Open Banking: Why banks need to do it
By Marc Brogle, CTO Banking & Capital Markets, DXC
Imagine a virtual ATM. An application that gives you cash anywhere. An app enabled by local shops or restaurants where you can withdraw cash on the spot instead of running around the city to find your bank’s ATM. It sounds like a dream, especially if you find yourself cashless in a place with no ATMs around.
The virtual ATM is not just a dream, but an actual app and a fine example of the advantages of Open Banking in the era of a disrupted banking industry. Developed by Sonect, an award-winning FinTech, this virtual ATM solution was tested and integrated as an minimum viable product (MVP) for Berner Kantonalbank (BEKB) in Switzerland through an Open Banking API platform from NDGIT — the first API platform for FinTechs and insurance — with the help of DXC Technology’s Banking Service Centre in Bern. It’s a great example of how collaborations with FinTechs can help banks tap into emerging revenue sources as the sector gets disrupted by digital technologies, lifestyle changes and regulations, such as the second Payment Services Directory (PSD2), a European Union directive forcing banks to give access to their customer accounts and transactions to third parties.
These changes are challenging for many, and numerous banks still struggle to see them as new opportunities. Some react defensively, doing the minimum to comply with the regulations, and try to protect their customer base in order to retain their clients. But, is staying closed a good idea? The disruptions are opening the same window of opportunities for everyone, not just the players banks see as competitors. Instead of hiding under a shell, banks should get proactive — not only opening their customer base to FinTtechs and others, but also tapping into other banks’ customer data, gaining access to new clients and offering more innovative services.
Seizing this opportunity can only help banks stay ahead in the game. Look at Swiss cantonal banks. Due to country regulations, Swiss cantonal banks can operate, open branches and ATMs only within a defined region in Switzerland. Extending the customer base outside the canton is hard work, so using the advantages of Open Banking and partnering with FinTechs can open new horizons for these banks, allowing them to enter a market inside and beyond Switzerland that they haven’t been able to tap into until now.
Let’s go back to the virtual ATM app that was tested and integrated as an MVP by DXC Technology with its core banking solution IBIS4-Digital. How does it work? A bank needs to open its customer database to a FinTech and start offering the service to customers. Banks could enable the virtual ATM app in a local restaurant that could give cash to customers. No special infrastructure is needed, just a smartphone or any other mobile payment infrastructure.
The virtual ATM is appealing because you are not bound to a physical ATM and have access to cash anywhere. This is especially handy in Switzerland because of the country’s rules not allowing banks to have ATMs in other cantons other than the one they operate in. s Imagine attending an open-air concert at a place with a couple of cash-only restaurants and no ATMs. You can spend only the cash you brought with you. The virtual ATM is a great save in this case, because customers can get cash and freely buy more things. The greater consumption, in return, increases revenue for the merchants and transactions for the banks. A win-win situation for all.
But how do banks allow access to third parties? An Open Banking API provider is key. In the case with Sonect and IBIS4-Digital, the provider was NDGIT, a platform with a library of more than 650 different services that FinTechs can use to create banking apps and then integrate them within banking systems in a standardised way. The bank then needs to find a way to integrate this Open Banking API layer, and this is where IT companies can help, by analysing the core banking app and determining what is needed to interface with this Open Banking platform.
People are opportunistically driven, and banks need to understand that. Customers want to have a selection of apps and options for how to interact with the financial institutions. If their bank doesn’t offer innovative services, there is always another one that will. Protecting the closed-banking model and losing customers in the process simply doesn’t pay off in the long run.
Launched in 2017, DXC Technology is a leading, global, end-to-end IT services enterprise. DXC helps organisations revamp their IT infrastructures by modernising them via delivering digital solutions.