APIs and the customer journey to Open Banking
The current primary focus for banks around PSD2 and Open Banking is ensuring that they are able to satisfy the regulatory requirements. Compliance with the technical implementation aspects of PSD2 come into force in July 2019.
As banks now hurry towards ensuring compliance, we see a different approach being adopted by tier 1 banks (versus tier 2 and 3 banks), which are making significant investments with the obvious intention of commercialising Open Banking further down the line.
The larger banks are embarking on huge projects, making large scale changes to their front ends and working on a model in which they will become initiators and third party providers (TPP) themselves.
The smaller, tier 2 and tier 3 institutions are not currently focused on how Open Banking will help them generate revenue; they are looking for a minimal change approach to meet the regulatory demands of PSD2 quickly and simply.
That is where Volante comes into the frame with a practical and attractive proposition, an “out of the box” solution which is easy to implement and delivers the future proofing capabilities needed as Open Banking evolves while at the same time, delivering compliance with the regulatory requirements of PSD2. An example of this is the recent Volante announcement of Qatar Islamic Bank (QIB UK) taking Volante’s VolPay Channel: Open Banking solution.
For Open Banking to work, banks have to create and expose APIs for third parties to use – and this is where the real challenge lies. APIs on their own are easy to create, but they have to be executed within a seamless customer journey including secure and well-orchestrated integration with the bank’s existing systems.
This is new territory for banks and for TPPs and the customers whose accounts are being opened up. It creates a variety of issues around security authentication and reporting. Some of the banks’ core internal systems are legacy-based and to create a real time API and go through this functionality of payment initiation and security authentication is a challenge for many systems.
An additional unknown is that there is a lot of speculation around how comfortable customers will be in terms of exposing their accounts to third parties.
One of the recurring themes is that Open Banking on its own is not going to be a significant revenue generator, at least not in the short or medium term. What seems to be a more immediate revenue generator is the use of Open Banking when connected with services such as real-time or instant payments.
Current methods of sending payments could be consolidated in real time APIs, but a real time API running on a back-end system still operating on batch mode is not going to offer a great customer experience or fulfil the full potential of Open Banking.
What we are seeing is that banks are looking to combine Open Banking with real-time or instant payments and indeed, that is how a truly seamless customer experience can be created. The commercialisation aspect of Open Banking is not only going to be about building APIs and exposing customer accounts to TPPs, it is also about combining these with propositions such as real time or instant payments and then building a seamless user journey that a customer or a TPP would be willing to pay for.
By Nadish Lad, director and head of payments product, Volante
This article is also featured in Daily News at Sibos 2018, our flagship daily publication at the Sibos conference.
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