In many regions around the world, open banking is still an emerging framework. However, it is just the beginning in a long phase of reinvention for the banking industry, according to Capgemini’s 2020 World FinTech Report.

Released this week, the report advocates for greater collaboration between incumbents and fintechs and urges banks to go beyond the mandated requirements of open banking in each country to gain competitive advantage.

Open banking legislation mandates that banks make their data available to third parties in a machine readable way so consumers can take more control over their financial products, increasing competition in the market.

“Although it is a transformational catalyst, open banking is not the FS endpoint. It is a stepping stone to free-flowing information and a sharing-economy ecosystem that is beneficial to all participants as part of the impending era we call Open X,” the report states.

According to Capgemini, Open X leapfrogs the compliance-based approach of open banking and moves to a seamless exchange of data and resources to continually improve customer experience.

The report uses the example of Uber to illustrate the Open X concept outside the financial services arena. The ride hailing business relies on maps and 10 different payment integrations to provide a seamless experience.

“Banks must evaluate where they can most efficiently and profitably play within this open – and sharing – value-creation process. The process begins with collaboration, but that only scratches the surface of the full potential of an open ecosystem. When data and resources are shared, the environment is ripe for innovation, exponentially better products and services, and customer experience that rivals the trendsetters,” the report states.

Produced by Capgemini and Efma the report also noted that fintechs have moved from disruption to maturity and are acquiring millions of customers and heading toward profitability. Warns they should be viewed as “tangible competitors or enabling partners.”

Developing an open ecosystem means leveraging FinTech capabilities to create a streamlined platform system that integrates external ecosystem players seamlessly.

“Traditional banks are at a critical juncture. They must embrace Open X or risk becoming irrelevant,” said John Berry, CEO of Efma.

However a survey included in the report highlights several barriers to collaboration which both sides will need to overcome. Specifically:

  • Only 21 per cent of banks say their systems are agile enough for collaboration
  • Only 6 per cent of banks have achieved the desired ROI from collaboration
  • 70 per cent of FinTechs don’t culturally or organizationally see eye-to-eye with their bank partner
  • More than 70 per cent of FinTechs say they are frustrated with the incumbent’s process barriers
  • Half of FinTech executives say they have not found the right collaborative partner

The report notes that collaboration between banks and fintechs so far has largely been on the frontend. The authors urge banks to deploy FinTech capabilities across their business value chain to enable seamless data sharing from the front office to the middle and back offices while also transforming back- end operations to connect with third-party partners.

Although overall investment in new IT development (vs. maintenance) increased from 24 per cent in 2016 to 33 per cent in 2019, middle- and back-end operations continue to be based on complex, often manual business processes, leading to a fragmented customer experience, the report states.

Anirban Bose, CEO of Capgemini’s Financial Services and Member of the Group Executive Board noted the world has changed dramatically and businesses will evolve and emerge from the COVID-19 crisis in different and profound ways.

“For traditional banks, this will translate into an even greater need for digital experience through further collaboration with FinTechs. Since we began this report three years ago, FinTechs have moved from disruptors to mature players, and it is now essential for incumbent banks to consider them not only as formidable competitors, but as necessary partners of choice to meet changing consumer expectations,” Bose said.

According to Bose, “Effective collaboration requires people, business, and process maturity. While, for traditional banks, failure is not an option, FinTechs are fast to market yet ready to fail. Inventive banks with the willingness and capabilities to collaborate at scale and industrialise innovation are most likely to prosper within the shared Open X ecosystem.”

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