a standard USB cable that allows you to connect to multiple devices and move data securely around.»
Results: DBS was able to attract more partners and customers, improve banking transaction volumes, and enhance customer engagement.
In measuring success, DBS looks at a variety of indicators, including: the number of API partners, API calls, new developer portal registrations, new companies approaching the bank, and adoption of use cases. Dumra added that the platform has around 300 APIs and 100 partners today — double the amount in each metric at the time of launch — and approximately 4,000 developers. When asked about the gap between the number of APIs offered and the number of partners, Dumra told us that «some partners might have multiple journeys and use multiple APIs.»
To measure the impact of use cases, the bank looks at DBS Developers’ effects across three metrics:customer acquisition, transaction volumes, and customer engagement. For example, The Fund Transfer API drives increased transaction volumes; retail partners can enable customers to access their DBS bank accounts and withdraw cash through its transfer API without the need to visit an ATM. The bank has so far seen indirect sources of revenue enhancement from its API strategy.
According to Dumra, «KPIs should mature as the organization matures.» While at the start of the journey it’s useful to look at a metric like usage of APIs, later in the process, the impact of APIs would be better indicators to measure, he added.
Our take: DBS should further engage the developer community, optimize its ability to attract partners, and find ways to monetize its APIs as it pushes forward with its digital transformation.
While DBS offers a market-leading number of API use cases and good developer usability, the bank — as well as firms looking to replicate its approach — should ensure that its APIs meet the demands of partners to maximize adoption. As it continues to build and leverage its extensive data infrastructure, DBS will find it easier to offer in-demand APIs and quickly respond to the changing requirements of its new and existing partners. Understanding what developers and partners want and gaining efficiency in attracting them is key. Engaging with developers online and organizing fresh hackathons where startups can offer feedback on the usefulness of potential new APIs could help with that. Banking peers looking to replicate DBS’ developer portal model should also take these considerations into account.
Focusing on an API monetization strategy should also be a priority for DBS and its peers. Through its platform, DBS has enabled the creation of a vast array of solutions, driving innovation and enhancing the customer experience. And as the bank’s platform matures, DBS will look to understand the nuances of monetizing its APIs, per Dumra. Identifying which aspects of APIs have revenue potential and creating a roadmap for delivering against them are key to success. Fidor Bank provides a good example of a bank that has effectively monetized its API strategy: It has created a Banking-as-a-Platform system, fidorOS (fOS), which utilizes APIs to help companies build a digital bank from scratch, and generates revenue through commission income from the platform’s tech side. BBVA also made eight APIs commercially available in 2017 through its BBVA API Market, allowing third parties to deploy its offerings in a live environment for a fee.
ING’s Yolt: A Stand-Alone PFM App
Business Insider Intelligence spoke to Benoit Legrand, chief innovation officer at ING, to find out more about how the bank’s stand-alone account aggregation platform Yolt has helped it act on the open banking opportunity.
Challenge: Consumers had to visit various scattered accounts to see all of their financial information, making it difficult to gain a clear understanding of their overall finances.
Consumers found it unwieldy to piece together a picture of their finances from multiple sources. In response, ING sought to meet consumer demand for a clear and holistic view of their finances.
Approach: ING launched stand-alone brand Yolt, which leverages open banking to aggregate customer accounts and provide access to third-party services.
ING launched Yolt as a stand-alone project for two reasons: to reduce the perception of biases toward its own products, and to explore open banking in a less restricted environment. The app allows consumers to see all of their current accounts in one place; so far, over 25 banks and institutions are on board, including American Express, Barclays, and Monzo. Consumers also have access to a limit of five financial offerings from TTPs, including pension fintech PensionBee, digital wealth manager Wealthify, and Moneysupermarket, which lets users switch energy services. ING initially built Yolt for consumers, but expanded the offering to businesses in February 2019 to grow its addressable market. ING aims to use Yolt as a model to build additional stand-alone services, Legrand said.
More broadly, Legrand mentioned ING’s two in-house open banking initiatives beyond Yolt and other stand-alone services it may be working on:
- It’s currently getting its own open banking platform ready. This will enable ING to connect with and integrate TTPs within its own services. In the future, this will allow ING to become a platform and provide users with more services.
- ING is looking into adding its services on other platforms. Many other companies are also building marketplaces to allow for account aggregation and to offer third-party services. ING wants to offer its products and services through those third-party marketplaces to further expand its customer reach.
Results: Yolt is still relatively nascent, and it’s difficult to judge future success on current customer numbers.
In October 2018, less than one and a half years after launch, Yolt onboarded 500,000 customers. Yolt fires 4 million API calls weekly, which ING says is more than any other provider, and accounts for the majority of open banking traffic, according to Legrand. ING measures success in a variety of ways: For example, the bank looks at how many customers it has, how many new ones it’s able to attract, as well as the retention rate; Legrand declined to provide data across the board. That said, Yolt launched in Italy and France in January, suggesting that the solution’s initial run was successful enough to warrant expansion.
Our take: Launching an offshoot allows ING to rapidly build, test, and improve services; but to transition along its transformation journey, it should look at how to best attract new customers, as well as at developing additional targeted API use cases.
Yolt has one main benefit over launching similar services within ING: It doesn’t rely on legacy processes, but can use new systems that are more agile and adaptable to change. This makes it easier for Yolt to add new features for customers and compete with other offerings in real time.
To further enhance Yolt, ING should consider expanding its marketplace to give users more options from third-party financial products and services. ING should also work on opening its APIs and plugging into other companies’ platforms as soon as possible to ensure that its own services are in the limelight of its open banking strategy. Alternatively, the bank could incorporate Yolt into its platform to give its own customers direct access; however, this could mean that the platform would lose some of its agility. Looking at implementing additional use cases, such as for payments initiation, would also help it transition across the API functionality scale, while all above-mentioned strategies would allow it to improve its customer retention rates and attract new clients.
HSBC’s Connected Money: App-Based Account Aggregation
Business Insider Intelligence spoke to Uttiyo Dasgupta, head of strategy, UK digital bank, retail banking and wealth management at HSBC Bank, about how his bank moved early to create account aggregation app Connected Money, aimed at improving the customer experience.
Challenge: HSBC wanted to help customers see the big picture of their financial health.
The vast majority of UK consumers (97%) have a bank account for their everyday transactions, 78% have a minimum of one credit product, 72% have a savings account, and 82% have at least one insurance product, per the Financial Conduct Authority. Customers traditionally need to log into a number of online banking portals to access their different financial products, a tedious and time-consuming activity. Further, the disaggregation of data makes it difficult for consumers to identify spending patterns and gain a complete understanding of their financial standing. Account aggregation solves these issues by allowing consumers to see all financial accounts in one place.
Approach: HSBC launched the Connected Money app in May 2018, which allows customers to view their bank accounts in one place.
The app enables customers to view current accounts, as well as some savings accounts, loans, mortgages, and credit cards, across 25 banks. Further, it provides insights into customers’ spending patterns, an overview of how much money could be left after the payments of future regular bills, and savings pots, which enable customers to save for different things by splitting their savings account into several specific pots. Today, thanks to Open Banking and PSD2, a small number of UK fintechs have addressed this need: Money apps Yolt and Emma, for instance, support aggregating over 25 providers, including banks, pensions and investments. But almost no banks in the UK offered the capability as of mid-2018, according to Dasgupta. Connected Money, while inspired by Open Banking, is not quite there yet, with the app currently screen-scrapping all account data other than HSBC’s. The bank intends to transition to using APIs by the September 14 deadline. Further, HSBC is trialing marketplace banking at its digital-only bank First Direct, by integrating financial products and services from a variety of providers, something that Dasgupta said Connected Money could eventually weave into its app.
Results: Connected Money is becoming increasingly popular among HSBC’s clients, and upcoming features could accelerate its uptake.
To measure success, HSBC looks at how many people have downloaded the app. While it’s still early days for the app, which was launched to HSBC customers in May 2018 and is only available to iPhone users on iOS 10 or above, Dasgupta said that 330,000 users have downloaded it so far. For context, HSBC UK had 8 million active customers within its Retail & Wealth Management division as of Q4 2017. Dasgupta added that HSBC hopes to launch the Android version this spring, while it has a number of features on the backlog with between «10 and 12 to be launched soon.» Features include automatic savings, where debit card transactions are rounded up to the nearest pound and the change is then transferred from the customer’s current account to their savings account, the setting up of savings rules, as well as of spending alerts.
Our take: HSBC’s Open Banking strategy can help it ward off nimble fintechs, but to advance along its digital transformation journey it needs to continue enhancing the end user experience.
Although HSBC has moved faster than most incumbents in the UK to offer an account aggregation app, it’s not the only one to do so: Lloyds Bank, Halifax, and Natwest have all recently followed suit, to name a few. HSBC will also need to ensure it’s using APIs before the September 14 deadline.
As account aggregation solutions become standard, HSBC should focus on adding greater connectivity and more PFM tools to differentiate from incumbents and compete with fintechs. Popular options among consumers include insurance, pension, and investment account aggregation or retirement planning features. And as it further develops Connected Money, HSBC should review metrics beyond downloads to ensure its new features are solving real customer pain points.
A number of fintechs, like Starling Bank and N26, have built their own marketplaces, going beyond account aggregation and PFM. Evolving Connected Money into a marketplace that will include third-party offerings alongside its own products will help HSBC advance its digital transformation and ward off competition from new entrants. It would also allow the bank to offer personalized recommendations on products and services that proactively meet its customers’ needs and desires, moving further toward an advanced standing across our Open Banking Digital Maturity Model. Owning the customer interface itself would allow HSBC to maintain the customer relationship, preserving the advantage it already possesses by way of its broad customer base and strong brand recognition.
The Open Banking Opportunity
Open Banking will enable the redistribution of existing incumbent revenue and create novel revenue-generating opportunities through new products and services:
- Redistribution of existing revenue: Increased competition means that existing incumbent revenue could be captured by agile fintechs and fast-moving banks that reimagine or improve upon financial services offerings with Open Banking-enabled capabilities. Incumbents could potentially sacrifice £6.5 billion ($8.5 billion) in revenue to competitors by 2024, according to our estimates, up from an estimated £1.8 billion ($2.4 billion) in 2018, per PwC. Retail overdraft decoupling and retail money management solutions will account for 76% of this opportunity.
- New business opportunities: Revenue from new business opportunities, such as bespoke retail lending and integrated accounting offerings for SMBs, could reach £1.9 billion ($2 billion) in 2024, per our estimates, up from an estimated £0.5 billion ($0.7 billion) in 2018, per PwC.
Underlying the opportunity are the following key growth drivers:
- The standardization of APIs. This will make access to information, such as transactional data, easier, enabling new entrants to develop and deploy valuable new propositions faster.
- Widespread adoption of powerful data analytics methods. As data flows more openly and speedily between financial services providers, industry players can combine the power of data with the increased adoption of advanced analytics capabilities to generate insights. This will allow them to offer personalized customer journeys and advice.
- Accelerated customer engagement with Open Banking solutions. As awareness of Open Banking rises and the propositions enabled by the initiative improve and proliferate, customer adoption of such solutions will also accelerate.
International market opportunities for open banking hinge on regional regulatory maturity. Active government intervention has been key to prompting banks to adopt open banking services, because banks are otherwise reticent to unlock customer data for fear of inviting competition. That’s why open banking services are rarer in countries with minimal open banking regulations like the US, China, and Canada. The open banking services that do exist in those countries are driven by first-mover incumbents’ desire to get ahead of competitive pressure and consumer demand, which are likely to build slowly over time. To see where the market opportunity could reach as open banking regulations spread, customer demand rises, and competitive pressure mounts, the UK — with its highly mature regulations — is an ideal bellwether.
The Open Banking Digital Maturity Model was developed through conversations Business Insider Intelligence analysts conducted with executives spearheading open banking initiatives at leading FIs, vendors, and fintechs. Our maturity model is intended to help FIs measure their progress in taking advantage of the open banking opportunity.
To create this maturity model, we first used a mixture of our own analysts’ expertise and that of expert third parties to identify the key categories and subcategories that signal the maturity of a bank’s digital transformation with regard to open banking:
- Functionality: The quality of back-end tools that companies offer in order to enable open banking integrations, such as developer portals or APIs.
- End-user experience: The breadth of open banking features consumers of bank services can use, such as the ability to link multiple bank accounts in one portal.
- Resource commitment: The amount of staffing, leadership, and capital lined up in support of open banking efforts.
- Business outcomes: The scale of a bank’s ROI from open banking, such as better client retention or cost cutting.
Next, we divided the key categories and subcategories into three degrees of maturity for a given bank’s open banking transformation: low, intermediate, and high. This allows banks to measure how their own services stack up against industry leaders in the open banking movement.
Fuente: BI Intelligence
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