Outside Europe, the pace of implementation is equally disparate – and slower. For example, Hong Kong’s Monetary Authority (HKMA) began its open banking journey in 2018 launching four phases of regulation, but banks have yet to really open up account data and enable the initiation of transactions by third parties. In Singapore, “by far the most advanced country in Asia in terms of open banking and APIs” according to Eroglu, there is no regulation in place and utilisation remains comparatively low. “The reasons are a lack of market-wide standardisation of APIs and a lack of common infrastructure and processes. A fintech will be reluctant to invest time and money in developing apps that will only work with a certain bank in a relatively small market like Singapore,” he says.
Nevertheless, he believes that despite the lack of regulatory stick, open banking’s benefits will ultimately drive take up. “When we talk to banks outside Europe about their strategy around open banking in the corporate space, many are not under regulation. But they still want to understand its merits and learn how to build their own ecosystem and business model around it.”
The lack of innovation and interest in all open banking offers, requires a new narrative to capture the industry’s imagination. And now is the time as transaction banking grows more competitive, and treasury teams take a tooth comb to costs. Moreover, the pandemic has highlighted the wider importance of APIs, forcing banks to prioritise and drive their digital offerings and explore new technologies to meet increasing client demand for digital solutions.
Because it is real time, open banking can transform working capital and liquidity management, says Eroglu, in an enthusiastic reminder of all open banking’s benefits. Companies can carry out instant payments from one account to another or pause payments at the touch of a button. It allows treasury to access all their transactions and balances instantaneously, giving a window into the entire dollar, sterling and yen positions in one go. By connecting to multiple banking relationships, companies can streamline and optimise invoicing, putting all their transactions into one place or paying them at the best time to optimise cash management. “There are things you can do much better when you have a 360 view of financial situation in real-time,” he says.
Open banking promises easier digital onboarding. Imagine a ‘passport API’ that sends all your information from a bank where you are already set up to a new one you want to join, easing a complex process frequently cited as a pain point for corporates. Similarly, it would allow bank credit committees to make quicker, more informed decisions to boost credit lines by sharing data.
Nor is any business too small or large to benefit. For large corporates, the technology can feed data directly into their Enterprise Resource Planning (ERP) systems, providing treasurers with insights on cash flow trends that can help them improve financial efficiency, suggests Andrea Melville, Managing Director and Head of Commercialisation and Propositions, Lloyds Bank Commercial Banking.
As for smaller companies (which find SWIFT too expensive and in excess of their needs, yet still need multiple bank accounts) it enables information sharing across one centralised platform as opposed to managing three or four separate banking relationships, a benefit that has crossed Madeira’s radar. “In this respect, open banking could ward off cyber security concerns and manage multiple authorisations and mandates. It would simplify processes and also keep things tight, centralised and secure,” he says.
Elsewhere, Lloyds is currently testing an intelligent book-keeping solution for small businesses that combines data gathered from open banking with companies’ own invoices and expenses data. “It will help reduce the administration load for small and medium businesses and enable them to make better financial decisions through real-time cash forecasting and profit and loss information,” says Melville.
Lloyds is also using open banking technology to become a Payment Initiation Service Provider (PISP), a type of TPP authorised to make payments in and out of accounts. It creates a new receivables proposition that will allow its largest clients to improve the payment experience for its end customers. “On top of this, we’re developing new applications for APIs that corporates are starting to integrate directly into their own systems. A good example is an API that speeds-up the ‘time to decision’ for asset finance credit requests,” she says.
It’s the kind of product innovation and new customer propositions that are finally starting to trickle. But banks’ journey to becoming API-driven organisations, shifting to innovation and monetising open banking doesn’t just require a new mindset. It also needs investment, says Eroglu, who urges treasury teams and their banking partners to view open banking as an opportunity rather than a regulatory must. “Banks need to invest, especially in the regulated market. It means investing in technology and finding their way with the help of strategic and consulting advice. Banks need to make themselves open and agile and change their business models.”
Only then will they begin to think about distributing new products in different ways, rethink their target operational model and put themselves between multiple business models as a service, a platform and as third-party service provider – a position already grabbed by the tech groups and other API driven companies. In short, banks need to focus on corporate clients, and grab the opportunity to innovate in a win-win for banks and treasury. “We would consider changing bank accounts if we found that a bank starts racing ahead in terms of developing open banking tools we could take advantage of,” concludes Madeira.