In the financial technology space, banks and fintechs continue to embrace the idea of open banking. This was one of the key topics of discussion at the Africa Fintech Summit, how open banking can be used to drive the future of banking.
Open banking is a technology-enabled approach to financial services that utilizes aggregated and authenticated data, connected APIs, to give consumers more ways to consume their financial data while also making transactions more secure. In his presentation about open banking, Lanre Bamisebi, the Group Director IT & Operations Director Equity Group Holdings Plc, said that in open banking it’s important to note that the data belongs to the customer and not the bank.
Lanre further said that there has been a paradigm shift with open banking that has basically changed the ownership right for customers’ data. Open banking and sharing of APIs has made the banks realize that the data belongs to the customer. Data privacy laws have also made the customers aware that they are the owners of the data.
“For a long time, banks have assumed that they own the data but now there has been a paradigm shift and customers are now the owners of the data. The customer can tell us how he/she wants to use the data,” he said.
This is good for fintechs that have embraced the sharing of banks’ APIs but it’s not good for the banks which didn’t know that the data didn’t belong to them in the first place. For instance, when a bank’s executive team sits down to develop solutions for their customers, they assume they know what the customer wants.
With the sharing of APIs, the customer’s behavior and interactions tell the bank what kind of services they need to make available to the customer and give the customer a choice of what they would prefer.
“Bankers have discovered that we need to be able to use data to determine how to best serve the customer. For instance, you can determine credit scores based on the behaviors of the customer and how they have treated previous loans. Determining whether the customer will be able to repay the loan or not,” Lanre noted.
Banks maintain vast archives of customer data, and the revolution in Big Data over the last decade has allowed some banks to realize the benefits of that data internally. For the mid-market, we see a persistent gap in these banks’ abilities to leverage their own data. Without closing this gap, these banks will remain in a defensive market position as the pace to open banking quickens.
Open banking has the potential to increase existing revenue streams and add new ones while expanding customer reach for financial institutions. It can also create revenue-sharing ecosystems, where incumbents give customers access to third party-developed services while profiting from a subscription or referral basis. Open banking relies on a bank’s ability to leverage its data, highlighting an urgent first step in any banks’ journey.