Open banking vs. marketplace banking

December 17 2018

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Open banking

It’s conference season, and this year we hosted Sibos in Sydney. Amongst the hot topics were Australia’s New Payments Platform (NPP), open banking and marketplace banking. In this post I share the top insights and trends emerging in the financial industry.

Open banking: new regulations

The Australian government recently conducted a review of the banking system. The results of the review showed that while the banking system as a whole is healthy, there is a need to improve consumer rights and supporting governance. As a result, the Australian government has required all major retail banks to comply with new open banking regulations. This has spurred a flurry of activity in API management tools in an effort to expose data externally. Though API management in an important component of open banking, it is just one piece of a larger API strategy. In the same way a bank minds and manages your money, under open banking they mind and manage your data. Key to this is a banks understanding how to create incentives for customers to share data with them, and once obtained, how they can turn this around into value for the customer. Having a 360 degree view of finances in a personal finance app across all of the institutions I bank with saves me time and effort. It also helps my banks better understand and suggest helpful products and services related to my portfolio. Win-win. Obtaining and leveraging disparate data sets, to tailor products targeted at new customer segments is the foundational ingredient for open banking success.

FinTech is on the rise

Another development in our region is the rise of the FinTech. To increase competition, new banking licences have been issued and a number of net-native providers are readying for market. With the advent of the mobile consumer it’s increasingly obvious that brick-and-mortar distribution provides limited competitive advantage. This creates product innovation opportunities where new entrants should target underserved niches with tailored value propositions and experiences. Product and data are the new differentiators. If established banks are to compete in this game they will need systems that are not one-size-fits all, but are composable and can be assembled from internal and external components.

The extension of this is that once banks have created a composable platform they can begin to offer the underpinning services to the wider ecosystem. This is Marketplace Banking: the notion that large banks provide platforms upon which they, and others, can deliver products. Sounds familiar? It represents the next incarnation in distribution of banking services.

Marketplace banking: bundled services for better customer value

Marketplace banking encompasses the concept of bundling, a packaging technique often used by telcos, loyalty programs, and fast food chains. Bundling provides groups of two or more products or services from which a customer derives better value than if the products were purchased individually. It is an effective churn management strategy: bundled customers tend to display lower churn rates due to their more diverse product mix (your home phone may be gathering dust in the cupboard, but your still paying for it as it’s bundled with your data!) As open banking has the potential to make banking less sticky – bundles can help. With an effective open banking and marketplace banking strategy, banks can now introduce non-banking products or services bundled with traditional banking products that cater to customer lifestyles and needs. This includes insurance on items such as mobile phones, travel insurance, identity theft protection and premier event access.

The platform concept can also be seen in next generation payment services. The New Payments Platform has been built to enable real-time clearing and settlement for simple or complex payments between two or more people. It provides a suite of services to facilitate this, including networking and switching and an addressing service. On-top of these base services the platform provides the opportunity for overlay services to be developed. As we know convenience is a major driver of adoption for low value payments, and increasingly payment APIs exposed through platforms like the New Payments Platform will be leveraged to create new application experiences. Think apps that split bar tabs or pay your kids pocket money once the garbage is taken out.

At MuleSoft, we are helping established and emerging financial institutions compete and innovate in this new world. The key is building an application network, which enables enterprises to access, manage, and deploy APIs across their organization.


 


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