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Status of Open Banking in the World and in North America

It is no secret that the global Financial Services sector is undergoing a major transformation with the advent of open data, new emerging technology players entering the market, and increasing interest on part of Financial Institutions to understand how they can move from their existing centralized systems, to a truly open one.

Rob Galaski, Deloitte's global head of Banking & Financial Services kicked off the morning with his insight into the global status with regards to open banking, inclusive of Challenges, Opportunities, and defining winning characteristics.

Key insights below:

Let's start off by defining Open Banking.

Open banking is a global movement that promotes a customer's rights to share their own financial information with third parties. It's an expression of a broader societal shift towards a data economy, stemming from customer, technological, and regulatory shifts. In essence, the customer should have the ability to share their data with who they want, with the purposes they desire, and on their own terms.

Customers are concerned about data privacy, however are increasingly more concerned about data portability with the advent of modern privacy laws that reinforce customer's ownership of their data. As a result, they require organizations to provide their data in a readily shareable, upon their request

As a result of rising customer demand for their data, many global technology companies have enabled the ability to download their personal data in shareable formats - short win!

In fact, Open banking may actually enable new business models that expand generation and delivery of value beyond a vertically-integrated value chain to an external ecosystem. It could enable new models of consuming and structuring financial services by:

  1. The proliferation of a digital advice layer enabling automated financial management
  2. Lowered barriers to participate in the banking value chain for non-traditional institutions
  3. Intensified product-level competition through enhanced transparency
  4. Enablement of add-on products through real time visibility of customer activities
  5. Granularization of loan adjudication through the gathering and analysis of richer datasets

However, in order to truly succeed, is imperative to understand the existing risks in place. It is only then that they can be managed to actively ensure safety and stability in the ecosystem. As such, below are key questions that we must ask ourselves across a multitude of verticals:

  1. Governance: How will non-traditional entrants activities be governed to ensure customer and ecosystem protection and control measure are in place?
  2. Data Breaches: How will we ensure the data that is shared among ecosystem participants will be kept securely, especially in an era of increased cyber attacks?
  3. Fraud: How will we ensure the ecosystem is not exposed to fraudulent third parties?
  4. Liability: How will the Open Banking ecosystem be operationalized to effectively deal with liability while minimizing customer's exposure?
  5. Unfair Cost Distribution: How will costs and liabilities be distributed amongst stakeholders to ensure fairness while upholding customer protection?

So, how do we win?

Rob outlined the defining characteristics of marketplace winners with respect to Open Banking followed by key strategies to win.

Defining Characteristics of Winners:

  1. Wide base of engaged customers to capture large datasets and take advantage of efficiencies of scale
  2. Frequent interactions with customers to gain a greater share of their banking activity
  3. Lean, market leading product portfolio tailored to customer demands while ensuring standalone profitability
  4. Key relevant partnerships with product providers to ensure fulfillment of wide array of customer needs
  5. Active participation with partners across the broader customer journey in order to capture engagement and data earlier in the decision making process

Requirements to Succeed (Winning Strategies):

  1. Build flexible core technologies (API's / micro-services) that are well-defined and carefully maintained
  2. Develop data consumption and analytics capabilities that collect a wide range of data while producing insights at scale
  3. Take advantage of growing modularity in the ecosystem by partnering with others to meet a greater breadth of needs for less cost
  4. Develop, maintain, and sustain cultural change across the enterprise to support a continuous product development lifecycle
  5. Understand customer and product level profitability to support simplification, and platformization

So what will open banking look like in Canada?

There is no single implementation of Open Banking around the globe, design choices made by each jurisdiction reflect its policy intent and market characteristics.

In fact, globally, most advanced markets have legislated Open Banking policies, hoping to improve interoperability. Some examples from around the world include:

  • USA: various discussions among stakeholders are ongoing & multiple banks are already participating in API regimes (i.e. Plaid & JP Morgan)
  • UK: CMA effective January 2018, the 9 largest banks are to share banking data & payment initiation through common API standards
  • EU: PSD2 effective January 2019, banks to share banking data and payment initiation. There is no clear technology standard, however, there are very prescriptive standards for customer authentication
  • Japan: Banks are required to support APIs by 2020 while 3rd party service providers are required to sign contracts with banks
  • Hong Kong: a consultation paper on Open API's was issued in January of this year
  • Australia: There is a push for consumer data rights effective 2019 / 2020. The banks will be subject to sharing a broadset of data (inclusive of business data) with the overall legislation to be applicable beyond financial services
  • Singapore: The Monetary Authority of Singapore (MAS) is encouraging FI's to develop and share API's openly

In Canada specifically, the 2018 Federal Budget has marked the beginning of formal exploration of an Open Banking policy in Canada.

Further, there are 3 key design choices to consider when exploring Open Banking for Canada:

  1. Scope - what accounts and entities will an Open Banking mandate
  2. Standards - how prescriptive will centralized, and standardized will Open Banking standards be?
  3. Commercial Model - how will the costs and liabilities of Open banking be distributed?

Let's stay tuned to find out more.


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