Open Banking/Finance is Coming

“Rather than seeing open banking as a threat, we can increasingly see ways to create a seamless end to end integrations” – Megan Caywood, Managing Director Barclays

There were 12 keynotes or panels that focused on this year’s buzzword — “open banking.” Open banking, or open finance, is the concept that business networks focus on creating network effects. Obviously, banks and financial institutions are still competing, but they are working towards shared transaction data, shared IT infrastructure, and cross-compatible systems.

“The bank that embraces connected banking will increase their revenue, control market share, and increase their product services available.” –Andrew McFarlane, Managing Director @ Accenture

Open banking is about shared services and creating platforms and ecosystem for users. It’s currently being driven by the use of open APIs, which have increasingly become mainstream topics. More accessible and seamless APIs are becoming popular as integration services and streamlining operations become priorities.

“The unbundling of products is not only happening, but accelerating.” — Colin Payne VP and Head of NextGen Banking Capgemini Invest

Banking was once a bundling of products and services that could provide users everything they may need. Today, a customer might have 5–10 apps to manage their financial lives. Robinhood, Acorns, Venmo, and an app for every credit card or bank that an individual utilizes. As open banking further unbundles aspects of the financial industry, enterprises will need to adapt to maximize their ability to serve customers and clients.

From the crypto perspective: the view of open finance is much more, well, open. Crypto-native individuals envision a world where lending, borrowing, and other financing activities are conducted in a more distributed fashion. Banks envision open finance as a consortium or ecosystem where more users and companies are connected to provide more efficient services and better experiences.

The two visions, while distinct, share the common goal of creating ecosystems for financial services. Open banking from the finance industry will bring greater benefits to large clients and other enterprises whereas crypto-focused open finance or decentralize finance will focus on individual users and consumers. Both visions will meet in the middle to provide better services and ensure for more efficient markets.

Digital Identities for Banking

Is privacy well and truly deceased, or was it just never fixed properly? Well, put the largest bankers and aspiring technology firms in a room to formulate an answer and their answer comes down to one thing: identity. This highly relevant subject garnered a whole day’s worth of conversations at Sibos.

Identity is at the forefront of importance for digital ecosystems, data control, payments, and is a key issue in the future of finance and technology. Some of the most plausible use cases were verifiable credentials for professionals or improved KYC and AML compliance for clients. ConsenSys-backed uPort — which provides a platform that allows users to manage their ID, keys, and data on an app — announced a partnership with PwC and Onfido to use blockchain technology to combat inefficient client onboarding processes.

“A digital id is the glue that brings an open data ecosystem together.” – Andrew McFarlane ,Managing Director @ Accenture

With a universal identity or touchpoint that is used for every platform, data provided by digital IDs will prove invaluable for any entity. However, while digital identities will provide greater connection across platforms and more seamless user interfaces, they present opportunities for greater data manipulation.

Banks and institutions are still deciding who should control identities. Users, banks, national registry, or another entity? Should users get paid for their data, or will they still willingly sacrifice their data for free platforms or added features? Major institutions are still dealing with these overarching questions and as of now remain unsure of the correct solution, while blockchain-integrated solutions like uPort are striving towards the era of agency in privacy.

Coopetition over Competition

Coopetition isn’t a new term. However, as technology evolves, it gains a new meaning. Pseudo partnerships or product collaborations are no longer seen as the epoch of collaboration. Banks are realizing that they are unable to innovative at the margins, or satisfy edge cases for B2B and especially B2C consumers. Now, multinational banks and financial institutions continuously advocated for partnering with leading Fintechs and other companies to create ecosystem networks. With the increasing belief that customers care more about experiences, large firms are seeking for opportunities to partner with startups and other institutions to provide the best experiences for their customers.

“There’s a symbiotic relationship that can be had between Fintechs and banking that can improve the services for customers. “ — Megan Caywood, Managing Director at Barclays

Network effects are the main priority. Apple’s entrance and Facebook’s attempted penetration into the financial payments world is making other banks and payments companies nervous. It’s painfully obvious that, at the consumer level, banks and financial institutions need to innovate or risk losing a significant portion of their business. The best way to develop networks ecosystems for banks is to create networks where enterprises meet the various needs of their users.

Consortia are a typical solution or mechanism for building ecosystems where enterprises can leverage their collective power to control the market. As with all network effects there can only be so many winners. The banks and financial institutions that develop the strongest consortium will ensure the longevity of their businesses.

Data as a Battleground

It’s official: data is the next battleground for enterprises. Data is becoming an issue between exchanges and the user base. Clearing fees and trading fees have been the most recent battleground, as evidenced by the success of companies like Robinhood. The next battleground will be asset pricing.

David Schwimmer, CEO of London Stock Exchange Group said as much during his fireside chat, stating that “LSE is a consumer and producer of data, and there are attractive synergies across capital markets and data.”

Schwimmer also laid out the five types of data distribution channels for the financial sector:

Desktop terminals(humans), Electronic feeds Cloud Third-party On press/on location

LSE purchased financial market data and analytics company Refinitiv for 27 billion in August of 2019. Exchanges are focused on taking back their data from the likes of Bloomberg and Reuters. Fortuitously, ConsenSys-backed DrumG also announced the live launch of its Titanium Network for pricing fx markets.

Data has often been compared to oil, and is often touted as the most valuable asset. More broadly, stated data is becoming money. If a company isn’t handling or using data, then it is leaving money on the table. Banks and financial institutions never leave money on the table. Expect to see them try to acquire or partner with data and analytics companies to remain competitive.

As enterprises seek to harness the power of data, many also understand the liability that holding data brings. Large firms are recognizing the important steps to manage customer data, such as establishing data rights, determining the role of user consent, creating effective liability models, developing legal and regulatory frameworks, and finally actual implementation.

“We will see a clear difference between countries that have established data rights and those who haven’t” — Gavin Littlejohn, Chairman of Global Trade Association on Open Finance

Blockchain Buy-In