Open and collaborative ecosystems challenging the order of the past

• Financial institutions need to race towards the open, collaborative ecosystem and shared economy where they can create more excellent customer value
• The ability to harness and monetise the power of data becomes paramount as a differentiating competitive advantage
• Need for digital identity and inclusive data for building customer trust.

In these exceptional times of rapid technology revolution and entry of new players, the financial industry is challenging the order of the past. Institutions are at an inflexion point where they need to change the mindset and embrace the technology transformation immediately to maintain their leadership and customer trust.

Mounting need to move towards open banking and shared ecosystem

At the core of the discussion was the urgent need for financial institutions to move towards a shared ecosystem and lifestyle services that benefit customers from network effects of aggregation. It is no longer an option but rather a ‘must’ as fintech platforms rapidly acquire customers at a much faster pace than banks ever did. The openness could emanate not just technology collaboration but also from collaborative business models.

Open banking models could vary. The collaboration could be through application programming interfaces (API) that integrate partners in an ecosystem of services, and also function as a tool for customer acquisition. The alternate business model could be where institutions create a marketplace with multiple service
providers. The ‘Banking as a service’ model has evolved from the realisation that as institutions create modern digital banking infrastructure that often runs on cloud, then they could offer it as a service to create entirely new banks.

“There is no single business model that works; it could be a combination of models. We have over 300 API that connects to various systems and companies. They allow us to offer services to customers that are probably way better and faster than what we can do just by ourselves,” pointed Umang Moondra, advisor Fidor Bank, the first open bank in the world. Fidor has also enabled seven banks to run on its white label solution, and it has built a customer community.

“Moondra added that the whole focus should be to improve the consumer experience. It doesn’t matter whose product it is. The customer should get openness transparency, choice and best possible experience.

The panellists discussed the adoption of open banking and how it varies across countries. In Europe, for example, sharing of information is governed through open banking with General Data Protection Regulation. While in Asia, individual countries are now developing their regulations.

“In China, the building of ecosystem has involved sharing of APIs that is still quite private; it has not reached the threshold where it is a regulatory requirement. A lot of account opening for third parties is through banking license, so we do not see solutions where banking is offered as a turnkey solution to third parties. Our thinking is more around how we use technology with regards to localisation required,” pointed Tyler Aveni, head of international partnership, product and innovation, WeBank.

Moondra said the adoption of open technology within an institution needs to begin with strategic and mindset change.

“The biggest hurdle is the mindset, thought-process and cultural change in institutions. Our first few discussions with them are all about what different models are available, to open their eyes and challenge the exiting thinking. Technology discussion comes much later,” commented Moondra.

Going forward, the panellists agreed that institutions need to approach this change more holistically. The common theme will be the need for openness and collaboration driven by market forces to achieve improved customer service capability. Challenging the order of the past by monetising data During the session, panellists discussed how fintechs have taught banks how to harness the power of data for unique insights that enable competitive advantage in customer engagement.

“We work on real-time data streams of all the transactions. This insight provides us with so much power in banking as we can see in real-time how our customers are engaging with products,” pointed Aveni. In the session “Outlining a long term strategy in the use of Artificial Intelligence (AI) in financial services”, it was discussed that banks are sitting on hordes of data, but they need to be creative to optimise and monetise it. They need to challenge the order of the past and break down internal data silos. Furthermore, they need to bring cultural change and work towards organisational agility.

The ability to harness the power of data through technologies such as machine learning and AI is proving to be a key differentiator in financial technology. The industry is rapidly expanding AI applications, and in several instances machine vision was proving to be better than human, providing a unique use case.

Need for more inclusive data and self-sovereign digital identity

Greg Kidd, initial investor into Twitter and Square and the CEO of globaliD and co-founder of Hard Yaka, said that in the last few years, false identities, fake news on social media and frauds are increasing and leading to growing distrust. He added that it is easy to create fake identities in platforms like Twitter, WhatsApp and Facebook using standard protocols. “Currently about 98% of money laundering goes undetected. Why is it that our current controls do not work?” “If we look at the evolution of the internet, with the creation of domain name system in the worldwide web, we have only one owner for a website across the world. It made the internet usable for all business and users. Why not have something similar in identity that is self-sovereign to prove credentials and yet protect a person’s privacy?” asked Kidd.

He added that today when the mobile penetration is higher than banking penetration, mobile data such as address book provides of information on the individuals. There is a need for a verifiable digital identity method to build trust. Traditional institutions, on the other hand, dominate the financial intermediation as they decide who they want to include as customers.

“You need access to the identity credentials that let you trust users. We have technology with public, private key cryptography. You can see who has verified himself and visited your site. It is auditable; it is not in silos. The identity is not just for the good guys, but unless you have good and bad actors in your database, how can you identify them?” argued Kidd.