Enabling an innovative digital finance product with Open Banking

Yafaa Ahres

Open Banking is transforming the financial services industry – and enabling powerful new opportunities for digital finance products, as Elsewhen demonstrated in a recent project. As our experience has shown, Open Banking represents a game-changer for any business creating digital products or services involving banking and payments.

Our client, a leading independent alternative investment manager and private equity firm, identified the potential for a new digital service. They wanted to create a finance management platform for SME businesses, giving a clear end-to-end overview of cash flow – and providing access to a full range of tailored financial services.

Elsewhen worked with the firm on a proof-of-concept business case to explore how this service could work, in terms of a value proposition, service design and technology strategy.

For the cash flow functionality, SMEs need to share data on their banking transactions and balances, by securely connecting their business bank accounts to the platform. Just a few years ago, this would have been near-impossible for an SME to do. But today, this financial data integration is possible with a few clicks – thanks to Open Banking.

Welcome to the Open Banking revolution

Open Banking (sometimes called ‘open financial data’) is part of a worldwide movement to support innovation and competition – by giving bank customers more choice and control over sharing their account data.

In the UK, Open Banking started to become a reality in 2017, when the Competition and Markets Authority (CMA) acted to increase innovation and rivalry in banking services. The CMA issued a ruling, requiring the nine-biggest UK banks to allow direct third-party access to transaction-level account data, when requested by a customer.

The drivers for Open Banking

Open Banking’s emergence and growth is being driven by four main factors:

Digital transformation

Technological change is enabling Open Banking in a number of ways. Computing is becoming more powerful, more available and falling in cost, thanks to the cloud – supporting digital innovation. Data analytics, artificial intelligence and machine learning are enabling new insights and value to be derived from customer data – in this case, banking data. Real-time payment networks – such as the UK’s Faster Payments – are making payments quicker and smarter. 

Customer expectations

The demands of consumers and businesses on products and services have never been higher. We live in a digital era, where people are accustomed to accessing what they want anytime and anywhere, on a mobile device. They have no patience for unsatisfactory service or poor customer experience – and will switch to a better option without hesitation. The providers that will thrive are those that use data and analytics to deliver outstanding personalised customer experiences. 

Competition and innovation

Financial services is becoming an increasingly competitive industry, with the rise of a new wave of digitally-enabled players. They range from fintech startups and disruptive neo-banks, to big tech companies branching into finance. These agile digital providers are delivering a wide range of innovative customer-centric products and services – which conventional banks and established financial providers find it hard to compete against.

Financial regulations

In the UK, Open Banking and new payments directives like PSD2 have been enforced by financial regulators. The businesses and providers that see regulatory change as an opportunity to innovate and win customers are gaining a competitive advantage – over those that see only compliance requirements. 

The growth of Open Banking

The UK Open Banking ecosystem has rapidly grown beyond the original nine banks, with 92 financial account providers now securely sharing data with 245 regulated third-party providers (TPPs). (Source: OBIE, Q4 2021).

Photo: Unsplash

Since the UK’s launch of Open Banking, more than 30 other countries around the world have introduced similar initiatives. By the end of 2021, around half the UK’s SME businesses and over four million consumers are using services enabled by Open Banking. It’s estimated that by the end of 2023, 60% of the UK population will be using Open Banking. (Source: CMA report, 2021).

The innovation potential of Open Banking

Open banking is already proving a disruptive force in the financial services industry. It is changing how consumers and businesses engage with their banks and financial services providers, driving innovation and competition in the industry.

Open Banking is based on the use of APIs (application programming interfaces) to share the bank customer’s financial data with trusted third-parties that use it to provide innovative financial products and services.

An immediately popular SME use case for Open Banking data has been in accounting and financial planning software. Rather than a business having to manually download transaction data from a bank website, and then upload it to their accounting system, this data transfer can now happen directly, securely and automatically – giving the business a more up-to-date view of its finances.

Photo: Unsplash

Our client’s idea was to take this capability several steps further – by combining a real-time view of cash flow with curated SME-focused financial services – to help the business thrive and grow.

Implementing Open Banking in our client’s product

Elsewhen implemented the necessary API technology using Open Banking industry standards, enabling a quick, seamless and secure data connection between the new platform and the SME’s bank.

The client was extremely satisfied with the proof-of-concept, design and accompanying branding we created for the platform. With a solid business case, they are now equipped to tap into this new opportunity. The firm embraced our recommendations for the technical architecture, and built the product using an Agile development process to accelerate time to market.

From the end-user perspective of SME businesses, the new platform will enable them to see into their financial future more clearly. They will be able to take action to avoid running out of cash, easily changing a payment date or amount – while gaining access to credit, loans and other tailored financial services at the right time.

Photo: Unsplash

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Elsewhen is a digital product consultancy based in London, UK. As an agency partner to leading global brands, our services include digital transformation, digital strategy and digital product design consulting.

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