Open banking is making waves in the financial industry and over the next few years, banks and Fintech companies are set to increase their adoption of open banking in order to benefit customers and increase their revenue base.
Open banking is a practice where banks open up their APIs (Application Programming Interfaces) so as to allow third parties access to financial information needed to develop new applications and services. APIs are a set of protocols and codes that define how applications communicate and share data.
Customers are set to be the biggest beneficiaries of the open banking movement. As banks open up their data to developers and Fintech companies, new solutions and applications will emerge that will improve the banking experience for customers. Most Zimbabwean banks have mobile applications to help customers transact on the go but most of these applications are substandard and are notoriously difficult to use.
Adopting open banking means players with better experience designing and developing applications can enter the space and create applications that provide a much better user experience. As better applications are developed there will likely be a rise in the number of transactions handled through these mobile applications. A rise in the number of transactions handled through mobile channels will definitely increase the bank’s income from service fees as well as reduce pressure at the banking halls.
Third-party banking applications will give customers solutions like personal finance management and account aggregation where a customer could have several bank accounts that can be accessed through a single mobile application. This means a customer can have a detailed overview of their savings, spending habits and overall balances without switching from one banking application to the other.
Open banking gives incumbent banks the opportunity to innovate as much as Fintech startups and create synergistic relationships that help them grow their revenue through subscription or referral services. Creating open banking solutions lays the foundation for Banking as a Service (BaaS) which means banking on-demand and within specified time frames.
Cooperate banking customers are set to benefit from open banking as it provides a much more elaborate interface for connecting business applications with banks. Customer data can also become available for analytics so that businesses can offer better products.
Adoption strategies and the way forward
A lot of responsibility lies with the government to create a framework that regulates how Zimbabwean banks will play in the open banking space. It is sad to note that the government has always been reactive to changes that take place in the industry and they always show up late for the party. It is therefore prudent for any bank that is serious about being an early adopter of the open banking paradigm to start putting in place measures for the adoption of the open banking model.
Partnering open banking API providers such as TrueLayer can be one of the quickest options to get up and running without committing too many resources to the development of in-house solutions. The main advantage of securing a partner is that they bring with them a lot of experience which will help reduce learning curves and guarantee the much smoother implementation of the APIs required to operate an open banking platform.
Large banks that have formidable ICT infrastructure can easily benefit by creating their own open banking platform that can be leased out to other players in the financial services sector. Leveraging on the ability to operate sizable data centers, these “infrastructure giants” can essentially provide balance sheets and payments infrastructure to smaller players in the financial services industry.
Open banking is coming to stay and banks that want to remain relevant should start looking at ways to educate their customers, increase technical capabilities and develop partnership strategies that will create a winning formula.