The future of banking is open

AS THE lines between fintech players, technology giants, and legacy banks continue to blur, players will increasingly be competing on technology-driven innovations, and their ability to connect with digitally savvy customers who demand and expect easy, personalised transactions and access to multiple services through a single access point.

For most banks, the answer to addressing these complex customer needs lies in the use of open banking. Specifically, open banking refers to a platform-based ecosystem approach where data, processes and functionalities are made available to and shared with various players, including but not limited to banks, customers, third-party developers, fintech companies, and other partners.

The open revolution is, of course, not limited to banking - and is in fact already underway across many industries in South-east Asia. Indeed, most of us are already familiar with the way it works in our daily lives. We have grown accustomed, for example, to the use of ride-hailing applications that provide drivers with instant payouts upon trip completion, and integrated payment applications that enable merchants to conduct instant payment collection by generating a dynamic QR code for consumers to scan and pay from their mobile devices.

What these applications and open banking have in common is the extensive use of application programming interfaces (APIs). By enabling customers to voluntarily share personal data with other entities, and for different applications to synchronise with one another across organisations, APIs create the plug-and-play platform model that is necessary to deliver these seamless customer experiences.

APIs AS THE BACKBONE OF OPEN BANKING

Within the specific context of banking, many regional players are leveraging APIs to connect with a wide range of ecosystem partners in sectors such as education, transportation, insurance and healthcare. Notable recent developments include the Singapore Financial Data Exchange (SGFinDex), the world's first public digital infrastructure that uses a national digital identity and centrally managed online consent system to enable individuals to access their financial information held across different government agencies and financial institutions through a common platform.

In the long haul, such networks of cross-sector collaborations could provide banks with unprecedented opportunities to become even more relevant in their customers' lives.

Broadly, the use of APIs in open banking will offer three key benefits:

• Integrated and personalised experiences: APIs enable banks to benefit from more fluid information delivery that they can leverage to create more integrated experiences, for example, by embedding relevant content for their target customer across different channels.
• New revenue models: APIs enable banks to create open banking networks that can function as revenue-sharing ecosystems between banks and third-party service providers. Such networks also enable banks to commercialise their infrastructure and expand into Backend-as-a-Service (BaaS) to provide core banking services to other third parties.
• Lower cost-to-serve: APIs enable banks to lower their cost-to-serve by reducing the number of costly and time-consuming operational processes, such as the manual extraction of data from multiple systems.

DIGITISING API ONBOARDING WITH CLOUD-BASED PLATFORMS

While banks across South-east Asia have made significant investments in developing APIs for their customers, manual onboarding processes continue to impede wider API adoption. Currently, it takes an average of 60 to 90 days to onboard a single corporate customer, and this lengthy process often results in significant customer dissatisfaction and high drop-offs.

To reduce the amount of manual work in their value chains and free up their capacity to focus on more value-adding activities, banks could consider increasing the level of digitisation and automation in their API onboarding processes. In particular, an integrated, cloud-based solution architecture could facilitate smoother onboarding processes by providing ecosystem users with a central, reliable repository of technical parameters.

As transaction volumes grow, cloud-based API platforms could also provide banks with the on-demand agility to scale their gateway capabilities up or down as needed to ensure the optimum allocation of resources - and is therefore crucial for banks for several reasons.

Firstly, even if a bank is able to operate at or close to maximum capacity, customer satisfaction rates may still go down when onboarding resources are stretched thinner across a greater number of customers. Secondly, the inability to scale may impede banks' efforts to tap into new revenue streams through their participation in ecosystem partnerships, and therefore lead to lower and slower revenue realisation.

Typically, such a cloud solution architecture consists of two integrated components:

• A Web portal that captures and validates the customer's API subscriptions and technical details, before auto-provisioning the information to the API gateway and respective back offices in a timely and secure manner; and
• A cloud-based API platform that allows banks to compute, store, and manage data and workloads off-premises.

Our most recent success story of a bank with its journey to the cloud saw the successful reduction of its API onboarding cycle from an average of 60 days to seven days over the course of 12 months. In addition, customer satisfaction metrics rose by 50 per cent, while real-time transaction banking capabilities for corporate customers increased by 10 times, and the API product's speed-to-market accelerated by roughly five times.

As is the case with any large-scale digital transformation initiative, transitioning to a cloud-based API platform is an endeavour that entails significant time and resource investments. Accordingly, as banks develop and execute their API strategies, it is important that the different stakeholders within the bank are able to reach a consensus on their overall strategy and priorities, and collaborate on the development and implementation of a fit-for-purpose solution architecture.

Looking ahead, we fully expect cloud-based API platforms to catalyse a much more radical transformation of the banking industry. As they become the de facto mode of communication and synchronisation of different applications across organisations, these platforms are likely to serve as a starting point for a complete and irrevocable change in the dynamics of the bank-customer relationship and redefine the very notion of competition.

After all, even as the future of banking remains far from certain, we know one thing for sure: it will be open.

• The writers are from Deloitte South-east Asia Financial Services Technology. Lim Eng Hong is consulting leader, and Felix Chan, consulting director. This article is written in association with the SwissCham Singapore's Digital Transformation Award 2021.