Advanced, the third largest IT company headquartered in the UK, recently hosted a webinar to provide some perspective on what is going on with their current open banking movement. They brought in expert Chris Michael, the CTO of the Open Banking Implementation Entity (OBIE) in the UK, and Alex Heublein, CRO of GT Software, a mainframe modernization company. Michael leads his team to create the UK open banking standard and recognizes the challenges and opportunities for open banking and open finance. Heublein has a deep understanding of the obstacles facing companies that want to modernize their legacy systems.
Five Key Takeaways from Open Banking
1) Open banking is a global concept
and is executed differently around the world. In terms of the UK, open banking is a subset of open finance, where it introduces concepts like real-time payment and open API standards to give consumers more control over their data. In North America, open banking is seen as a market-led initiative to increase competition and meet the expectations of consumers.
2) There is a shift in the industry mindset
While open banking in the UK is a response to the CMA order, GDPR, and PSD2, it has gone from a requirement to a means of innovation. Financial institutions are no longer merely complying with open banking regulations. Instead, they are adopting and working to monetize it. Businesses are improving on the end customer benefits originally envisioned by the CMA order. The industry recognizes the potential of open banking to improve customer experience and offerings. It is now a way to differentiate from competitors.
3) There is room for improvement
As open banking increases, so do API calls. With an average uptime of 97%, businesses experience a day or more of downtime per month. There is a lot of variability among companies as scaling and latency requires a fundamentally different architecture from traditional integration. However, average API call response times are improving as organizations adopt a strategy to open their core systems securely and reliably to millions more transactions a day.
4) U.S. banks that put off open banking will be at a disadvantage
As open banking takes shape in the UK, its status in the U.S. is not nearly as solid. Our recent survey shows low open banking awareness among financial services and banking professionals. For open banking to work, IT groups must be ready to open up core systems securely and reliably. In addition, banks will need to address legacy IT skill gaps before they become a bottleneck in the process.
5) Legacy system integration is key to open banking success
Mainframe integration is difficult because the technology is older. Due to complex data structures and tight coupling, integration is a challenge. There is also a heavy reliance on green screen interfaces. For banks to implement open banking successfully, they must create APIs that integrate with their legacy systems quickly and seamlessly.
Open banking is a growing global trend. With the announcement of FedNow and the excitement around real-time payments, financial institutions in the United States are beginning to recognize the opportunities that open banking presents. Those that adopt the concept and innovate can set themselves apart from their competitors.