Transforming payments and creating new value chains with open banking

Share this post:

Open banking at its core is about empowering the end customers as the owners of their data and enabling organizations to work together — through APIs — creating new value chains to produce better products and services. It is that simple. The old way of delivering traditional banking and financial services to customers is not going to cut it anymore. Customers want engaging and seamless digital experiences across multiple applications. And banks that refuse to open up and continue to be roadblocks will see more customers going elsewhere for their payment and other financial services needs. And it is not just customers looking for transformation, but governments as well.


What is happening in Europe is only accelerating the move to open banking


The EU has taken a proactive role by including the interactions between customers, banks and third-party service providers in the scope of the Payment Services Directive 2 (PSD2). The aim of this directive is to promote a secure API economy, lower transaction costs and encourage innovation. With PSD2, customers can grant access to their bank accounts for a third party to perform a payment or to retrieve account information. Third parties can then compete with banks to provide the best service. What is happening in Europe is particularly interesting because it is an example of a decentralized, open ecosystem; every bank must expose public APIs, and a third party can access them free of charge. To help with the security and standardization of APIs, the UK government has already mandated the nine largest banks to create a working group and define common standards.


IBM understands the journey of financial institutions entering an API economy


IBM has partnered with many financial institutions to help them transform their financial services by leveraging the API economy, even before open banking became a trendy term. Through this process, IBM learned that organizations entering the API economy face three technical challenges: security, integration and agility. Companies need to be able to face these technical challenges in a safe environment. The open banking sandbox, powered by IBM API Connect® is an example of that environment. IBM developed it last year to engage the community of banks and fintechs interested in the emerging ecosystem of open banking standards. It is an open and secure environment that banks and startups can use to prototype their solution and help tackle these technical challenges:


Exposing a payment API on the public web is difficult enough. In the open ecosystem, promoted by PSD2, companies have the further complication of not being in control of the vetting of their API consumers. Companies also must share account information while handling all the risks related to data privacy and confidentiality.


The level of complexity of the integration can vary dramatically depending on the maturity of IT landscape. If companies have “clean” architecture with a customer-centric system of records that is decoupled from their digital channels, they can count on a solid foundation. If the estate is patchier, companies need to think about how to reach their data before worrying about how to expose it to the external world.


Customers expect great digital services, and it is imperative for companies to develop or partner with suitable fintechs to help them launch new products. Even if the strategy is simply to achieve compliance, companies still need to manage uncertain environments. Not even the regulators have figured out all the pieces of the puzzle even with deadlines fast approaching in the EU. During this time, companies looking to build trust and create new services need to remain agile by engaging in a wide ecosystem. 


Open banking is driving new types of value chains by opening closed ones


Traditionally, retail banks have stuck to their own products, back-office operations and distribution channels: branches, contact centers, and digital channels. The emergence of fintechs and the push of regulators for more competition are disaggregating and opening these closed value chains. Now, third parties can specialize in one or more of the steps in the process. Companies can focus on areas that have a clear competitive advantage and leverage the scale and efficiency that partnerships with other players enable.

To learn more about the PSD2 directive and open banking at Sibos

If you can’t attend Sibos, contact a client director to organize a transformation workshop on open banking and the open banking sandbox.

IBM at Sibos 2018

Visit the IBM booth (#F22) at Sibos. Or attend one of our various speaking sessions to hear from and chat with our digital transformation experts. Stay tuned for more blogs on Sibos 2018!

Follow us on Twitter and subscribe on YouTube.

Senior Managing Consultant

More stories

Get rid of the noise by streamlining your audit with IBM OpenPages

The internal audit program is critical to any organization that intends to provide efficient, compliant and safe services to its clients. Internal audit provides independent, objective assurance over an organization’s risk management, internal control, governance and the processes in place for ensuring effectiveness, efficiency and economy. It has proven to be a valuable tool for […]

Continue reading

Your incentive compensation management is definitely not a game of mouse trap

Did you ever play the Mouse Trap board game when you were a kid?  Do you recall how frustrating it was when you set the contraption in motion and it failed somewhere in the middle without setting the trap? Surprisingly, many organizations unknowingly exhibit an approach similar to playing the Mouse Trap game when it comes […]

Continue reading

Stop money laundering with a proactive AML approach

The recently revealed $8.8 billion Troika Laundromat offshore money laundering scandal was a vast and complex deception. Not just a limited scheme, between 2006 and 2013 it facilitated fake trade deals, reinsurance fraud, tax evasion, hidden investments, a fuel pricing fraud scheme at Sheremetyevo Airport—and much more. The Organized Crime and Corruption Reporting Project and […]

Continue reading