The banking industry is undergoing significant legal and operational transformation, including the move towards open banking, a regulatory requirement whereby banks open their platforms to third-parties for them to transact business with the banks’ customers and suppliers. Here I look at how Infosys, with its Finacle suite of solutions, is working with banks to support the transition to open banking.

Open banking adoption is being driven by regulatory requirements including:

• Unified Payment Interface in India (regulatory rollout began 2016)
• Open Banking initiative in the U.K. (begins 2018)
• PSD 2 in the European Union (begins 2018).

The regulations require availability, but not adoption, and today’s market for open banking initiatives remains experimental: some banks are running many initiatives, and others are adopting a wait-and-see stance. Across its markets, Infosys Finacle sees early open banking experimentation and adoption in India, and secondarily in the U.K. Infosys delivers: 

• Finacle Digital Banking Solution suite, a proprietary banking platform with ~500 bank installations operating in 100+ countries. Finacle was developed more recently compared with many legacy banking platforms, from 2000 onwards. Its functionality was developed using a modular architecture which relies on APIs
• Technology services in multiple geographies, each with differing business requirements and varying levels of API/open banking maturity.

Banks committing the largest amount of resources to open banking experimentation are institutions that are pursuing a digital approach to growth, either as a startup bank or as an established bank trying to reestablish itself as a digital bank. Limited financial resources to drive bank growth is common to all early adopters.

Infosys has identified six key use cases (below, in order of adoption), where banks have focused their open banking and API experimentation:  

• Embed banking in customer-chosen apps
• Participate in an ecosystem
• Curate an ecosystem
• Buy an ecosystem player
• Offer banking as a service to Neo banks
• Offer services to other legacy banks.

Five banks studied by Infosys have published APIs in their marketplaces. Each has published ~40 APIs across eight categories. The most heavily published categories are accounts, authorizations, and transactions. Complex categories have fewer published APIs, including loans, insurance, trading, utilities, and investments. Here are examples of the first three use cases listed above:

Use of customer-chosen apps: RBL Bank (India)

RBL is one of India’s fastest-growing private sector banks with an expanding presence across the country. In 2010, new management from global banks joined the bank to drive aggressive growth, and focused on new technology to enable growth. RBL has developed a large API developer community which has provided multiple API offerings to RBL’s customer base, including:

• API-based trade finance services for corporates
• Check truncation system integration to e-signature verification  
• Account wrapper product.

RBL has grown its balance sheet by 25x over the past seven years, with its digital strategy including its use of these API offerings and other technology-based offerings.

Participate in an ecosystem: BBVA Bank (Spain and U.S.)

In May 2017, BBVA made eight APIs available to companies and developers. Under the program, BBVA makes its customer data available to participants to build products and services for customers. There is a two-stage process for third-parties to bring offerings to market:

• Sandbox environment: the bank offers its tools and products for developers to create new offerings. Offerings can be developed, tested, and run in pilots with support for the bank
• Production: the bank reviews proposed offerings and, if approved, developers can run offerings in production mode on the bank’s infrastructure. People or corporations can develop offerings, but only corporations can run production offerings.

Curate an ecosystem: Finacle Trade Connect

Multiple banks have created ecosystems of APIs for customer groups to use, including:

• Deutsche Bank: UnternehmerPortal for SMB customers to access business information including benchmarking, business intelligence, credit monitoring, and trade information
• HSBC: Connections Hub for business customers to connect buyers and sellers on a social media platform
• Seven bank consortium: India Trade Connect, which is a domestic trade finance blockchain network. 

Let’s look at the seven-bank consortium in greater detail. The participating banks include ICICI, IndusInd, Kotak, Yes, RBL, DCB, and Axis. The consortium chose trade finance because it is a highly inefficient, manual process which, if digitized with blockchain, could have high efficiency gains. The group focused on Indian internal trade to simplify the operating conditions and comply with the Indian government’s Digital India initiative. The program moved from initial technology demonstration to production (March 2018) in one year. The solution, Finacle Trade Connect, works via APIs with any blockchain technology. Key goals were to:

• Reduce costs (achieved 75% TAT reduction)
• Digitize documents to reduce paper and manual processing
• Mitigate operational risk with real-time tracking and uniform record of account
• Increase opportunity for the creation of new revenue streams (currently under development).   

In mid-2018, the consortium intends to add new member banks to expand the volume of business that each bank can do in the marketplace. 

Conclusions

Several clear patterns emerge from Infosys’ experience. Open banking initiatives are:

• Exposing platform APIs to third-parties and clients, impacting roadmap development similarly to an ISV’s client advisory panel. Unlike a client advisory panel, an API ecosystem not only recommends, but it also invests in the development of functionality which can then be publicly or privately consumed by a client base
• Redefining the platform from a software-based infrastructure to a community-based network of ‘like-minded individuals’. Managing access and membership in the community will become the strategic business activity of the platform vendor
• Starting with simple functionalities (e.g. transactions, identity management) and simple demands (e.g. client-based demand for functionality). Over the next two years, open banking will begin to address complex functionalities (e.g. business processes such as lending, insurance, and wealth management) and complex demands (e.g. multi-party businesses such as blockchain-based remittances, trade finance, and supply chain management)
• Exposing new business ideas to large communities for validation – and investment made available to pursue new business ideas is much larger than what a single institution can harness.

A platform vendor such as Infosys benefits from third-party investments in its solution because it can ‘buy versus make’ at the individual function level, rather than at the level of an entire company. This will allow it to focus its investments in a way that is consistent with its business model.

This is the first in an occasional series of blog articles over the next year on open banking initiatives in the financial services industry. To find out more about NelsonHall’s Banking Operations & Transformation research, contact Simon Rodd.