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How the financial services industry can seize the Open Banking opportunity

Ready or not, Open Banking is here. Driven by the UK’s Competition and Markets Authority, it’s a concept that goes hand-in-hand with a new EU directive that came into force last year, known as PSD2 (Revised Payments Services Directive).

By: Patrick Lastennet

Traditionally, customer data – whether that’s information on spending, lending or borrowing – has been held in a closed ecosystem by banks. PSD2 forces traditional FS institutions to make the data they hold accessible to third party providers in a secure and standardised way through application programming interfaces (APIs). Part of a wider global trend towards open APIs, the legislation aims to enable more customer choice and flexibility, as well as incite competition and innovation in a traditionally slow sector.

Undoubtedly, Open Banking and PSD2 legislation have acted as a catalyst for digital transformation in the FS world. Emerging technologies and innovation by new entrants such as fintechs and big tech companies are already changing the industry at an unprecedented rate, forming a new ecosystem built on flexibility. Although initially hesitant, forward-looking banks are also restructuring their own business models and launching new products. With the final PSD2 deadline in September looming, it’s likely we’ll see more traditional players follow suit.

Challenges vs. opportunities

Open Banking offers multiple benefits to both customers and providers. For consumers, it has the power to revolutionise the way we manage our money, borrow from lenders and make purchases. More personalised and tailored services, smoother payments and even access to new products that didn’t exist before are just some of the advantages we are already seeing.

While many incumbent banks are worried about losing some degree of control by opening up access to customer data, the ability to partner with other innovative companies, build more intelligent services and optimise operations will ultimately lead to new revenue streams.

However, despite the advantages that Open Banking brings, as of March this year 41% of European banks were still not compliant with PSD2 requirements. There are a still a number of obstacles to overcome, including security, liability and regulatory concerns in relation to open APIs, as well as cultural and technical barriers between traditional players and newer market entrants.

New technologies such as artificial intelligence (AI), machine learning, bots, blockchain, biometrics, predictive analytics and the Internet of Things (IoT) are enabling innovation at every part of the FS supply chain, from payments to insurance. However, for traditional incumbents, these technologies can be difficult to effectively integrate into pre-existing infrastructure. Legacy systems pose a problem for banks looking to strike partnerships and combine infrastructure with fintechs. In fact, over half of both banks and fintechs have concerns over the compatibility of each of their respective IT systems.

Closing the transformation gap in Open Banking

As identified by sector analysts, there are a number of IT priorities that financial services companies need to address to create the right infrastructure and reliable connectivity required to thrive in this new Open era. Firstly, it’s important to update operating models to support two-speed IT architectures. The reality is, in a quick-moving sector like financial services, all players must balance where they are with where they are going, or want to be. In IT, this means supporting core ‘keep-the-lights-on’ activity as well as larger transformation initiatives – only a hybrid cloud infrastructure can support this environment of change.

FS businesses must also have the right infrastructure in place to handle the increased number of connections and transfers that open APIs and advancements in technology will bring, as well as ensuring they are sharing and managing data in the most secure way. This means preparing existing IT infrastructure to connect anything to anywhere. A multi-cloud approach can help satisfy the requirements of needing to maximise customer insight and experience through connecting and sourcing data from all devices, platforms and environments. From a security perspective, it’s about creating policy controls across environments, and controlling the access and use of sensitive data, as internal IT systems expand, grow and flex.

Rich connectivity for a thriving FS community

Colocation data centres provide an ideal setting for FS businesses looking to embrace Open Banking and digital transformation. Interxion London is well placed to support FS companies in the new era of Open Banking due to its strong heritage in financial services. Our highly connected central London data centre campus is home to over 300 financial services participants and is strategically located between the Square Mile, Tech City and the London Stock Exchange.

What’s more, our thriving community of Financial Services participants means that businesses are only a cross-connect away from a host of potential new customers, suppliers and partners looking to integrate into their APIs in a secure and centralised place. Direct connections to the world’s leading cloud providers, including AWS and Microsoft Azure enable a secure and easy ramp-on to cloud and hybrid-cloud services for both cloud-first entrants and traditional players alike. Our Key Guardian solution also enables businesses to set those necessary policy controls, secure their data and harness superior connectivity, for minimum capex.

Are you a financial services business looking to seize the Open Banking opportunity, innovate and get ahead of the competition? Why not get in touch to see how Interxion can help you.