This is the latest in a recent series of blogs on open banking, which is likely to become the biggest driver of change in the banking industry since double-entry bookkeeping swept the industry in Genoa during the 1300s. I recently talked with Virtusa’s xLabs, a digital innovation hub within Virtusa, about their approach to open banking and what their roadmap is for the future.

Open Innovation Platform

Virtusa xLabs believes a successful open banking environment will require rapid, successful, iterative innovation by banks and FinTechs. However, the inhibitors to innovation include:

• Lack of feasibility of some ideas: low idea maturity or lack of compatibility with legacy systems   
• Ineffective matching of ideas to the bank’s main business problems and funds
• Ineffective partnerships with other third-party innovation providers
• Poor user/revenue value due to lack of validation systems or awareness of technologies.

Virtusa xLabs has built its Open Innovation Platform (OIP) composed of three elements to reduce the impact of the last three inhibitors (funding, partnerships, and value) and allow individual innovators to focus on addressing the first of them (feasibility). OIP is composed of vendors providing:

• Idea management tools that can help with idea management, but not idea execution (e.g. Brightidea, Spigit, Wazoku)
• API management tools: technology providers providing non-industry specific integration tools and services (e.g. Mulesoft, WSO2, and ProgrammableWeb)
• FinTech curators/matchmakers: news providers/aggregators (e.g. MEDICI, CBInsights, Plaid, and Matchi.biz).

The OIP provides access to these resources to allow banks to convert an idea into an MVP in a few weeks rather than months. The effectiveness of the OIP relies in part on scale. Currently, the OIP’s scale of offerings include:

• API bundles: 200+ internal and FinTech APIs. APIs are categorized as:
  • Mock APIs: used in tests to determine if a concept works
  • Smart bank APIs: light APIs with no deep logic to use available data for analysis
  • Core banking system: APIs which can be used to test technology’s impact on an entire process and all dependent processes within a core platform  
• FinTechs: ~10k vendors cataloged by capabilities
• LOBs: 106 tables by LOB in the sandbox
• Investment and Trade LOB: data generation currently underway in xLabs’ AWS environment
• MVP/CVPs: 25+ completed
• Test bed: 10m customers and 40m transactions.

Virtusa xLabs supports clients using its OIP with four services:

• Problem identification: what are the credible use cases specific digital technologies can be applied to solving, and what technologies (at what level of maturity) are available from what vendors?
• Rapid project starts: the ability to set up a cloud-based platform to commence work without sharing sensitive data before a final contract signing with FinTech vendors. This allows faster project starts and completions
• Shared practices: an internal community portal to share best practices and reduce redundant processes for non-differentiating processes. Currently, there is a KYC internal community
• FinTech marketplace aligned to countries: facilitates vendor selection based on relevant domain expertise. FinTechs are categorized as:
  • Disruptive: Tier 1 banks use these FinTech vendors to support disruptive business model change
  • Catchup: Tier 2 banks use these FinTech vendors to support them in catching up to tier 1 banks regarding functionality and operational efficiency
  • Basic enablement: Tier 3 banks wanting to establish a digital presence face access challenges based on their legacy infrastructure. FinTechs focused on these issues provide COTS FinTech enablement for legacy environments.

NelsonHall perspective

FinTech has been slow to achieve its promise due to several factors. Experimentation to date has been active but ineffective, and most POCs do not meet their business case. More effective synthesis of domain expertise with technology should improve project conversion to useful operational change. And improving a bank’s ability to evaluate and select technology vendors will improve the rate of successful project generation and reduce the cost of achieving success. In addition, sharing best practices for non-differentiating processes will release industry funds to pursue disruptive opportunities, which require long development cycles and large resource commitments.

Virtusa’s OIP is creating a scale community where participants can not only find each other, but the OIP helps participants effectively search for the ‘best fit’ partner. Over time, Virtusa xLabs will need to move the focus of the OIP from accessing a wide range of technology vendors to fewer vendors with a greater domain focus on a few key geographies and business cases.

As FinTech offerings become more mature, technology vision will become less important than business execution. Currently, Virtusa seems to be developing a focus on reg tech, payments, and deposits, which are the core of retail banking. These processes require heavy customization by country and must be executed at high volume and low cost, just the type of processes that need disruption if banks want to remain effective in a digital world.