“There’s a reluctance,” said Hans Tesselaar, executive director of the Banking Industry Architecture Network (Bian), when asked about banks’ attitudes to opening up their systems to third party fintech vendors. “Why should you open up all your very sensitive bank account information to third parties when all you’re getting is say one statement with three bank accounts?”
The long-accepted sentiment that banks prefer to close themselves off is, of course, understandable. They hold sensitive information, which they must guard, and build their infrastructure in unique manners in order to squeeze out the last drop of competitive advantage – which again they must guard. In that sense it’s not a unique market, every organisation in the world looks to protect itself from the outside world, carefully considering which elements of the entire business core it should expose to the outside world and which it shouldn’t.
But over the past few years regulators have looked to overturn that sentiment. That dates back to a still-shocked and crisis-fresh meeting of the G20 leaders in Pittsburgh in 2009, who talked of the need to create transparency among a number of banking markets. In turn that led to the swath of fresh regulations governing markets today. Most recently, PSD2 and the Open Banking initiative – both of which encourage banks to open up their application programming interfaces (APIs), will have caused headaches within banks’ compliance, technology and legal departments.
It’s important to note however that financial services are developing at a fascinating speed. New and nimble organisations are entering the industry, equipped with deeply held understanding of algorithmic capabilities in application to market data, boasting artificial intelligence and discussing the future of machine learning. Banks are well aware of the new competitors within their market and would be ill-placed not to react in earnest.
Aside from these competitors, the fintech market of course offers a huge range of capabilities to help banks across a variety of business functions. And that market has exploded (as evidenced in the size of the bobsguide directory), with banks recognising the benefits of working with these nimble, highly specialised vendors. Indeed, it’s got to the point at which some of those banks have become reliant on those vendors – in some instances the larger banks will work with dozens if not hundreds of smaller fintech organisations. Perhaps therein lies the source of the reluctance Tesselaar refers to.
That reluctance – where it occurs – may be short-sighted. Beginning any new project or assessing any new requirement, a CTO should assess the options of a proprietary build compared to a third party agreement based on three factors alone: cost, time, and quality. Evaluating sacrifices and benefits of each of these three variables alone, and relying on a robust service agreement with fintech vendors should the organisation decide to go down that route should be all the bank needs to know. It’s been an unsettling few years for the banking industry, but fintech partners can lend helping hands. For their part, they need to keep ahead of the game.
“The buying model helps as a dashboard that you can plot a bank on a page and consolidate using a top generic model,” says Tesselaar. “We see a lot of banks starting at that high level then reviewing systems from there. That gives a huge opportunity to begin migrating from the current situation to a more agile situation.”