Banks are increasingly looking to add and scale services to meet the changing needs of their customers.
Rajesh Saxena, CEO at iGCB, Intellect Design Arena, explores how banking on the cloud can help.
Real-time digital services have rapidly embedded themselves as an expectation in nearly every aspect of day-to-day life. This is especially the case with respect to banking, where evolving demands have initiated the birth of challenger (i.e. specialist digital) banks and third-party fintechs, which are providing innovative solutions and gaining market share from any incumbent players.
In response – and as the market becomes increasingly saturated – traditional banks are fighting back with flexible products and ecosystems based on “front to back” digital infrastructure (i.e. starting with the customer interface). And while this is helping them maintain a competitive edge, fresh challenges are emerging. These include the need for greater security (due to a spike in cybercrime and data breaches), as well as compliance procedures able to keep pace with the burgeoning number of instant-banking offerings. This is making data a key priority for banks, with both internal and external data being leveraged to improve the product offering and overall customer experience.
Open Finance led banking on cloud
So how can banks successfully navigate this rapidly changing environment to come out on top? Perhaps the answer lies with open finance powered banking, which complements a more flexible, incremental, software development style.
Historically, innovation in banking technology has been dominated by the larger clearing (or “high street”) banks, primarily due to the substantial investment required. The emergence of Open finance powered banking on cloud, however, has democratised banking by enabling banks of all sizes to leverage marketplace players, microservices and APIs to deliver unique products and services. This shift that’s brought significant advantages, including:
- Speeding up launch: By offering a pre-integrated ecosystem, banks can expedite the launch of new offerings to the market. Banks can leverage and integrate with Fintechs to offer core banking products like Deposits through Aggregators or partner with another bank to offer products outside their core strength. Marketplace players into KYC, payments, CRM, document management etc can speed up overall product launch as well.
- Reduced cost of acquisition: Banks can enable customers to open an account from the comfort of their homes through partner digital channels. The entire onboarding process can be digitized, with the majority of the data being fetched through APIs through national registries. AI models can further perform credit checks by analysing various structured and unstructured data points.
- Curated credit propositions: By partnering with credit players, banks can launch unique credit solutions like BNPL, Microcredits etc. Modern credit platforms are composable and come with prebuilt business components which further reduce the time to go to market.
- Offering scalability: Cloud native platforms provide elasticity, allowing banks to easily scale-up (or scale-down) their resources as needed. For example, banks can quickly add or remove services to match the changing client demands. This flexibility ensures that banks only pay for the resources they use, which – in turn – optimises cost-efficiency.
- Flexible payment options: Today technology players see banks as long term success partners and hence offer ‘Pay-as-you-grow’ based on factors like transaction features, users and features
Putting Open Finance platforms to work
Of course, turning this clearly advantageous theory into practice is where the dilemmas lie: onboarding is rarely a pain-free process. Yet take the example of onboarding an SME for financing. The process would traditionally involve a representative of the SME physically visiting a branch and submitting up to 20 documents, typically including a certificate of incorporation, tax statements, proof of address, and more. Forwarded to the back office and credit department, they undergo evaluation using a limited number of algorithms. Ultimately, a credit decision would be made based on the customer and the required facility: a process usually taking at least 10 days.
With open finance enabled banking, however, the bank can provide the SME with a user-friendly, branded, microsite (or mobile app) that – by inputting basic information such as phone number or tax ID – can initiate self-onboarding that takes a few minutes. And, by eliminating the SME’s burden of organising and submitting physical documents, the process reduces the administrative burden on the client.
And onboarding is just one example of how open finance enabled banking platforms significantly improve the services banks can offer clients. For example, iGCB’s cloud-based core banking platform – just launched in the UK and Europe – helps banks offer services beyond their core strengths. These can include: leveraging and integrating with fintechs to offer deposits through aggregators; providing “application to sanction” within minutes; and offering unique credit experiences such as buy now pay later (BNPL).
The future is Open Finance enabled platforms
Certainly – thanks to underlying customer demand – the innovation drive in financial services is not easing up. And as banks look to meet the needs of this changing landscape, cloud-banking technology is poised to become the new standard. This is something we should celebrate: it provides a real opportunity for a level playing field for all types of banks – from the largest “high street” names to the smaller tier-three outfits. They all have the opportunity to launch products quickly and at scale – leveraging a pre-integrated partner ecosystem with in-built design and deliver contextual experiences for customers.