Open banking technology shows great promise but is being underutilised, especially when it comes to sharing data within banks themselves. Bill Lumley reports.
A recent report from the Mobey Forum on the monetisation of application programming interfaces (APIs) within open banking has found there is a far greater opportunity to profitably leverage data than previously thought.
According to report co-chair Kristian Sørensen, partner at fintech consultancy Norfico, the biggest surprise was finding how many internal use cases there were for embracing a wider open banking strategy and thereby enabling APIs beyond those dealing with compliance.
“I think one of the realisations that we had was that when we're talking about open banking, we've so far only been talking about opening one particular bank up to the outside,” he says.
The financial services association’s report was prompted by a questionnaire investigating open banking’s most burning issues. The clear frontrunner was monetisation, noticeably coming ahead of regulatory concerns.
Products and services targeting the small and medium-sized enterprise (SME) segment of banks’ commercial customers have proved to be especially attractive, as it has traditionally been underserved but at the same time willing to pay for services that lighten the administrative burden.
Such services could include the integration of bank accounts with bookkeeping systems like automated reconciliation, says the report.
Options to monetise
The report states that small businesses are far more willing to pay a percentage of their cost savings or increased revenues than consumers are – and banks can be customers too. Businesses are willing to pay for new closed-loop data ecosystems that are out of scope for basic open banking.
For obvious reasons, the report notes, free APIs cannot be monetised as part of a monetisation strategy that relies on premium APIs. Instead, such strategies must rely on APIs in which the users or intermediaries are charged, or in which revenues are shared with stakeholders.
Revenue sharing can be implemented with partners who bring in net new clients, operating on either a one-time or recurring basis. An example lies in mortgage billing, where a mortgage lender would pay commission to websites that embed the lender’s mortgage application API and successfully deliver new clients.
For external opportunities, the report says, many open banking experts may require co-operation between financial institutions since they require full or near-full coverage of all consumers and/or SMEs in any given country or region – a high hurdle to clear.
Instead, open banking should be considered for internal use in banks, says Mr Sørensen. “Banks are inherently siloed when it comes to products and data and services and even people,” he says. Therefore, applying an open banking strategy for internal use and thus enabling data-sharing between colleagues is a potent aspect of the technology, he adds.
Regulation, too, is undoubtedly an enabler of API monetisation, says Mr Sørensen. “The fact that [the EU Payment Services Directive] basically mandates that some APIs have to be free and freely available should not be seen as a hindrance for monetisation.
“Regulation has prompted the need for actual movement and not just waiting for somebody else to take the move. I think that has been very good for the industry as such,” he adds.
Moving forward
The report suggests that once a monetisation strategy has been established, when it comes to marketing open banking products, one often-neglected aspect is the need to communicate and promote the defined API products in a portfolio.
“For some reason, this fundamental aspect of sales is often neglected when the APIs are the product in question,” says the report.
“In this respect, many of the banks surveyed have encountered the same issue as many fintech and tech startups before them, who have (often unknowingly) applied the proverbial strategy of ‘build it and they will come’.”
The report predicts that, in future, the organisations that dominate the open banking world will be those that best identify and build solutions for inefficiencies in their own organisations’ processes that can be addressed by faster, more reliable data than is available today.
Crucially, it concludes that there are many more ways to monetise open banking than most participants expect at the outset, ranging from low-risk, high-reward internal use, to embedded finance as a new sales channel, to API speed and resilience levels as monetised traits.
