Finastra recently released their open banking readiness index along with a report on how banks in Asia have performed against certain criteria. Its not surprising that of the five dimensions that Finastra has set for open banking readiness assessement, DBS bank have topped two. DBS, in my view, have been one of the more innovative banks.
The assessment was done across Banks that together constituted 60% of assets in Asia, so its a fairly good indicator of where banks are.
Now a deeper dive into the index and the criteria:
APIs are the future, and we have heard that time and time again. The key pillars of the frame work are focused around how banks have prepared to
- Adopt APIs
- Integrate with Fintechs and other third parties
- Manage and mine data internally
- Monetise data
- Be innovative
These are fairly broad criteria to assess the readiness across various aspects of producing, managing and sharing data around the value chain. The coverage, in my view, is comprehensive. And purely based on the framework used, it can clearly be replicated across Europe and other parts of the world, to see who the global leaders in open banking are.
On the breadth of coverage, I would have liked better insights on standardisation across APIs. Open banking is great, but when there are some standards that banks can agree on amongst themselves, and conform to them, that would help downstream firms and systems consuming their data.
However, the depth of the assessment is really what could be invaluable. Each of these pillars have left some points unanswered. Let me go through some points I would have liked to have better clarity on.
While adoption of APIs internally and externally is a key metric, I believe awareness around open banking is pretty low amongst the consumers. Shouldn’t readiness factor-in the efforts that banks have put in to raise awareness amongst consumers?
The following are the points that API adoption assessment covers. While this report is all about the readiness of banks for open banking, adoption should lead to something meaningful. And that would be customer uptake.
Also, establishing partnerships with Fintechs and integrating are broadly covered. But what we define by partnerships need to be clarified.
Many startups that are approved for open banking have access to Banks’ APIs. But are still miles away from doing anything meaningful with it. Again, the end customer is forgotten here.
Banks have more to do than follow up with these downstream businesses and ensure end customers are benefited. But regulatory framework that approved these Fintechs to use Banks APIs, should have taken some kind of customer metric as a criteria- to me that is readiness where the entire value chain is considered.
One argument is that, it is a pure bank readiness report, and has nothing to do with customers. But there are times where the report talks about integration with the developer community, apps builders, and also with third party service providers, so why not customer uptake too?
For example, the number of live third party applications that actively use a bank’s APIs could have been a good metric.
Another point on the data readiness of banks, where data security and governance are key criteria. In all my years of experience with systems in banks, I know the quality of data is generally very poor. I have worked in environments where a highly critical report has 150,000 manual adjustments in its underlying data. And this is so common place – at least used to be, not long ago.
If banks automate data of poor quality using APIs, and claim readiness over data security and API infrastructure, that would be like lipstick on a pig.
There is no point in securing, sharing or making business decisions on low quality data. This problem is generally amplified in parts of a bank where there are lingering legacy systems. While accuracy of data is taken into consideration, when banks are tested for data readiness, data quality will need to be the number 1 criteria.
It almost feels like the framework has allowed the most topical data problem (information security) as the number one criteria – to me, it is not.
Data monetization models are well thought through. However, how some of those models would help create better (cheaper) products for the end consumer is something banks should start thinking about. And more importantly, how those monetization models will be communicated to the customers in a transparent fashion, is pretty critical in a #facebookIsDead era.
In summary, the report does a great job of providing a view of how open banking can drive innovation within banks. While I have pointed out some minor areas across the framework used, my biggest criticism is that, the customer seems to have been forgotten even in this report – yet again.
Readiness can be about infrastructure readiness, process readiness, or business model readiness. But the so-what needs to be the final readiness score – it has to be about how soon it will benefit customers.
Arunkumar Krishnakumar is a VC investor focusing on Inclusion, a writer and a podcast host.
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