Open Banking is the next wave of digital transformation, which is changing the entire Financial ecosystem to create a new customer experience, new business products & models, and a collaborative approach of doing business.
The kind of changes Banking has seen in delivery and product in the last few years due to technology have been unprecedented. The influx of new-age technologies covering artificial intelligence, mobility, the advancement of core Infrastructure have made banking to move digitally. These technologies have made banking simpler and impacted products & services embedded in the entire life cycle of the customer. But, Open Banking or API Enabled banking has taken entire banking to relook at business models and approach towards banking. Below picture demonstrates the impact of the Open banking framework on banking.
Perspective Change: Traditionally, bankers have taken the inside-out approach to business and design products & services to take to customers based on internal business models and dynamics. In contrast, Open Banking is affecting the perspective of banking by going from the outside-in approach. Fintechs/startups are in front of customers and work on customer needs of banking which influences their partnership with Banks to co-design products or define customer experience journeys.
One of example to look at would be flow-based lending. Loan requirements for the customer have always been based on his needs to fulfill some demands such as home, furniture or product purchases, fees for his children, money to meet his working capital or pay off vendor invoices, etc.
Business model: Traditionally Banks have aligned their business models based on banking products be it in liabilities or assets while Open Banking goes for a consumption-based approach on how banking is being used by customers in their day to day business. For example, Bank Open has rolled out accounting software which allows SME customers to fulfill his banking needs from the platform itself.
Products: Banks will continue to roll out variants of products while Open Banking will enable an iterative approach to products depending upon use cases. We have seen new products coming to market such as Pay-day loans, new variants of cards, Salary based advance loans, etc. Organization Structure: Banks have always adopted a standard organization structure for ages which helped it to sustain business growth. But, Open Banking challenges traditional banking structure within the organization and it demands evolving organization structure. It will need new roles, new KPIs, new HR Practices to support business models.