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23-04-2019 09:00

Open Banking – the basis of a new digital banking backbone

Banks are transforming to become fully digital. For the traditional banks, the journey is long and will take years. Luckily, they are not alone. External partners like Fintechs, non-traditional financial services providers, technology companies and even regulatory requirements are helping banks to take the steps towards the target state. Mikko Päivinen, Enterprise Architect at Nordea, explains how Open Banking is one of the drivers which can help the digital transformation, if architected and implemented correctly.
Digitally connected world

Most banks have realised that Open Banking is more than just regulatory APIs. They have seen the need to think of the entire customer and product life-cycles and other mandatory enablers which are supporting new business models and long-term growth.

For the last eight years I have worked in the middle of a digital transformation in Nordea, supporting different initiatives. In the last three years I have had the privilege of supporting the Nordea Open Banking journey together with my colleagues and working closely with business partners who are transforming the bank towards a new era. I can easily say that this has been the most interesting initiative in my career.

During this journey it has become clear to me and my colleagues that banks really need to re-think how to help both personal and business customers in the future. Not only what kind of service they will offer to end-customers and what kind of business strategies to have. How to work with partners and external developers are other types of questions which need to be answered also. There are no simple answers, but one of the key learnings is that these questions can help banks to build a digital bank and the core enablers which are needed to compete in the new landscape. Let me walk through the following examples to explain what I mean:

  • on-boarding customers to use new products, like opening an account
  • on-boarding partners, to co-develop an end-user service using open banking APIs of the bank
  • on-boarding 3rd party developers, to build open banking APIs for that bank

On-boarding customers: Make it easy

To grow the business, banks want new customers. The customer experience of the first interactions, the on-boarding, has become crucial. In the Open Banking context customers may do this using other services or marketplaces, which are not controlled by the bank. Customers have expectations that this can be done with few interactions with the banks and without additional meetings, phone calls with bank employees or dialogue with a chat bot.

Traditionally, several products and services have been bundled into a single agreement, like a channel agreement. This has led to a situation where it is not easy to sell one product or service to a customer. The customer gets the whole package, like it or not. In the worst case, the customer needs to be on-boarded several times.

Since Open Banking is very API centric, it provides an amazing opportunity to re-design how products and services are architected, so that they can be easily on-boarded one by one or as a package, as defined in the business strategy. Account opening is a great example: it requires you to “know your customer”, open a product, sign an agreement, archive the agreement and transfer money to an account. All core components for the digital bank, right? When product life-cycle management and operational functions are available via managed APIs, it gives an excellent opportunity for banks to bundle products and services as they want for both internal digital channels and for strategic partners.

On-boarding partners: Focus on partner experience

To meet the customer in whatever channel and ensure a short time-to-market, banks want to partner up with other service providers. To put it simply, key factors for the successful on-boarding of partners are authentication, simple agreement signing, comprehensive service documentation, easy development and testing tools. Partners hope to get clear service descriptions and transparency in costs and rate limits. In addition, they want community management support, which will help them to see what others are saying about the services and partnership.

Traditionally, on-boarding a partner has been a separate project which takes weeks or months, including several meetings and paper-based approval processes. Since an API Management platform is a key component of Open Banking, it holds a great opportunity to digitise partner on-boarding processes by starting from API consumer on-boarding and automating that end to end. This will improve not only the external, but also internal service consumer experience, which will result in better services for end-customers.

On-boarding developers: Focus on developer experience

To be at the centre of the data economy and enable customers to have data driven services, banks need to build a solid digital service platform, which must support service co-development with partners. The easy on-boarding process of a development team is a key success factor in the platform economy. Development teams are looking for platforms, which provide comprehensive API guidelines and self-service development tools, in a regulated banking environment which is often a new environment for development teams.

Traditionally, banks have not focused on the developer experience and internal development teams have suffered from that. Banks have been following a “built by the bank” approach, where development takes place only in the bank’s network, using only the bank’s tools and infrastructure. Since Open Banking and API’s are very close to developers, it provides a good foundation to build a better developer experience for internal and external development. Good development experience is a key success factor when competing in the platform economy.

If all these aspects are considered as an opportunity and not as a mandatory requirement, Open Banking can truly support traditional banks’ transformation to digital banking.

About the author

Mikko Päivinen has an extensive experience and knowledge in enterprise architecture. For the past eight years he has worked in the middle of the digital transformation in Nordea. As an Enterprise Architect he supports and directs Nordea’s digital transformation by providing a holistic architectural view and structured understanding of the bank and the market – to enable the customer vision. Currently he focuses on corporate customers and helps business deliver customer-centric products and services through the optimal use of technology. In the last three years Mikko has been focusing to Open Banking and PSD2 regulation.