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Open banking is on everyone's minds now – and for a good reason. In Latin America, open banking is bringing society together to achieve greater . social inclusion In Africa, fintech companies are engineering a , and the latest are provoking an inevitable face-off between challenger banks and traditional financial institutions. new hub for economic activity EU regulations on open banking Compared to the world's emerging open API-fintech landscape, the US banking system is falling behind its more glorious opponent: the world's emerging open banks. While lawmakers have taken an and roll the dice for an open banking system, the biggest resistance so far has come from the – due to high investment costs, lack of IT staff to implement open API technology, and a lack of regulation. important step to overhaul the current data privacy law banking sector itself The reluctance of traditional financial institutions is a stumbling block to innovation. Here’s what they are blindly missing. How Open Banking Works Everywhere Else Forget utopian novels – open banking simply refers to sharing consumer data and exchanging that data smoothly with third-party services via open Application Programming Interface (API) technology. A good prototype is the iPhone and its Apple Store. The apps you download to monitor your sleep in your health application or get automatic calendar entries about upcoming flights to work because of open APIs – a technical medium that allows various programs to access, read and process data. The Payment Services Directive (PSD2), a European regulation, applies to banks and e-money providers. It facilitates access for third parties to both transactional data and payment operations. This allows EU businesses like the to evolve. Via Tikkie, you can quickly ask friends who owe you their part of dinner out to transfer you that cash in real-time. Tikkie app But while the EU is moving at a rapid pace towards favorable regulation, the scenario in the US is quite different. The US banking sector is traditionally much . Few banks attract consumer attention and manage the market. However, this is why open banking is even more critical – instead of concentrating data within the existing big financial institutions, financial data must turn into accessible, democratized goods for all players in the economy. more monopolistic Additionally, the data infrastructure of these banks is ancient, often leading to problems and faulty data connectivity. Customers experience connectivity failure rates of between when they first attempt to link their accounts to third-party tools, depending on the type of financial institution they use. Without improving connectivity and renovating their data infrastructure, businesses will face bugs installing open APIs and continue handling disorganized and unreliable data. 47.39% and 40.16% At the same time, the US is fertile ground for open APIs – but not only because of the reining inequality. Roughly of American households lack access to a bank account, and around 20% do have a bank account but still require financial help with services like payday loans. If you look at the country’s statistics almost no financial services exist for low-income households, and the , it’s all rather gloomy. 7% racial wealth gap Open APIs are the key to overhauling the financial system and elevating social equity – but are also crucial to generating new revenue for the banks. For example, financial institutions could realize if black Americans had the same access to financial products as white Americans. approximately $2 billion in incremental, additional annual revenue Changing the Rules of Credit Access When it comes to the financial health of the US population, the Center for Financial Services Innovation (CFSI) finds that of American adults are struggling financially – with either large sums of debt, irregular income flows, or sporadic savings patterns. Additionally, approximately 91 million US adults today are credit-challenged. 57% Until now, bank loans have worked like this: After you apply, the bank checks variables like your credit score, background, and income to determine how much money it can lend you and what annual percentage rate (APR) you qualify for. On paper, this looks pretty straightforward, but in reality, the credit check is an extreme hurdle millions of US citizens face every day. Many of them fail to meet the predefined credit score indicators. About have no histories with national credit reporting agencies such as Equifax, Experian, and TransUnion. An extra 19 million have credit reports that are so limited or out of date that they are unscorable. All these people are living without credit scores – so they have no chance to access , including college loans and money for healthcare. 26 million American adults traditional forms of payment support After all, a person’s life is neither stable nor predictable, which means that the question of creditworthiness is a complex one. Circumstances can change dramatically within a few days. Nevertheless, traditional lending is usually based on financial records dating back months, if not years. A reliable credit risk analysis based on an individual’s financial data, rather than opaque documents and intransparent variables, will help many Americans finally earn the deserved right to apply for a credit card or get a loan. Our analysis, for instance, looks at things like liquid cash flow, debt to income, bank service fees, and utility payments rather than just credit history. Customers can expose their data for consumer lending or other financial services with an open API. Fintech companies (like Klarna or Afterpay) or merchants who allow for credit payments grant access to affordable financial products, so-called nano-loans, or even micro-insurance – and banks should offer the same services to stay in the market. A Wealth of Consumer Lifestyle Choices Banks have traditionally served as financial service providers, but thanks to open banking, they are now able to provide a wide range of consumer-lifestyle products – whether it’s concert tickets, dining reservations, or promotions and loyalty points on their purchases. A good example is the , allowing consumers several benefits when buying products via the card and mobile applications. It is important to note that it isn’t Apple that provides all the additional lifestyle services. Instead, third-party providers offer their products via open API payment, resulting in a broader and more consumer-friendly user experience. Apple Titanium Credit Card API integrations allow for a faster and more seamless shopping experience. As a user, you are just a click away from paying any potential service and receiving an additional loyalty bonus such as cashback without having to type in any account details or logging in to a user account. And with an open API, there’s also a much brighter future for larger investments, like housing. A customer potentially interested in an asset can use their banking application to access relevant financial documents, area real estate information, and current mortgage or rent details all on the spot. Enabling Customers to Make Informed Financial Decisions We need a human-centered approach that brings buyers back in control of their own data, lifestyle decisions, and financial wellness. Open APIs are a great asset for encouraging informed financial behaviors and improving people’s monetary health. For example, the average – some of these might be interested in tools that could help them save their money for investing in a coffee machine. By accessing financial data, technology can analyze customers’ individual situations and opportunities for improvement. Often, people pay too much for a service, either because they don’t know the alternatives, or because they don’t even know how much money they are spending in the first place. 25- to 34-year-old spends more than $2,000 a year at coffee shops Assessing financial data, service providers can help customers look for more suitable alternatives for loans or credits for lifestyle products, cars, and education loans. Smart data analysis can further guide important decisions like saving up for a down payment or when to buy or choose a financing option. If you empower clients to improve their financial health and navigate their finances along their life stages (and with more predictive insights), the result is a much more personalized and sustainable customer approach. Tips on Adopting an Open Banking Model Cornerstone Advisors’ research suggests that only 11% of US adults held their in December 2020. Undoubtedly, there is a lot of growth potential for banks and fintech to build on the needs of today’s customers. Banks are basically sitting on a gold mine, but have yet to exploit it. primary checking account at a digital bank Let’s check what steps are necessary for moving towards a digital banking strategy and an open system. Security requirements One key factor for safe data transfer across applications is cybersecurity. There are several vulnerability points: attacks on third-party services, on the API itself, the application you use, or against the whole company. To regulate and secure the transfer, authentication, authorization, and delegation of credentials, it is advisable to implement security standards like HTTPS, mTLS, OAuth 2.0, OpenID Connect, FAPI. For better access security of customers, you can use multi-factor authentication methods, including (as they are unique to each user and difficult to imitate or copy). In this process, the user will always be asked whether a third-party service can get access to their data with an authenticator app, a pop-up, or a web page verifying their identity. identification factors like biometrics Privacy statements Getting privacy statements is one thing – getting active content of your customers is where it gets tricky. Since, as a bank, you're hosting the data of users, you're just giving their data back to them. Customers must have the technical ability to decide on variables such as the extent of sharing, the time period, and the purpose behind giving active consent. Customer buy-in When transitioning to an open banking model, it’s key to get the customer's buy-in. That’s where marketing is helpful: Use your social media channels, email newsletters, and FAQ page to point out the benefits you're creating. The only details transmitted with open banking payments are payment instructions sent securely to the customer’s bank rather than the merchant making online payments much safer. So, you can't go wrong with a campaign about the new opportunities and services you can now offer – while stimulating a discussion on privacy and financial inclusion. Another crucial action is building customer support systems for when payments go wrong, technical difficulties arise, or customers need support with third-party service transactions. Open banking providers must have procedures in place in case a customer is not happy with their payment management or order. The key is to build an unbiased dispute settlement mechanism that decides customers’ rights and obligations case-by-case. Why Banks Need to Act Now Due to new regulatory winds, 2021 was a historic year for open banking – and 2022 will bring an implementation tornado for banks and financial service providers to implement customer-centric services. Just ask yourself this: Why would a customer switch services when they can get everything they want, regardless of who they are from one institution, and one single platform?

How Open Banking Can Revolutionize Dated Banking Systems in the US

Whether it’s the Chinese dragons, Baidu, Alibaba and Tencent or Indian juggernauts like Flipkart, Asia is the birthplace of some of the most successful unicorn startups. Asia’s vibrant startup ecosystem simply has no rivals. So, what’s the secret sauce to joining the unicorn startups of Asia? It is, essentially, a recipe for success no startup can do without! #1 It’s Not What You Sell But What People Want to Buy From You When McDonald’s arrived on Indian shores, not many vegetarians were delighted by its chicken burgers, which is why the global fast-food chain changed its menu! burgers made their way into Indian diner’s hearts and grabbed their wallet share. McAloo Tikki Similarly, Paytm was born out of the need to eliminate wallets and cash, and to further improve the convenience of customers. Google made a difference in people’s lives across Asia by offering Google Maps. People would need to ask for directions earlier, which was highly inconvenient especially if it was during odd hours. Now, all they have to do is feed in the address on the map and locate the area. After all, it’s easy to know where to go when you’re moving in the right direction! Amazon started out as a bookstore, but grew as an ecommerce brand. It now meets the needs of different customer segments. From being a niche player to a universal online retailer, Amazon’s done it all. Each of these businesses has one thing in common: they meet consumer needs. The age of “build it and they’ll come” is over. The era of heightened consumerism is here. The focus is on what people are buying, not what your company is selling. Asian unicorn startups are tapping on to this phenomena. China alone has 46 of the 192 total known unicorn startups across the globe. China’s unicorn startups have a combined valuation of $209 billion, as per CBInsights. The Chinese startups are cashing in on ready consumers in a thriving marketplace. Consider the ride-hailing service provider, Didi Chuxing, who with a valuation of $50 billion is just one step behind Uber, or mobile and hardware maker Xiaomi that is pegged at $46 billion. Each of these startups starts out by generating value for customers. For example, Xiaomi aims at client co-creation. It even has its own consumer community — MIUI forum. Consumers can tell Xiaomi what they need in a product. Xiaomi then builds products based on customer feedback! This forum scored 10 million registered users by 2018. That’s not all — it even had more than 100K daily publications! #2 Tapping Technologies in the Internet Age When Google was born, the aim was simple: Providing unstructured data to common people like you and me, who are looking for information online. That has not changed, but Google’s fortunes have. All because of technology, people are being drawn to unicorn startup brands. Apple’s diversified offerings across a single product line or Netflix with its movie-streaming services … these are just some ways in which technology is deemed as the king and queen of the present age. It is also the secret to the success of many unicorn startups. From video gaming startup Garena in Singapore to Traveloka in Indonesia and GrabTaxi, tapping new technologies is the key to success. Millennial digital natives respond incredibly well to this. WEF estimates that by 2020, 64% of the Asian population will be below 40 years of age. These digital natives are disrupting the Asian economies and driving growth. Traveloka CEO Ferry Unardi is 30. Go-Jek a ride-hailing app has its CEO in Nadiem Makarim at 33! Going online may be the best way to mobilize your startup. It also accelerates growth. A research by McKinsey pegs mobile penetration rates in Asia at 110 per cent and growing. This is where startups like Tokopedia and premier online marketplaces like Bukalapak by Achmad Zaky are cashing in. In the startup industry, innovation is clearly the buzzword. Ecommerce is big. Technology is even bigger. #3 Building a Culture of Trust Trust is the currency businesses to deal in now. Unicorn startups are no different. Customers need to feel a sense of trust. The only way to build it is to innovate. Attracting funds is not about the right elevator pitch or the perfect presentation. It is about real results. Your profit margins, revenue, growth stats — all of these need to reflect what an amazing innovator you are. This is how Bullet Messaging, a startup launched in August 2018 garnered an impressive $22 million in funding within 7 days of being founded. Big players like BAT look for game-changing startups to invest in. If you fit the bill, the results can be phenomenal. #4 Start With Innovation But Grow With Repetition Consider how successful ‘India’s Amazon’ Flipkart is or how GrabTaxi has beaten Uber at its own game. It’s not just about having exceptional ideas but also working on how to execute these. The real success comes from processes and systems. Streamlining operations, refining processes — it’s all about building a sense of synergies and letting your team thrive. #5 Creativity Counts Byju’s is a unicorn startup which demonstrates what thinking creatively can do. Within three years of launching its learning app, the startup has 20 million users and 1.26 million annual paid subscribers. Its CEO, Byju Raveendran, started out by going to campuses and schools to teach students. He even lectured in a stadium once! Now, Byju’s has become a billion dollar company with investors like Sequoia Capital and Sofina simply because of an idea that was creative for its time.

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