Mastering OpenBanking: How the‘Masters in Openness’create value

Senior bank executives are starting tounderstand that Open Banking will havekey implications on their future competitivepositioning and related digitaltransformation activities. We define OpenBanking as a business approach in whichvalue creation results from sharing,providing and leveraging access to bankresources through applicationprogramming interfaces (APIs). This waydata, processes and other businesscapabilities of banks are made available toan ecosystem of (selected) third parties(e.g. fintechs, technology vendors,corporate customers).

Open Banking is set to transform digitalexperiences through compelling valuepropositions developed by third partiesleveraging access to bank resources,ultimately adding value and putting thecustomer more in control. Banks that areable to put the required capabilities inplace to effectively andseamlessly engage with third parties willbenefit from an early mover advantage.

In this article we assess four core APIDeveloper Portal capabilities of 50+banks and define five strategic actionsthat banks can undertake to execute theirOpen Banking strategy.

In the capability assessment we focus onspecific aspects of the Open Bankingstrategy, that is, the functional richness ofAPIs offered (i.e. Functional Scope) andthe extent to which third parties are able tointeract with these APIs in a seamlessmanner (i.e. Developer Experience). Thebank’s API Developer Portal is where theseaspects come together.

Four core API Developer PortalcapabilitiesOpen Banking is definitely not a businessmodel fit for all types of banks. The extentto which an Open Banking play will besuccessful depends on many differentaspects that banks need to get right. Thisincludes its Open Banking strategy, takinginto account existing product offering,competitive positioning and size ofcustomer base, and the bank’s ability toexecute on that strategy.

Many banks are taking action to engageand support external developers throughan API Developer Portal. However, thelevel of maturity differs considerablyacross banks, as we assess inthe INNOPAY Open Banking Monitor(OBM). Banks differ on four corecapabilities: API Catalogue, APIDocumentation, Developer Usability andDeveloper Community. While the majorityof banks is still mainly working on ‘gettingthe basics right’ of their Developer Portal,we also observe that others are graduallyexpanding the functional scope of theirAPI portfolio.

Five strategic actions to executeon your Open Banking strategyWith many banks across the globeestablishing the basics of their APIDeveloper Portal, there is a strongincentive towards differentiation in theemerging Open Banking landscape. Toensure banks are prepared for this newlandscape, we have defined five strategicactions: 1) Learn from global API bestpractices across industries, 2) DevelopAPI rationale and strategy for yourbusiness to create new avenues forrevenue growth, 3) Identify and prioritisethe value that can be captured with APIs,4) Manage API monetisation actively bydetermining if, what, how and who tocharge in a transparent manner, and 5)Drive usage and adoption of your APIs toaccelerate network effects and gain scale.

Open Banking should be approached as abusiness strategy and model in its ownright, requiring an alternative way ofthinking and working in productdevelopment. Combined with powerfulexecution capabilities and a successfuland scaled partnership ecosystem bankswill be able to future-proof theircompetitive position in the Open Bankingera.

This article is structured as follows:

1. Introduction: INNOPAY Open BankingMonitor shows that Open Banking isgaining traction

2. API Catalogue3. API Documentation4. Developer Usability5. Developer Community6. Five actions to execute on your Open

Banking strategy

1. Introduction:INNOPAY Open BankingMonitor shows thatOpen Banking is gainingtractionBanks across the globe are starting tounderstand that Open Banking will havekey implications on their future competitivepositioning and related digitaltransformation activities. Open Bankinghas reached the boardroom agenda andstrategic investments are being made or atleast considered.

The evolutionary journey towards OpenBanking is driven by ongoing digitisationof financial services, as depicted in figure1.

Figure 1: Evolutionary journey towards Open Banking

In this article we define and focus on OpenBanking as a business approach in whichvalue creation results from sharing,providing and leveraging access to bankresources. This in contrast to just owningthese resources and being closed. Data,processes and other business capabilitiesof banks are made available to anecosystem of (selected) 3 parties (e.g.fintechs, technology vendors, corporatecustomers) through applicationprogramming interfaces (APIs).

Open Banking is set to transform digitalexperiences by enabling third parties todevelop compelling value propositionswhile leveraging access to bank resourcesand putting the customer more in control.As the benefits materialise at scale we willwitness an accelerated shift towards OpenBanking platforms. These platformsenable banks to effectively and securelyinteract and co-create with an ecosystemof service providers through APIs. Bothbanks and these service providers cancreate benefits for their mutual customers,strengthen their competitive position in theAPI economy and potentially establish newavenues for revenue growth. For banksthis could offset competitive pressureresulting from the increasing openness inpayments and banking introduced byPSD2. Indeed, in Europe, we alreadyobserve that banks are starting toexperiment with offering APIs beyond the(perceived) mandatory functionality underPSD2.

Open Banking is not fit for allbanksOpen Banking is definitely not a businessmodel fit for all types of banks. The extentto which an Open Banking play will besuccessful depends on many differentaspects that banks need to get right. Thisincludes its Open Banking strategy, takinginto account existing product portfolio,competitive positioning and size ofcustomer base, and the bank’s ability toexecute on that strategy. In this article, wefocus on specific aspects of the strategy,that is, the functional richness of APIsoffered and the extent to which thirdparties are able to interact with these APIsin a seamless manner. The level of maturitydiffers considerably across banks on theseaspects, as we have assessed in a priorrelease of the INNOPAY Open BankingMonitor (OBM) “Who are the Masters inOpenness?”. Note that the level ofopenness of a bank is relative to the banksproduct portfolio, that is, larger banks tendto have a more comprehensive productcatalogue. As this study measuresabsolute openness, these elements (i.e.reach and product portfolio) should bekept in mind.

Strong API Developer Portalcapabilities are key to winning inOpen BankingA winning strategy is quintessential forbanks to effectively participate in the OpenBanking platform game. While there arelittle precedents in banking, banks canlearn from open business models thathave revolutionised other industries.Indeed, a selected number of progressivebanks are starting to engage by publiclylaunching their own Developer Portalsincluding APIs and sandbox environments.These capabilities allow banks to offersecure and controlled access to thirdparties to interact and use the bank’sfunctionality and customer’s data to createnext generation financial services. Banksthat are able to put the requiredcapabilities in place to effectively andseamlessly engage with third parties, andfacilitate an Open Banking ecosystemthrough its platform, will benefit from anearly mover advantage. This will in turnstrengthen the bank’s API offering and asupportive ecosystem of third parties thatdrive customer value creation. Manybanks are taking action to engage andsupport external developers through acomprehensive Developer Portal tofacilitate effective interaction.

INNOPAY Open Banking Monitorassesses API Developer PortalCapabilitiesThe initial OBM assessment conductedearly March 2018 included DeveloperPortals across the globe and triggeredmany positive reactions from variousbanks and financial institutions worldwide.The OBM has proven to be an accessibleand intuitive tool providing a snapshot ofthe current state of play regarding APIDeveloper Portals and insight in a bank’srelative position. In this initial release, wehave seen that the majority of banksmainly worked on ‘getting the basics right’of their Developer Portal, rather than theFunctional Scope of their API portfolio.

In this second release, ‘OBM 2.0’,INNOPAY’s assessment has been enrichedwith new banks, new API functionality andnew features that drive the DeveloperExperience and nurture the use of APIs toaccelerate innovation in financial services.Figure 2 below depicts the updatedbenchmark results.

Figure 2: INNOPAY Open Banking Monitor 2.0 – update

September 2018

OBM 2.0 evaluates the relative position ofbanks across four core Open Bankingplatform capabilities, as depicted in figure3 below. The state of play and bestpractices across these core capabilitieswill be further elaborated in the remainderof this paper.

Figure 3: INNOPAY Developer Portal Capability Model (Grey

coloured capabilities not assessed in this OBM release)

2. API Catalogue Key messages on API Catalogue:

Becoming a Master in Openness is about relativeopenness rather than absolute openness, meaningchallenger banks and incumbent banks can only open upthe resources they have. Therefore, the functionality theAPI enables is a better indicator of openness, rather thanthe number of APIsCurrent Open banking approach will lead to fragmentedAPI Catalogues roadmap; guidelines in API design couldimprove the growth of the Open Banking ecosystem,increasing scalability and cohesion between banks and3rd partiesThe design of API functionality varies with the granularityoffered and can range from “do it yourself” to “ready toassemble” functionality

The API Catalogue is referring to all theproducts banks are exposing throughAPIs. In Europe, many banks areresponding to the PSD2 compliancechallenge by offering APIs enabling themandatory services (i.e. Payment initiation,Account information and Confirmation offunds availability). We already observesome leading banks that are extendingtheir offering by exposing more APIfunctionalities to serve 3 parties andcorporate customers directly. Banksoutside Europe are also starting to openup, seeking to expose functionality anddata through APIs to add value to theirOpen Banking ecosystem.

Current Open banking approachwill lead to fragmented APICataloguesAPI functionality can be designed andbuilt in various ways, and the decision toexpose certain APIs is determined by thebank’s strategy. There seems to be nogeneral structure on how the variousbanks define and set-up the FunctionalScope of their API offering (i.e. APIRoadmap). Common API standards for theFunctional Scope could, however,promote growth of the Open Bankingecosystem. Currently, both the content(what is actually offered) and the delivery(the way in which it is offered) differs to alarge extent per bank, increasing the riskof fragmentation. In Europe, however, wedo see some early signs of convergencewith numerous banks offering PSD2inspired functionality (e.g. accountinformation services and payment initiationservices) according to the NextGenPSD2API frameworkof the Berlin group. Whilethis framework provides for a goodstart, NextGenPSD2 is an API frameworkand not a single standard such as OpenBanking UK. Put simply, the API frameworkprovides a toolkit for banks to build theirown PSD2 API standard, allowing forvarious degree of freedom on certain APIdesign aspects. Creating common APIstandards in an early stage for acommunity of (small) banks in a particularregion could contribute to a faster growingecosystem and increased cross-fertilisation.

Figure 4 below shows the division of thenumber of measured API functionalitiesper category currently observed in theOpen Banking landscape. Just over 50banks with publicly available DeveloperPortals (in the English language) wereexamined, spanning different types ofbanks (i.e. majority incumbent and onefifth challenger banks) and types ofbusiness (i.e. retail and wholesale) tocreate an insightful overview of the currentstate of play in Open Banking. To defineAPI functionality, we comparedcorresponding APIs of different banks withthe possibilities they offer. One API canhold one or more functionalities, nextparagraph will elaborate on this.

On the right side the categories areexplained and the top 3 most common APIfunctionalities per category are shown.This top 3 provides insight on whichfunctionalities are most commonly offeredacross banks. Most offered functionalitiesare related to reading information (e.g.GET Account Balance) from the user’saccount instead of writing (e.g. POSTSEPA Credit Transfer). As banks growaccustomed to Open Banking, more writefunctionalities are expected to emerge inparallel.

There is also a range of miscellaneous APIfunctionalities that is offered by a single orvery few banks, which are not taken intoaccount in figure 4. These APIfunctionalities vary greatly and are still inan emerging state. If these offeringsmature they can be reported in a futureOBM release.

Figure 4: Number of measured API functionalities per category

including top 3 APIs

API functionality is a betterindicator for openness, than thenumber of APIsThe various banks with a Developer Portalare often ranked by the number of APIsthey are exposing. In our research, we areusing the number of API functionalities

Mounaim Cortet, Art Stevens |API, PSD2, Open Banking, Benchmark, Openness, Customer in Control |19-09-2018

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