Mikko Pilkama, the Vice President of CGI´s Banking Services. Photo: Pauliina Toivanen
Open banking is said to bring better deals for customers and generate more competition and innovation in financial services.
According to CGI, one of the world’s largest independent providers of information technology services, the rise of open API banking is the game changer for the financial industry worldwide. Automated and real-time customer information sharing, transaction initiation and new payment mechanisms will enable both retail and corporate banks to better respond to the growing demands of their customers. Those that decide to unleash the true potential of customer data will have the opportunity to increase revenue and profitability.
“The new market place is a customer-centric platform where everything is associated with changing consumer behaviour. PSD2 legislation that will take effect in January 2018 within SEPA member states will eventually force banks to open their interfaces and information. Third parties will get access to customer data, which will bring forth new service innovations in payments and new kind of competition to the banking industry,” Mikko Pilkama, the Vice President of CGI´s Banking Services, says.
The PSD2 mandates account-holding banks or other payment service providers to facilitate secure access via APIs to their customer account data and payments initiation services with the account holder consents. To provide this secure access to accounts, banks must enable seamless customer and provider identity verification and authentication process.
CGI provides business consulting and IT services that allow financial services organizations to minimize upfront investments while achieving significant business outcomes from this change. CGI helps its customers to find their position in the new banking game and to create an implementation roadmap for open banking readiness including IT solutions like API management. This in turn enables banks to innovate new services in companionship with FinTech companies and to find new billable services.
“There is no point of building individual bank IT towers anymore. Traditions crumbling and revenue models changing, the banks now have opportunity to work together with FinTechs and concretely monetize the different prospects that open APIs and digitalization of distribution channels will enable. The future banks aren’t providing services only for their current customers but also for the customers of FinTech companies, other banks and companies for example telcos, healthcare and insurance companies. This change is a possibility for those who welcome it with positivity. Usually it´s the company´s own business culture and management beliefs that are standing on the way,” Pilkama reminds.
New Roles of Banks
CGI helps their banking customers to unleash the potential in this change. It all starts from the readiness assessments and strategic positioning, that covers banks operating mode, IT architecture and banks’ current solutions like the identity management, APIs, cyber security, data management/BI and compliance readiness.
According to CGI, opening APIs to third parties allows banks to play one of the following new roles. As an integrator bank continues to control both production and distribution of products and services. Bank can also focus on development of products and services and distribute those via third parties and become a producer. If bank focuses on distribution of products and services created by third parties, it will take a distributor role. When retaining a stake in both production and distribution by acting as a market, bank can transform into a platform.
Security as a standard
The worst-case scenario would be a Wild West where everyone´s bank account history with their financial information would be revealed to the public. Therefore, only common agreed rules, data formats and standardized solutions will enable the innovation in financial services. This is also what the consumers want and need. CGI enables a transition that is well controlled for the banks.
“It would be very welcome for the whole industry to be able to agree common data standards, run processes and information fields to be shared down to as much details as needed. Otherwise, I am afraid, individual banks, typically the big ones, will create their own data standards and processes which all differ. This can only harm the noble idea of the European regulators of creating more competition and common rules across SEPA area and thus better and cheaper financial services to the consumers in Europe.”
Text: Pauliina Toivanen