Open Banking Brings a New World Order and Opportunities for Firms Ready to Innovate

1. March 2018.

The era of open banking has arrived, fueled by regulatory mandates and open data initiatives aimed at stimulating competition and innovation. This new landscape raises the stakes exponentially for traditional banks.

Open banking further elevates risk from increasingly pervasive non-traditional players. Nevertheless, it also presents new opportunities for financial institutions that can move rapidly and confidently to capitalize on the potential of open application program interfaces (APIs).

How can banks make the most of this new reality? Coopetition – cooperative competition ‒ will be the key to success in this new era.

The rise of initiatives like the European Union’s (EU) Revised Payment Service Directive (PSD2) ‒ set to roll out in 2018 ‒ will effectively end banks’ exclusive control over their customers’ account information and dominance over payment services offerings. PSD2 requires banks to give third-party providers access to customer account information through open APIs. While not the only open banking initiative, PSD2 is certainly one of most prominent and influential. We’re seeing it project significant influence on policy and business decisions well beyond the EU. .

Collaboration with non-traditional players will be essential to success in this new era. According to the World Retail Banking Report 2017 from Capgemini and Efma, 91.3% of banks and 75.3% of fintechs expect to partner with one another in the future.

Banks that are well prepared, to both partner with non-traditional players and monetize their APIs, will have an early edge. However, as organizations advance in this mission, many are likely to confront new business and IT challenges, including creating and managing new subscription, pricing, and billing processes and workflows. The ability to dynamically set and optimize pricing, through tiered rates, structured discounting, and sophisticated contextual customer relationship insight, is especially critical to thriving in the new world of open APIs.

Just as in traditional banking relationships, banks will look to achieve precision pricing for each API relationship and call to optimize value for themselves and their partners. A 360-degree view of each customer will be more important than ever as banks look to factor both the context of the API caller and end customer into pricing paradigms.

As banks begin to monetize their APIs and evaluate their requirements, they seek business solutions that enable best-practice workflows and processes and provide the insight needed to focus on growth and profitability. A well-equipped “tool-bench” for successful API monetizing should include:

  • A unified solution for pricing and billing that functions as a platform for innovation with systemic business discipline
  • Support for the end-to-end revenue management lifecycle ‒ from pricing through collections
  • Flexible and configurable workflow-driven rules that enable banks to automate, control, and improve the overall efficiency of pricing, re-pricing, billing, payments, and collection processes
  • A complete view of customer relationships combined with advanced analytics that enable banks to integrate customer and partner context into API call pricing calculations
  • Contextual business intelligence on profitability that enables banks to incorporate performance control into timely management decision-making as the open API landscape continues to evolve
  • What-if modeling capabilities to assess alternative rate structures against margin goals
  • Line-of-business administration of pricing and billing thanks to easy configurability versus custom code changes. This frees reliance on the IT team and accelerates concept-to-cash innovation

Open banking is on track to disrupt the market. This disruption, however, has a silver lining for financial institutions that are prepared to move rapidly to effectively monetize their APIs. A solid foundation – one that supports precision pricing for each API relationship, as well as end-to-end automation of the complete revenue management lifecycle – will pave the road to success. It’s time to open the door to new business model possibilities.

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