Open banking set to transform fintech

The way in which traditional banks and financial technology companies interact with one another is set to change dramatically with the advent of Open Banking. 

This concept, which has been formally mandated in the United Kingdom, promises to shake up the financial services industry by promoting more inclusive ways of working between traditional incumbents and digital players.

While banks around the world are already partnering with or acquiring fintech companies to realise their digital ambitions, Open Banking is likely to propel this collaboration to new heights. 

Open banking is a business model that allows for the digital exchange of data and financial services at scale between banks and certified third parties. This will radically transform traditional banking value chains.

Through this approach, banks will be able to better utilise the data they already own. With the help of the right fintech partners, this data management can be used to inform the development of products and services that possess a level of specification never seen before.  

This is likely to usher in an entirely new financial services ecosystem, where the role of the bank shifts markedly. The result will be the creation of new revenue streams, increased market reach, improved financial inclusion, accelerated digitalisation and cost reduction through automation.

Standard Bank is gearing up for this change across both retail and corporate markets, and is of the view that Open Banking is not a strategy in itself, but rather a critical enabler of our current strategy of digitalisation, customer centricity and integration.

By breaking down walls of the closed model in the financial services industry, customers can access their own banking data and use it to inform their selection of financial services offerings.

This means that banks will be challenged to develop more innovative solutions that are delivered with a high degree of customer centricity. This will be enabled by the exchange of data and financial services that Open Banking facilitates.

Through Open Banking, solutions can be built based on customer insights and tailored to suit a consumer’s behaviour. 

Access to transactional data, for example, is useful in assessing creditworthiness and could speed up the time it takes for a loan to be approved. In the same breath, it could alert to warning signs based on the holistic picture the data provides on an individual’s financial standing. A major benefit for consumers who are unaware of potential opportunities or threats to their financial wellness.  

By understanding more about how consumers spend and save, there is further room to develop purpose-built solutions that address specific pain points. This is expected to bring simplicity and convenience to a world that is often found to be full of complexities. 

Open Banking promises to create a banking ecosystem where the playing field becomes level. Instead of competing against one another, there is an immense opportunity for traditional incumbents and fintech entities to leverage off one another’s strengths.  

While fintech entities hold the technology skills and capabilities to bring these products to life, they aren’t necessarily able to scale the product across markets. This is where traditional banks will play a role. 

It is critical that we partner with fintech entities or start to think like them to remain agile and quick to market with new solutions. Our market intelligence and expansive customer base across multiple African regions gives us the ability to take these solutions to market at scale.

When mainstream financial institutions partner with fintech entities who develop innovative solutions that are more accessible and affordable for individuals, particularly the unbanked population, we will see greater levels of financial inclusion. 

While fintechs can provide these solutions on a one-to-one basis, an organisation like Standard Bank has the ability to take this solution to the masses.

We are already active in this regard and have partnered with or acquired fintech entities to bring digital solutions to the markets in which we operate with the aim of bringing more individuals into the financial system.

Standard Bank recently invested R61 million into Cape Town-based fintech company Nomanini, which has developed technology that connects informal merchants with distributors via an e-wallet. 

The platform is expected to be rolled out across 14 African countries by 2021 and will offer retailers short-term savings, credit and insurance products. As these traders are informal and mostly deal in cash, the solution will enable access to financial services for the first time and help to grow their entities.

Financial services organisations are highly regulated business across the globe due to the nature and sensitivity of the sector, and it remains in the best interest of customers, partners and regulators to find and shape the best possible approach to managing an open access framework. 

We have started investing in tech assets and are allocating resources to ensure that we drive a coherent Open Banking agenda across the group, with a focus on the safety of customer data and increased collaboration with fintechs, corporates, bigtechs and other third parties.

• Gwenaël Trotel is  head of Payments Digitisation and Open Banking at Standard Bank Group