Open Banking has moved very much as our 2018 research predicted it would.
When I talk of Open Banking here, I’m talking mostly of collections of APIs that banks make available to each other and third-party providers. This is a key component of fintech innovations.
When it comes to Open Banking, banks must choose how they want to engage with their customers, other fintech players and the industry itself.
Unlike Europe or Hong Kong, South Africa has no regulations driving the adoption of Open Banking. But many banks are taking the initiative to adopt it anyway.
The CEOs of FNB and Standard Bank are on record talking about platform banking, and both Nedbank and Absa have made investments in the Open Banking space.
This means that our banking sector sees opportunity and possibly a way to pre-empt regulation, and manage some of the risks that Open Banking may pose.
Research shows financial institutions are more or less evenly divided between three main ways of engaging with Open Banking.
The first is Banking as a Marketplace.
Discovery’s roots are as a disruptive health insurer. The company started by tracking and rewarding its customers’ gym attendance.
That evolved into tracking customers’ buying habits and rewarding spend on healthy foods in grocery stores and restaurants.
Discovery wins by harvesting useful information about its customers to help predict health issues, and Vitality’s partners benefit because Vitality customers are encouraged to spend money within the platform partners.
Discovery applied the same thinking to vehicle insurance — and now to banking.
A Standard Bank press release announcing the bank’s adoption of the SalesForce platform quoted CEO Sim Tshabalala as saying “We don’t want to be the shop. We want to be the mall.” This speaks to its ambitions in the “Banking as a Marketplace” model.
The second model is called Banking as a Platform. FNB CEO Jacques Celliers has come out strongly and publicly in favour of being a platform business.
Platforms often evolve as a by-product of a company’s core business. Amazon’s core business was selling books. It has now evolved to a point where you can buy pretty much anything from Amazon.
To execute its core function, it needed sophisticated customer service systems and a vast and low-cost cloud infrastructure. Amazon is now providing its cloud infrastructure, and the exact same call centre systems it uses, to its clients.
The other example everybody uses is Uber, which used Google Maps as a platform to launch its ride-sharing app. Now it is evolving into a platform, first for restaurants to use to deliver orders, and more recently, for “last mile” deliveries.
The last option for banks to engage with Open Banking is Banking as a Service. Here, banks provide banking services for third-party providers (TPPs) which on-sell their innovative products.
Apple Pay is the company’s peer-to-peer and credit-card operation. It partners with local banks in the jurisdictions in which they operate. Apple provides the card security and ID management, and the local banks offer Apple banking services.
There is a lot to unpack around these three approaches, as each has its own pros and cons. I would urge a bank to assess the viability of each in terms of strategic alignment, and to be very critical of what they aim to achieve and gain vs. what they are giving away – particularly relating to customer relationships, trust and security.
Of course, there are also risks to be managed. My colleague Justin Bradshaw has written recently about those risks and how banks can mitigate them.