#Open Banking

Supporting the emergence of open finance is the future

jan 13, 2022 - 5 min read
Nicolas Darlavoix, Digital & Open Banking Advisor at Sopra Banking Software

This article originally appeared in French and as an interview in ITnation. To read that version, please click here.  

By co-opting with innovative fintech companies, with a view to creating value in the eyes of their customers, banks are gradually entering the era of open finance.

Better collaboration between traditional financial companies and fintech companies is key to the emergence of the era of open finance.

In the next two years, we should see new use cases, relying on better use of available financial data to improve the experience for bank or insurance company customers.

When banks and fintechs co-opt

PSD2 came into force at the beginning of 2018 with great aplomb. The objective was to encourage institutions to be more transparent by requiring banks to make their customers’ account data available to authorized third-party stakeholders.

And it was met with enthusiasm from industry players. Per a 2018 McKinsey survey, nearly 40 percent of banks had selected technology partners to deliver exciting and fresh offerings under the new directive.

However, while PSD2 was intended to require banks to be part of a new dynamic, it’s clear that most didn’t seize the opportunities.

Small-and-medium sized players took a compliance approach, without intending to go any further. To this day, the adoption of new use cases resulting from a better exchange of information between actors in the same sector continues at a very slow pace.

For a long time, banks have favored a defensive approach, seeking to prevent new players from accessing their market. This position is now changing. Financial institutions who wish to offer their customers an enhanced experience are increasingly choosing to cooperate with the fintech world and adopting the innovative solutions that they offer.

We call this “co-optation.”

A piece of Cake

Let’s take a look at an example to help clarify.

Cake is a Belgian banking app that, in July 2021, became part of the Sopra Banking Marketplace. Integrating with banking apps, it allows its users to benefit directly from discounts linked to purchases made from certain merchants. The reward is paid in cash to the customer’s account once the purchase has been made.

For the bank, it is an additional service offered to the customer, one that can be integrated directly into the mobile banking app. It is also a way to strengthen the relationship with and knowledge of the customer, using the data collected.

Through this example, we understand that for new use cases to emerge in open finance, we must find models where everyone – end consumer, bank and everyone in-between – is a winner.

In the case of Cake, the customer benefits from commercial benefits; the fintech is remunerated by transaction commissions; and the bank can enhance its service and benefit from new revenue streams. Shops can attract new customers, too, and have more detailed data on their consumer habits.  

Open banking-powered remittance flows

Another great example of an open banking use case is “Streamlined Remittance” – a solution that facilitates international money transfers.

Using an open banking platform, banks access an innovative service and can therefore enable their customers to carry out international transfers at the press of a button – in a fast, digital and secure manner, which makes the process profitable.

At Sopra Banking, we take advantage of account aggregation and multi-currency payment initiation services. Banks can reduce the cost of money transfers, simplify the customer experience and speed up the process of sending funds. Above all, they have an opportunity to take market shares from players specializing in these transfers, such as Western Union.

Another application mentioned is a solution that makes it easier to provide a customer’s financial data, upon consent, to ease the process of granting a bank loan. By accessing a view of the customer’s financial situation, the bank being approached to provide the loan can perform a quick analysis and give an opinion much more rapidly.

Open finance, insurtech and cryptocurrencies

In the era of open finance, banks and insurance companies must engage more proactively to meet the expectations of new generations of users.  More than ever, financial players need to explore new opportunities to create value, whether through new services or by improving their processes.

Customers are requesting new services, covering everything from insurance to cryptocurrencies. Indeed, 73 percent of consumers believe that their financial services firms should lead the way when it comes to creating and using emerging and innovative technologies.

With open finance, banks can more easily integrate new services or activities without necessarily having to develop everything themselves. The challenge is to remain relevant to customers by seeking to respond to their ever-evolving needs as best as possible.

By opening up, banks have the opportunity to integrate new activities, including those related to insurance, telecommunications and health care, ensuring an enriched experience for each customer.  

It is up to each bank to position itself as a central platform for everything that directly or indirectly affects customers’ financial challenges.

Sopra Banking Software’s Marketplace: Leveraging financial data

Being part of the open finance era means that actors must adopt a transformation approach.

First and foremost, this involves being able to develop a vision and translate it through a clear strategy. After that, good foundations are needed. An open approach involves having a platform that uses a set of APIs to facilitate the exchange of data and the integration of new solutions.

From there, banking players can easily establish partnerships with third-party players such as fintechs – the “co-optation” approach mentioned above. With this in mind, we recommend that our customers start small, integrating new data flows to explore how it is possible to create value.

To support stakeholders in this transformation, Sopra Banking Software has developed an open banking platform – the SBS MarketPlace. It allows stakeholders to access solutions that can be easily integrated into the heart of their ecosystem. Click here to find out more.