Open banking is an opportunity
Information is not knowledge. So said Albert Einstein. The advent of application programming interfaces and open banking regulations are opening the floodgates to oceans of data, and corporate treasurers will soon be drowning in their own banking information. But APIs are not knowledge and learning to manage the coming tidal wave of data will be a daunting task.
Banks can fear this inevitable open-banking transformation, or they can embrace it, and benefit from becoming the solution provider that customers are so desperately seeking. Customers want everything. They want to see all their banking data, from all their banking relationships. They want to see all the relevant market data and they want it all to feed seamlessly into their existing treasury management, general ledger and enterprise resource planning systems — and they want it in real time. They technology is simply not there — yet. But the bank that reaches the goal first will have a huge edge on its competitors.
One issue making the task of managing information so problematic is that data regulation is a localized matter. Some jurisdictions are pushing for free access to one’s own banking records and others are dragging their heels. Europe is leading the way when it comes to open banking. In November 2015, the European Union passed the revised Payment Services Directive, known as PSD2. The law, which goes into full effect in September this year, forces European banks to release their data in a secure, standardized form so it can be more easily shared online. Meanwhile Singapore, Hong Kong, India and Japan have all introduced comparable legislation to mandate accessibility to one’s own banking data.
U.S. regulators have explicitly chosen to follow, instead of lead, in the matter of access to banking data. In fact, a recent report from the U.S. Department of Treasury acknowledges that “there are significant differences between the United States and the United Kingdom … as Open Banking matures in the United Kingdom, U.S. financial regulators should observe developments and learn from the British experience.”
Still, while the U.S. may be trailing in regulation, American banks are already adjusting and recognizing that they must enable access to their systems through APIs. Banks are concerned that they are losing a valuable asset in the form of exclusive control of client data. Corporations meanwhile are pushing for access, arguing that it is their data and access via API simply allows them to better utilize that data.
Well, now they have it. Or at least they are rapidly getting it. What will they do with it all?
The potential use cases for all this live data are staggering. Open banking promises real-time reconciliation, optimized cash management, improved fraud detection and a multitude of other opportunities. While the concept of application programming interfaces has been around for decades, it is only the recent development of web-enabled APIs, open banking requirements and demands from bank customers and fintech innovators that have made these use cases a reality.
Corporations are now faced with the consequences of their success. Open banking — and the sudden availability of data from myriad sources — have flipped the problem.
With the rapid advance of APIs, it doesn’t matter whether you’re an industrial, commercial or retail enterprise — you’re likely inundated with more data than you know how to process. To make it valuable, you must be able to convert it into something consumable by the key decision makers in your business.
The reality is that bank customers are being overwhelmed. One treasurer at a major corporation complained to me that she had seven different systems — none of which talked to each other. Ten years from now, APIs are likely to have resolved this dilemma by enabling systems to communicate.
As it stands, too many companies are now data rich, but knowledge poor. With real-time access to bank account data, market data and real-time analytics, corporations are desperately looking to banks and vendors to help provide a comprehensive view of financial information. Any bank that helps their clients see the whole picture — in real time — is likely to be the big winner in the open banking competition.
The innovation teams at the major banks are currently working on API solutions to create a comprehensive window into a company's financial data. Once data is being shared across systems, smart contracts (or automated workflows) will eliminate a lot of the mundane operational work that still exists in treasury.
Thanks to APIs and open banking, corporations are finally getting the information they have craved for years. The question remains will it be their banks, their treasury management system providers or some new fintech that will assist them in turning that information into knowledge.