An article in Forbes has some interesting perspectives and asks some good questions regarding approaches to open banking and what it could mean to financial institutions. Prompted by a recent study from Accenture around the topic, the article contemplates a horizontal approach meaning where a financial institution provides access via APIs to its customers’ information to third parties who offer the user experience and technology layer, versus a vertical approach where financial institutions build or buy the user piece. Alan McIntyre, a senior managing director at Accenture, said:
“Some banks may be happy to give up the front end. Smaller players may like to make their products easier to use with APIs as a way to grow volume and their balance sheet. Or banks can export their expertise and products to third parties or the bank can be an importer and get in front of the customer and use other providers’ products and services.”
Citi with its Citi Connect for treasury cash management wants to create an API driven platform that can connect to other apps or be a component.
“They are moving away from a holistic cash management portal to a series of individual products and services which you can consume directly or through someone else’s portals. It’s a move from vertical integration to be more a set of horizontal stripes with different functionality coming from different places.”
Stripe provides another example of API functionality. It is simple software to accept cards on line.
“They do one thing really well. It has become easier to assemble the Lego bricks in banking today where 10 years ago it would take a lot of glue and duct tape.”
A danger McIntyre sees is around data standardization, or the absence of it. But even without regulation or standards for data, “You are seeing a lot of activity. Banks recognize this is the direction of travel.”
A likely outcome in the U.S. where open banking is unlikely to be mandated as it is in other countries, is a combination for both strategies. FIs could provide full end to end services for those markets that are most important to them and then supply data to third parties for less critical client types.
Overview by Sarah Grotta, Director, Debit and Alternative Products Advisory Service at Mercator Advisory Group
