If recent interest in FinTech-bank collaborations is any indication, many financial institutions in Latin America will not wait-and-see what happens with the rollout of open banking and API rules in Europe, Mexico and elsewhere before kicking off their own initiatives. And, they shouldn’t. That’s because open banking right now isn’t about waiting for the music to start, it’s about taking the necessary first steps today to become familiar with the methods and protocols that will dominate financial services for the next decade.
Around the region, several financial institutions have started, or are narrowing down projects and partners that can deliver proofs of concept and quick wins in the near-term. It’s not a stampede by any means, but rather a discernable and deliberate pattern: pick a project that’s not overly ambitious, a partner that you like, map out the roles and requirements and get started.
The reason is simple: these projects illustrate and ground abstract ideas into concrete experience, and rally people in ways that are critical to competing in the future. They turn skeptics into informed, engaged and active partners. And, the more urgency and watchful eyes they receive from a financial institution’s leadership, the more likely they are to move quickly and succeed.
Different Project Types
Government-driven open banking initiatives are about stimulating innovation, competition and financial inclusion. However, this can include a wide range of project types from instant payments to robo-investing to QR enabled mobile P2P payments.
The types of projects we’re hearing about today vary and the terms used to describe them don’t always shout “open banking”, but make no mistake, if it involves APIs and collaborating with third parties to deliver financial services, it’s probably open banking.
From our company’s point of view, we prefer and recommend projects that fit the following criteria: services with a track record or clear potential to scale rapidly, one that you can pilot with an existing and able client, and one that clearly falls into the bright lines of current rules (minimal legal exposure). By nature, these tend to be business customer-oriented services (though not always) like digital account origination, real-time payments, mass disbursements, and B2B2C plays like digital lending, to name a few.
And, the Fintech B2B trend seems to be catching steam as evidenced by reports of Santander’s plans to launch a digital business banking service in the UK, and BBVA becoming the first global bank to issue a loan, using distributed ledger from negotiation to signature, cutting the closing process of €75m corporate credit from days to hours.
Innovate Via Micro-Wins
Innovation in incremental doses is nothing new, but quick-win projects can face resistance within organizations that are incorrectly interpreting them as competing with other efforts. For example, an initiative to define a new system architecture road map isn’t necessarily in conflict with an open banking project. Today’s API enabled, wrap-and-extend approaches permit those projects to happen in concert. And besides, initiatives that appropriately leverage existing assets while improving digital agility are typically a good idea.
Commercial Banking Customers Aren’t Happy
Let’s be honest. Most banks in any given market have fairly similar business products. It’s hard to point to many areas where one bank has a dramatically better product than another. What happens when that changes? Answer: They take away business at an alarming rate. This is made worse by that fact that more tech-savvy and innovative corporate customers aren’t exactly wowed by current services. A recent study of corporate treasurers found they are quick to move away from banks that don’t understand and can’t meet their digital requirements.
In fact, when it comes to imagining the corporate bank of the future, McKinsey & Company advises corporate banking leaders to pay close attention pointing out that digitizing processes from end-to-end increases customer satisfaction, building customer-centric journeys, and suggests it may be time to redefine some product offerings and migrate them to new platforms.
API Economy and Platform-Driven Business
Case in point: gig economy and other digital platform companies have been providing a clinic on how real-time systems have the ability to dynamically pull financial services and rapidly scale volumes with little need for human intervention or traditional bank delivery models. Anecdotally, we’ve seen deposits growing at a rate of CAGR +2000% in such use cases. That’s not a typo.
How often do bankers see a product do that? Answer: not very often. And when they do, I can tell you that the conversation about open banking projects takes on a decidedly different tone and sense of urgency.
The secret to these initiatives is almost always a combination of powerful APIs, orchestration and clearly defined roles from the beginning. Being realistic as to what each side party in a collaboration can reasonably deliver in a given timeframe is key. Stretched IT teams that overpromise are not conducive to “quick” or to “wins”.
So, pick a song and a dance partner that complements your abilities and don’t wait for regulations to spur your open banking efforts. Like the saying goes, accepting the future hurts once. Delaying it hurts forever.
As published on Forbes.
LatAm may be one of the fastest growing markets for companies like Uber, AirBnB and Instacart-type delivery companies, but don’t expect that rapid expansion to reach its full potential if drivers, hosts and end customers can’t have the full user experiences that made them earth-shattering. The same goes for Amazon, Alibaba and other international digital-natives looking to turn LatAm’s huge urban centers into major growth markets.
Yes, LatAm e-commerce and m-commerce are accelerating, driven by gig and shared economy players and others who demand more agile, open and fast-scaling financial services. But, those digital-native companies are built on interconnected platforms that consume financial services very differently from traditional corporate customers.
As these companies and others engage LatAm markets, they become intimately familiar with the region’s payments pains and the drag that they (and cash) can put on scalability. More to the point, current legacy financial infrastructures present a kind of information asymmetry that threatens growth.
Maybe that’s not news, or that LatAm’s legacy core banking and payments infrastructures lack sufficient interoperability and are transforming too slowly to meet the demand for a new breed of mobile and digital transactions. However, what’s less appreciated is how that lack of flexibility is becoming a growing problem for bankers wanting to gain and retain relationships with corporate innovators and SMEs “going digital native” across almost every industry.
The Business Banker’s Dilemma
Evidence increasingly reveals that these companies are quick to change banks if they can’t get the services they want. For example, in a recent transaction banking survey by Ovum, 80 percent of respondents in countries without real-time payment infrastructures said they have considered moving main banking relations in the past year.
The question becomes this: How do banks, financial institutions and others leverage their existing technology while simultaneously gaining the agility they need to win and keep business in the emerging and inevitable digital economy?
At NovoPayment, we decided to embrace the open API movement and invested in a bank-agnostic, multi-country developer portal, making over 30 of our most important pieces of software available for free for others to experiment. We went against a long and now outdated tradition in technology and financial services of being closed and guarded, and instead opened doors that others could walk through to build on our IP and help them (and us) to further monetize our investment, without sacrificing security or compliance. What was a radical idea just two years ago, seems today – against the backdrop of open banking and broader IT trends — a rather practical move.
The Reasons Why
The idea behind the Developer Hub is to enable banks, financial institutions and Fintech’s of all sizes to better attend to their corporate customers through the kind of integration and orchestration they actually need to serve today and tomorrow’s end customers.
By lowering barriers to test concepts and deploy them on solid foundations, we accelerate not only innovation, but also the expansion and diversity of the ecosystems that we can all be a part of.
Of more immediate importance, we accelerate time to revenue for all parties which is critical for skeptical banks making their first forays into these kinds of partnerships and for whom “quick wins” and proofs of concept are critical, but is also very attractive for agile startups who by their natures must be fast and frugal with their resources.
In short, we believe the time has come for organizations across the region to concern themselves with understanding the open API movement, for the sake of their customers and other stakeholders. Our advice: make the necessary organizational and technological investments to open.
Today’s disruptors and tomorrow’s market leading companies will run on interoperable cloud platforms that talk to one another in real-time. It’s a world based on open APIs, middleware and business rules — and a world you can join more easily than you realize.
To learn more, we invite you to visit our Developer Hub and join our community at Developer.NovoPayment.com.
The International Finance Corporation in Washington, D.C. extended an invitation to NovoPayment’s CEO, Anabel Perez, to join the panelists at their 2016 Fintech CEO Summit. The invitation-only event brought together founders and CEOs of Fintech companies from around the world to discuss current issues, exchange experiences, network, and do business.
NovoPayment participated in the “Banking in the New Age: Deposits” session, focused on different perspectives for deposit-taking. The primary question was, “Is the core architecture of banking changing?” For centuries, banks have intermediated between savers and borrowers. But that may be changing now. Traditionally banks owned direct relationships with their customers and provided customer facing services for all financial products. Consumers basically went to the closest bank branch from their homes or work places to open up a bank account, lend money and make investments into financial products.
The massive adoption of FinTech in recent years by not only existing financial institutions but also many disruptors in the deposit-taking business has resulted in drastic changes in consumer behaviors. Nowadays people face multiple channels of financial transactions and store their values in multiple stored value accounts. Although these new media still utilize traditional bank/payment rails to process payments and store values, we’ve started to see disruptive use cases which could potentially change the dynamics of deposit-taking businesses. During this session, the panelists discussed the future of deposit-taking dynamics and the potential implications.
In Latin America, where NovoPayment is focused, we see a lot of opportunities, the strong influence of trends from the U.S. and Europe, but also recognize a different picture. It is a less evolved marketplace, which moves slower, and requires a more hands-on investment of time and resources to integrate and innovate. There are also many markets, each with different local networks, standards, laws, and regulatory entities.
Furthermore, in Latin America, we don’t see core banking as really changing or the ultimate role of banks as being under threat. Banks are unique, highly regulated institutions in terms of their role and abilities. What we see instead is innovation around the core, an opportunity to enable banks and others to innovate and integrate more quickly and securely. In our region, we think true deposits will ultimately reside in financial institutions (e.g. pool accounts), but the future is in new cash-in/cash-out methods, integrating, and closing gaps. We must recognize the importance of stored value as well established vehicle with a lower cost of maintenance than a traditional deposit account. In this region, reloading networks in deposit-taking and the integration with ATM networks and global acceptance networks (MC/Visa) is extremely important.