ALLIANCE THROUGH INNOVATION – THE OPEN BANKING REVOLUTION
Customer personalization, work process automation, new profit channels – they’re all possible. The Open Banking Reform in Israel has taken effect, creating new activity between fintech companies, banks and credit-card companies, and massively broadening the basket of business opportunities for banks and financial institutions. We spoke with Ravit Danieli, Director of Integration and Hyperautomation Solutions at Matrix Fintech and Digital, about how the ramifications are likely to change the map of relationships within the Israeli financial sector.
“Open banking has been part of the public discourse for many years, but it has only recently become a reality. It made its start in Europe several years ago, and in Israel over the past year,” says Ravit Danieli. “It’s a true revolution, creating a new ecosystem in the world of finance, and providing a unique opportunity for new developments, based on information sharing and cooperation among traditional financial organizations such as banks, as well as among the young fintech companies.”
Open banking is a regulatory change obliging banks and credit companies to share information about customers (with their permission) to other organizations, including fintech and technology companies. In order to comply with regulations, the banks need to invest in constructing an administrative platform with an API, enabling the bank to present information to third parties.
In Europe, “open banking adoption is directly on trend compared with mobile payment and mobile banking uptake at a similar point from launch.” – Analysts from the Forrester research company
“Information availability and the Open API are a revolution that needs to be understood as much broader than just open banking,” says Ravit. “Although it may originally have been meant to enlarge the range of financial services, provide more value to customers, and strengthen competition, today it’s an innovation engine; and financial organizations understand that. 29% of managers surveyed by the World Economic Forum selected open banking as their chosen innovation strategy. And in fact, a good number of the financial innovations we see in the world today are products of cooperation carried out by means of the Open API.”
There are claims that open banking in Europe isn’t advancing at the expected pace. However, analysts from the Forrester research company compared the pace of adopting open banking with the pace of adopting mobile payment and mobile banking in Europe, and they found a similar pace of adoption. According to their forecast, by 2027 open banking services in Europe will double. They also estimate that the largest number of open banking users will be in the UK, while the fastest speed of penetration will be in Sweden. According to Ravit, “Here in Israel, we’re still at the start of the journey. A few fintech companies have begun working in cooperation with the banks – for example, RiseUp and FamilyBiz. They both aim to give their customers control over money management through a personalized experience, and by offering a solution to the often complex world of navigating a variety of financial and credit services. But as I said, this is really just a beginning.”
Expanding the Basket of Products – 62% of banks believe that integrating new products and services in partnership with fintechs is a high strategic priority, according to a survey from the Gartner research company
“Along with the changes being brought by open banking, also come risks. These include the financial investment required for developing the infrastructure that makes information accessible to partners, as well as the entry of new players and intensification of competition, and more. But at the same time, there is a real opportunity for financial institutions to redefine the borders of their business sector,” Ravit explains. “If, for example, we take the bank’s customer experience, we see huge potential for the bank. Through cooperation with startups and tech companies, banks can offer their customers a personalized experience, with new products tailored to the customer’s specific needs, and they can give the customer control of the account’s routine financial activity. For instance, if cooperation with a fintech company provides the bank with a system that can identify my overseas travel habits, then the bank can offer me a travel loan in advance. And maybe, by means of cooperation with another company, it can even offer me a travel package or overseas travel insurance. In this way, the bank can increase its customers’ satisfaction and loyalty, and can enjoy some business growth at the same time.”
As noted, the revolution of information exposure and the Open API open the door to various kinds of cooperation – with fintech and technology companies first of all, of course, but not exclusively. In a survey held among banks in Europe by the Gartner research company, 62% of respondents attached high strategic priority to integrating new products and services by means of cooperation with fintech companies. 40% attached high strategic priority to integrating or distributing non-banking products. In other words, a bank can also start offering completely new products – and they don’t need to be financial products.
More Efficiency, Less Expenditure on Resources
“Another way for banks to enjoy cooperation is in the field of operational efficiency,” Ravit explains. “For example, they may want to make opening an account easier for customers, or to examine which process they can automate with the help of which companies, in order to make the process much smoother and faster. A bank can work with tech companies and offer a digital solution that will bring new customers on board, with a smaller expenditure of time and resources. Similarly, banks today are offering their customers quicker and safer payment options. The issue of payments has already changed dramatically. Today, for example, companies such as Harel are paying their insurees’ claims through the Bit payment system, and credit companies and banks have gone into public transport fare payments, and so on.”
Open banking helps bridge the gap between the fast pace of technological development =and the slow pace of traditional financial institutions. It enables veteran financial organizations to adopt the technological capabilities of startups, while at the same time managing risks and complying with regulations. For organizations with initiative, the opportunities that the reform offers include providing greater value to customers, expanding distribution channels, and formulating new products, as well as sales of banking infrastructure to third parties. By using such opportunities, traditional financial bodies will enable themselves to target new clientele and operate in new areas of business. And finally, open banking completely changes the financial ecosystem, making it innovative, dynamic, and customer-centered.
Matrix, as a pioneer in the areas of integration and open banking, helps organizations implement the new standard. We offer solutions for fast integration with Israeli data providers, enabling a speedy development of the new ecosystem, by introducing players with innovative solutions into the realms of finance.
For an introductory meeting and consultation regarding integration and open banking, contact Ravit Danieli, ravitda@matrix.co.il.
