In the world of treasury, it’s hard to ignore the subject of Open Banking. Barely a day goes by without it coming up in conversation, such is the fervor surrounding it. However, while it’s hard to disagree that it has the potential to be truly transformative, it’s fair to say that on its own Open Banking isn’t the game changer; it’s the technology that it enables that’s truly exciting.
“The industry is talking about Open Banking as if it alone will deliver untold benefits to customers and change how corporates bank, but Open Banking is the great enabler, not the solution,” argues, Nick Armstrong, CEO of Identitii.
“Open Banking is enabling some very innovative solutions to be built using its access and data principles. It is reducing manual processing and making corporate banking more transparent and easier to report on. Think more visibility into transactions, new ways to improve working capital and reduce unallocated cash – and importantly how to do all of this without having to completely overhaul existing treasury and cash management systems. Crucially, corporates can now also truly choose the solution (or solutions) that works best for their business, whether that be from a bank or from a non-bank provider.”
APIs and Overlays
Armstrong adds that while technology is what makes Open Banking work, it’s APIs and Overlay services that will have the most impact.
“APIs are driving the how of Open Banking,” he explains. “How non-banks get access to the data they need to deliver on their product promises. How banks can connect more easily with their customers and technology providers and how everyone will benefit from new products and services created under the Open Banking banner, without APIs no one will have the data they need to provide these new solutions. Overlays are just as important as the idea is to enable companies and banks to adopt new technologies, that deliver previously unavailable benefits, without having to completely re-engineer existing systems.
“Take the payables / receivables process for example. Today’s payment channels, receivables matching systems and ERP systems still struggle to carry settlement data with clearing and remittance data from the buyer initiating the payment, all the way to the supplier. An Overlay, that connects via API, can essentially sit on top of all of these systems and link them up both inter and intra-company, carrying the data they need to augment the process.
“Blockchain can play a role here too—as it suits Overlay services really well and adds a layer of auditability and shared trust that makes reconciling incoming payments and reporting on them, a lot easier.”
End-to-end benefit
Continuing the discussion around APIs, Parth Desai, CEO and founder of Pelican, adds: “APIs will play a key role in corporates connecting to their banks and they will enable corporates to finally get the full end-to-end benefit of real-time payments, rather than the current model where the ‘instant’ part of real-time schemes sometimes remains the preserve of the inter-bank space.”
Another key technology offering, says Desai, will be AI. “Greater access to data will allow a multitude of AI technologies to play a meaningful role. Industry leaders in AI can offer a host of such solutions including intelligent payments management across the entire payments lifecycle with industry-leading levels of efficiency.
“Advanced risk management and compliance solutions can harness the AI disciplines of machine learning and natural language processing to deliver comprehensive sanctions screening, AML, transactions monitoring, and fraud prevention capabilities. Technology can also automate bulk payments, reformat and route payments directly to clearing banks and networks.”
Transformation today or tomorrow?
It’s clear then that the API connectivity layer and AI will be transformational forces within this space and will allow nimble corporates who understand and harness AI technology within the Open Banking ecosystem to emerge as true winners. It’s worth pointing out that this isn’t some kind of future pipedream either—we’re talking short-term here according to many in the sector. In fact, Desai says that real-value for corporate use cases is likely to start emerging in around 12 – 24 months’ time.
However, Dr Gavin Scruby, CIO of SmartDebit has a differing view that suggests real, meaningful change may still be a way off—and regulation may play a part in pushing it forward. He also says that we need to be careful about the true interpretation of Open Banking.
“It’s important to define what we mean by Open Banking, because there are now different interpretations. The first and most well-defined version of Open Banking in the UK is the CMA mandated set of requirements to open up the market by forcing big banks to make account and payment services available by API. This is designed to be compatible with the EU PSD2 directive. Marketing teams have been, as ever, hard at work piggybacking on this though, as it has been touted as a revolution in innovation.
“As such, we now have a completely different notion of Open Banking that means making banking services that are “open” to others and newly-digitized through APIs. We can call these CMA Open Banking and conceptual Open Banking. It’s all further complicated by the fact that other countries are implementing their own CMA type Open Banking frameworks, which are slightly different in scope to the UK’s.”
The reason it is important to differentiate these, according to Scruby, is that the impact it will have depends on whether we mean CMA Open Banking or conceptual Open Banking.
“CMA Open Banking will have little impact on vast and complex financial instrument aggregators such as treasury management suites. They already have routes into most payment types and banks that they need already—hard won over time. CMA Open Banking is much more limited in scope (right now just consumer accounts), and different in each country, so many of the traditional integrations will still be needed.
“What is happening is that banks and institutions are feeling the heavy hand of regulation hovering over them. They feel that the CMA Open Banking standard is just the first phase of pushing them into public digitization. This feeling, along with the drag from customers who increasingly expect new services to be online and standardized is fueling the conceptual Open Banking boom. This “version” of Open Banking will very much affect treasury management, as new services supercharged with AI and blockchain, and supported by cloud scalability become the norm.
“Whether this will be enough to allow FinTech’s and new players to enter the market is debatable; so many traditional integrations will still be needed that such innovators may well just occupy niche positions for years to come. Additionally, given that the CMA Open Banking standards will vary across different countries, suppliers will still need significant resource to provide a full multi-national solution.”
So, while Open Banking is the great enabler of change in banking and treasury, the big driver of change in all of this is technology—especially APIs, AI, Overlays and Blockchain. However, while technology like this is destined to become truly mainstream, when that happens is anybody’s guess.
