Unlocking the power of an open ecosystem in the banking industry



By Christopher Papathanassi

This is a common problem for financial institutions. Consumers are demanding an increasingly flexible and streamlined lending environment, but banks are struggling to find the right capabilities and solutions to meet those expectations.

On the one hand, many large major vendors are holding back innovation, offering standard pricing for products that do not meet the highest standards. On the other hand, even partnering with some innovative fintechs on new capabilities can be a long-term proposition, leaving banks behind the customer demand curve.

In this environment, open APIs create product ecosystems where financial institutions can quickly and easily add new products and services to meet consumer demands as they evolve. Platforms like FusionFabric.Cloud create an open and collaborative market for financial institutions.

Understand how market challenges drive the need for change
A look at history reveals that every major financial recession, from the Great Depression to the global financial crisis, has shaped the direction of the industry. Likewise, the economic impacts of the COVID-19 pandemic have exerted undeniable force in the banking sector, accelerating the need for digitization and increased lending efficiency.

Initiatives such as the Paycheck Protection Program in the United States were designed to support failing businesses by providing essential access to finance during difficult economic times. According to the Small Business Administration, 5.2 million borrowers benefited from the program in 2020.[i]

The deployment, however, was not without challenges. Banks and credit unions struggled to keep up with the high number of applications, and many businesses were initially excluded from the program as funding dried up before applications could be processed.

As the financial impacts of the COVID-19 pandemic persist, lenders are bracing for the impact of continued business and consumer demand as well as a growing number of defaults. To avoid unnecessary risk and ensure loan stability, banks are tightening portfolio and risk management.

Another driver of change in the industry is the current environment of low profitability. The six largest U.S. banks saw their profits drop 32-95% during 2020,[ii] but low incomes were not confined only to the bigger players. According to KPMG, most financial institutions will need double-digit cost reductions in 2021 to offset the severity of the losses.[iii]

As a result, reducing costs becomes as important as acquiring and retaining profitable customers, all of which can be increased with the right digital solutions.

Overall, corporate banking is facing a period of radical change. Finastra’s research report focuses on the findings of respondents in the business lending industry on the strategic roadmap and evolution towards platforms, driving force of digital transformation and more. Download them here.

Open APIs create an open ecosystem
In today’s environment, financial institutions need not only cutting-edge innovations, but also quick access to the necessary products and capabilities. This is where open APIs come in.

Open APIs are platform-based, inviting innovation and enabling an ecosystem of products and services. In this world, financial institutions can easily adopt a wide range of capabilities, including end-to-end origination, without making significant changes to internal systems or architecture.

Finastra FusionFabric.cloud, for example, is an open banking platform. By unlocking our core applications to fintechs, systems integrators, universities and financial institutions, we enable them to integrate their own applications into the Finastra product ecosystem or develop new ones in addition to our hearts. The result is faster time to market for financial institutions and a more future-ready business.

Since product adoption across the ecosystem is quick and easy, banks are ready to respond to changing customer preferences by easily disconnecting products that no longer meet customer or member needs, and then backing up. easily replacing them with new innovations.

Beyond creating a more personalized environment, open ecosystems also support financial institutions’ objectives for portfolio and risk management. Open APIs provide a two-way data flow, aggregating both consumer and bank data, which is then available to financial institutions.

Banks gain insight that can be used to realign credit portfolios and standards, as well as a deeper view of consumer behavior. This in-depth information can be used to drive more targeted marketing, acquisition and retention efforts.

Open ecosystems are particularly applicable in today’s low-profit environment, providing financial institutions with a cost-effective way to meet consumer demand while leveraging digital efficiency to streamline operations. Since open ecosystems offer a store of pre-built apps, banks and credit unions also save on development costs. More importantly, financial institutions have the power to expand revenue streams by offering more products and services to consumers.

Ecosystems allow financial institutions to expand beyond basic banking products, meeting the needs of customers and members through a wide variety of related offerings. A recent study indicates that 74% of consumers use more than one banking app to access the number of services they need to manage their finances.[iv] Through an open ecosystem, banks and credit unions can provide more of these services, earning the associated income as well as the wallet share of future customers.

In a low profit environment where consumer preferences change rapidly, an open ecosystem provides financial institutions with options and the ability to adapt quickly to meet changing needs.

Learn more about the evolving business loan market and the journey to 2025 in Finastra’s research report. Download them here.

[i] Stacy Cowley and Ella Koeze. “1% of PPP borrowers have exceeded a quarter of the loan money. The New York Times, December 2, 2020. Web.

[ii] Elizabeth Dilts Marshall, et al. “US banks say cost cuts are virtually out of sight during coronavirus.” Reuters, April 17, 2020. Web.

[iii] “Banks are overcoming pressing cost challenges to be ready for the future. »KPMG. Recovered from https://home.kpmg/xx/en/home/insights/2020/07/banks-look-to-overcome-pressing-cost-challenges.html.

[iv] Yogesh Joshi. “Consumer survey puts three digital banking theories to the test.” The financial brand, December 15, 2020. Web.

As Global Solution Lead for loans at Finastra, Christophe Papathanassi is responsible for the overall line of business in the field and works cross-functionally to provide support for transaction execution, validation and execution of go-to-market activity, product strategy and providing thought leadership to the market. With over 14 years in the industry, he is an experienced commercial lending specialist.Prior to his current role, he worked at the bank side where he held various positions within the lending industry, both on the business side and change management. He holds a Bachelor of Business Administration from the University of Bournemouth.In addition to this, you need to know more about it.


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