As originally published on Forbes.
A lot has been written about open banking. In Europe and elsewhere, it’s discussed in the context of regulation, privacy and other considerations. In other circles, like in Latin America, it’s seen as a distant wave. Search people’s expressions in related conversation and they seem to say “Keep an eye on it, but it’s not a pressing concern. It’s a choice we could make some time down the road.”
But what if it’s not? What if it’s inevitable? What if it’s the next technical and transformational change in financial services, bigger than the internet and mobile combined?
It is precisely that.
For the financial industry, open banking is bigger than the internet and mobile, because while those technologies changed the edges, they weren’t able to meaningfully touch the core of banking and financial services with any magnitude. They didn’t materially disrupt fundamental systems or break our obsession with building product line-dedicated networks and systems. Sure, they were historic events that changed the channels, endpoints and introduced some new methods but not the basics of the business.
Think about mainframes. Technologies that rolled out when the Beatles were embarking on their first world tour have kept humming right through ABBA, MTV and now grandchildren live-streaming Taylor Swift on their iPhones. On one hand, we should applaud these resilient relics that are somehow still in the background registering our Venmos, but on the other, we shouldn’t stop balancing the cost of practicality and convention against the need for new tools — and the true distance of the next wave.
A New Definition
In my mind, open banking is more than a mandate or a new digital core. It’s any time a bank or financial institutions collaborate with a third party to deliver new services and more frictionless and scalable experiences via new, external platforms. Today, it most likely involves a fintech and APIs, the favored building blocks of innovation.
This is to say it’s an accepted approach more than a strict technical definition. It’s an incumbent saying: “We’re on board with models and practices that are inclusive of other participants. We don’t have to be closed and centrally controlled to play the game.”
It is, of course, a natural expression of the “openness” and “ecosystems” that started in the software industry and, most notably, in mobile with iOS and Android — worthy examples when thinking about open banking.
Imagine what it must have been like just before the AppStore launched, when the world’s best creators of consumer electronics were told: “We’re not going to build most of the products that go on this platform. Other people will.” Apple’s App store generated $11 billion in revenue for the company last year, overwhelmingly with the help of third parties.
I’m not suggesting that banks try to wholesale imitate Apple and Google or simply go into the business of licensing their licenses. But I do think there is a lot to be said for the idea that you can both continue creating your own products and open space on new platforms for others to create and co-create with you to capture opportunities you couldn’t even begin to see, much less capitalize on, on your own.
The internet and mobile are critical catalysts, to be sure. Without their combination, the world as we know it today wouldn’t exist. But it’s the larger trend of openness and collaboration that they helped galvanize that convince me that open banking is actually a different kind of wave. It is what in physics is known as constructive interference: waves passing through each other, their crests combining to produce a wave with greater amplitude.
I believe that, with anticipation, preparation and experimentation, this wave can be safely and prosperously surfed, but it also demands caution of those who miscalculate its proximity and turn their backs towards the sea.