How Banks Can Prepare for Open Banking Success

How banks can embrace open banking technology and get ahead of their competitors by using APIs, investing in embedded banking, and understanding their customer journey.

Open banking has already arrived in many countries and your bank needs to be prepared. Open banking is a banking practice that allows third-party financial service providers open access to consumer data and APIs. With access, third parties can develop additional, improved banking products and services in a shorter period of time. In a 2022 graduate study, researchers analyzed data from 168 countries and found that 49 have implemented open banking policies and 31 are currently in active discussions to do so. You can learn more about open banking and why it’s important for banks in our article here.

Over the last four years, the United Kingdom’s financial institutions have started to embrace open banking thanks to PSD2, but many still aren’t providing the digital experiences that commercial clients are coming to expect. At the end of 2021, over 26.6 million open banking payments had been made in the U.K. While some things may be easier to do, financial institutions still have a ways to go before they’re building the kinds of game-changing applications and services that open banking is supposed to enable. 

A growing number of banks are realizing that open banking in itself will not bring in new customers. As a result, more are investing in upgrading their related technologies. At the same time, more financial institutions are looking for ways to use open banking with their commercial clients. 

A 2018 Accenture survey published in close timing to the passing of Europe’s open banking legislation recognized opportunities in the emerging practice: more than 90% of U.K. and E.U. Banks considered that open banking for small businesses and large corporations was vital to their digital transformation. Since the start of the pandemic, 90% of small businesses have completed a digital sale, up from 65% in early 2020. That’s still the case today, with more organizations identifying commercial-related opportunities to tackle. For instance, the Federation of Small Business estimates that 30% of all payments to SMBs are late, which is something open banking could fix.

As this technology evolves and banks do more to attract business clients, a greater number of use cases, experiences, and platforms will be created. If your bank doesn’t get in front of open banking, someone else will. 

Fortunately, financial institutions don’t have to break the bank or start from scratch with open banking, especially when it comes to creating APIs (application programming interfaces), a key technology that allows programs to speak to one another. With a fintech like FISPAN, financial institutions can easily create connections between their technologies and their customers’ accounting systems and enterprise resource planning platforms. Rather than a bank spending months creating its own APIs, FISPAN’s connector platform technology uses publicly available APIs to connect to a proprietary application or platform. 

When it comes to building better experiences for customers, there are five things that banks must keep in mind. 

1. APIs are a solution for only a small number of customers
   
   One of the problems with APIs is that there’s no one-size-fits-all solution. Clients have different ERPs (enterprise resource planning systems) or TMS (treasury management systems) in addition to their own specific company needs. With requirements varying depending on the customer and the account software they want to integrate their bank with, rather than building a variety of APIs to meet everyone’s needs, banks can work with FISPAN, which has the capabilities to connect all kinds of programs to an institution’s systems.
   
   
2. You can’t spell APIs without application
   
   It’s one thing to have an API, it’s another to create a value-added application that people want to use. You can’t create these kinds of applications overnight – they have to be well thought out, designed with the user in mind and more. As a bank, you will need to consider building these integrations in-house, partnering with a FinTech like FISPAN or purchasing, which you can learn more about in our ‘Build versus Buy’ blog here. Banks like J.P. Morgan Chase and City National Bank who partner with FISPAN, enable their business customers to integrate their banking capabilities directly into their ERP or accounting software.
   
   
3. You can create better banking experiences
   
   Open banking is supposed to foster collaboration among banks and fintechs – the former has the clients, the latter can provide those customers with novel digital financial experiences. While some financial institutions think open banking will increase competition and erode their customer base, in reality, it allows them to provide more and better banking solutions for businesses.
   
   
4. Consider aggregating first
   
   With open banking, customers can, at least in theory, easily access accounts at multiple banks. They can see all of their products – insurance, payroll, vendor payments – in one place. The banks that enable this kind of aggregation will be the ones that get more customers. Don’t wait to get aggregated. Instead, start creating applications that pull in data from client ERP systems with FISPAN.
   
   
5. Hack your infrastructure
   
   Once FISPAN is in place, its technology can be used to “hack” the user experiences of your bank’s other legacy products. As you see how much happier clients are with your new applications, and especially if their ERP-to-bank connection makes it easier for them to pay staff and vendors, you’ll want to assess your many other digital experiences, too. With FISPAN, you can quickly and efficiently revamp existing functionalities. 

It’s important to remember that the ability to share data or create better systems is only the first step – you also need to implement open banking across your business. Rather than create APIs, which can take months to do, work with FISPAN to make those connections for you. 

Now that you have those key considerations, here’s two ways banks can prepare to succeed with open banking.

• Pinpoint your customer’s needs
  What issues or pain points do your commercial customers, both small and large, run into during their daily and weekly duties? Understanding how your customers use other external tools like ERPs in relation to your own digital banking offerings is extremely important to judge where in the customer journey you can support.
  
  

• Invest in embedded banking
  Businesses already use multiple digital tools to manage their payment workflows. With embedded banking, you can integrate your banking capabilities directly into those ERP systems adding additional brand visibility, increasing efficiency for your customers, receiving better customer data insights, and improving the payment process. Invest in embedded banking, first by learning about the ERP market here and second by scheduling a demo with the FISPAN team to learn more about embedded banking and support your bank or business. 

To learn more about FISPAN and how we can help your bank better serve your business clients, book a demo today.