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Provision of banking services in the UK and beyond has traditionally been dominated by a few large incumbents, leading to a landscape characterized by inertia and a lack of dynamism. New entrants have found it difficult to break into the banking market, and as a consequence competition has been limited, leading to sub-optimal outcomes for consumers.
Regulatory and technological developments are pushing banks in Europe and the UK to open up access to their systems and data via the use of Application Programming Interfaces (APIs). Consumers will benefit from easier product comparisons, safer account aggregation, and enhanced personal financial management (PFM) services. If banks embrace the concept, they will able to become one-stop shops for the best products on the market, crowd source the development of new services, and generate revenue by selling access to their data and capabilities. However, there is also a danger of banks becoming disintermediated and commoditized as they lose exclusive access to their data.
Critical success factors:
Offer access to enhanced data – Go beyond minimum compliance to share enhanced data with third parties. This will create new sources of revenue where third parties pay for access to advanced customer insight and analytics.
Become an aggregator – Avoid the threat of disintermediation by becoming an aggregator that facilitates customer access to accounts they hold elsewhere. Use these larger datasets to provide customers with a holistic view of their finances, together with more accurate and relevant insights and recommendations.
Provide integrated access to third-party services – Become a one-stop shop through which consumers can access best-in-class products from across the market. Consider working with developers, for example via an API-based developer portal, to create bespoke products that differentiate the bank and cater for the needs of niche segments.
The second Payment Services Directive (PSD2) in Europe and the Open Banking Standard (OBS) in the UK aim to tackle the dominance of the established banks by forcing them to provide third-party access to their data and thus create a more competitive market. Providers that use a bank-as-a-marketplace strategy will become portals where third-party services can be accessed from within their own user interfaces.
The report “Open API Banking: Defining the Potential and Opportunities; Strategies for a world of open banking” is a Retail Banking Insight Survey report explores the impact of open banking initiatives and assesses the various strategies that banks can employ. Additionally, this report provides you to understand the opportunities and threats that open APIs will create for banks. Moreover, it describes how specific banks around the world are already using APIs, their rationale for doing so, and their experiences to date.