Open Banking (What could be)
Open Banking (OB) is generally described as a concept that allows bank customers share their data with 3rd-party companies (other banks, fin-techs, Service Providers etc.)
In my opinion, that description downplays the full capabilities of OB and all it offers. Maybe because a lot has changed since OB was first initiated. Here’s why.
The year is 2030, you want to pay for your vacation flight to Barcelona on XYZ Airline’s website, you simply enter your Open Banking ID (OB-ID) on xyzairline.com and all your bank accounts pop-up alongside the airfare, you select an account to pay from, you then enter your OB-ID password and a token to conclude payment and then you.., no, actually that’s all.
Oh, you want to move money from your Starling bank Account (savings) to your GBT Bank account (current), currently, you probably have 2 banking apps on your phone for your two bank accounts. Not to worry, with an OB app (let’s call it Uno App), you can handle everything for all your accounts.
Remember how before you had to buy MTN, Glo and Airtel sim cards or even carry dual-sim phones? And now you can literally “port” network on the same phone-number? Well, with the Uno App, you can literally “Port” your bank account info and account balance in a few seconds from GBT to Starling Bank right on your phone anywhere in the world!!
In-fact, if GBT irks you much and you want to open a new bank account with Zen-Bank, all you need is your OB-ID, no paperwork. Just choose the bank you want on the Uno App, and viola, you have a new bank account with Zen-Bank (say bye to documentation problems).
Saka (video below) would be proud of you for porting 🙂.
And in the very rare event you need to visit a physical bank branch, you don’t have to search for the “closest branch” to you, you just visit any of the “Bank-Ports” in town, yes, you got that right, it’s 2030, building/maintaining physical branches is too costly for banks, so they decided to save cost and build a big office together where you can easily meet any bank you want, just like how you meet all the airlines at the airport. After-all, they all peddle the same products, so why not stay together (just imagine how armed-robbers would plan to rob a bank-port😂😂).
And on the economic perspective, OB will drive an integrated marketplace that allows non-banking companies (Agricultural, Transportation and the likes) easy access to user data, thereby expanding the ecosystem, and consequently accelerating innovation that silo-ed banking (and limited access to user data) would never be able to achieve.
Okay, snap out of future-2030, all that’s has been describe above might sound chimerical, but then I believe, we sometimes tend to underestimate the capabilities of new technology in the long term, while also sometimes longing for too much in the short term. David Ben-Gurion use to say- “all experts are experts for things that did happen. There are no experts for things that may happen”. So really, only time will tell. But from history, we know that technology will continually win in improving processes, and OB technology is not an exception.
What would enable this?
Simple, bank APIs (Application Programming Interface), this might sound a bit strange to non-technical people, a less technical term for this is interoperability (i.e allow Bank A operate with Bank B). For the uninitiated, APIs are like “ambassadors” for banks, for example, an ambassador from Portugal to Nigeria exists, you don’t have to know him/her, but whatever business Nigeria needs with Portugal will pass through that ambassador, so ambassadors basically relays messages for the countries involved. That’s basically what APIs are, they basically enable communication (data transfer) between banks and any authorized 3rd party, once a specified set of rules and computer programming jargon are put in place.
Are the APIs currently available?
YES.
So what’s holding us back?
Well, the financial sector is heavily regulated for good reasons (people’s money/data need to be safe, asides money laundering concerns and co), hence, innovation has mostly been restricted to the banks, though technology is gradually changing this. So, a major part of what’s needed right now is for the appropriate government bodies to issue directives and policies that would allow OB development and adoption (There ‘s an European version already).
Doing this will erode the monopoly of innovation that currently seems to be held by banks & Fin-techs companies. With this in place, any authorized company can wake up and actually build a financial tool without needing the banks’ “blessings” on it.
What could this mean?
From the banks’ perspective, it will mean lots of profit erosion, a lot would need to be done to realign/create new business models that suit the new partnerships with 3rd party companies to enable revenue sharing.
OB is obviously not in favor of the banks, so it’s no surprise that banks are not aggressively pushing it’s creation/adoption. But again, it’s all a matter of perspective, change is inevitable, so what is needed is adaptation and a visionary-mindset that can see what could be in terms of the value OB offers to the customers, rather than the profit erosion the banks would take in.
The truth remains that customer-centricity will remain a major competitive advantage for any company. So if bank executives can see that OB offers untapped customer-centric values, coupled with the fact that change is inevitable, then they’d quickly move and prepare for this future. OB is in fact, an opportunity and not a threat.
Worthy of note is the fact that, the pioneer rarely wins, so the first bank/fin-tech to go head-deep into OB might not necessarily win it all, but at least they (and other observer companies) would learn a lot. So anyone implementing OB should be aware that there is very little room for error, because a lot of things could go wrong. And if things go south, customer trust would be lost on OB products. So an advice would be to fail fast, learn and iterate on the OB products till it just works.
What could go wrong?
Fraud, data-breaches, cyber-security threats and a few other bad things that can happen when proper security measures are neglected. Even with all these in place, there will still be issues, but they will be minimal if standard compliance checks and balances are put in place as to what set of companies can access the API.
Also, the government team that will be powering OB in terms of regulations & policies need to be an in-depth and cross-functional one (experienced technically and business-wise), else wrongly placed regulations and software architecture could ruin the OB adoption and experience.
What would actually be
Using the analogy of classifying tech products as pain-killers or vitamins. where painkillers are products that actually solve important problems for users, i.e “need to have” (e.g. Computers & phones), while vitamins are products that just improve quality of life, “nice to haves” (e.g. video-games, most social media sites etc).
Currently, OB looks like a vitamin, but vitamins can sometimes become painkillers over time (I feel social media is relatively a pain-killer depending on the age group you’re asking), and that’s exactly what OB is going to be like. A time would come the world can’t just do without it. Whoever is “lucky” (prepared) enough to create a good product that takes advantage of that time will be well rewarded and consequently the institutions who can’t keep up will have to watch themselves fade out.
Manik Gupta once said “..if you provide users the right features at the right time, they will use you, and you’d create affinity for the product”.
I feel OB is not a question of IF, it’s a matter of WHEN.
*P.S: If you’re interested in having a chat around OB, or maybe you’re a software/Business person thinking or working on something around OB, I will be glad to have a chat with you. Or if you’re just enthusiastic about this and would like to know more than the article covered. I will be totally glad to talk about OB over some drinks ;)
