Blog by Aswin Antony, Business Consultant, Surecomp
16 December 2020
Note: this post is part one of a two-part series. You can read part 1 here.
Continued from part I, in this post we take a look at the advantages, opportunities, and potential challenges of open banking and specifically how it impacts the world of trade finance.
Advantages of open banking
- Compliance: It isn’t always about driving additional revenue, but sometimes about simple survival and adhering to industry regulation in order to stay in business. Of course compliance by default also mitigates cost implications by avoiding unnecessary fines and fees!
- Real-time digital agility: One particularly exciting benefit of open banking is the potential to create new, revenue-generating API products with relative ease. One example is Surecomp’s APIsure™ which was one of the first comprehensive trade finance open API platforms on the market.
- Increased customer satisfaction: Open banking gives customers huge amounts of flexibility with regard to the number and scope of financial services available to them.
- Potential for collaboration: Open banking is designed to make it possible for third-party financial services companies to gain access to customer data. If banks are willing to take this a step further, they can actively assist these third-party companies in doing so for a whole host of benefits.
- Extended client base: It’s important to recognize that open banking is a two-way street; in other words, it could allow banks to gain access to user data from other participating financial institutions (especially other banks). This creates a massive opportunity for banks to create their own integration-based financial products and services.
Risks and challenges of open banking
It’s true that open banking doesn’t come without risks. A major challenge of open banking is being able to share data securely. As a result, many banks are having to redesign their entire data architectures, often employing an API-based micro-services approach to make data more safely accessible. But with the recent reports of cross-selling controversies in the US and misselling of payment protection insurances (PPIs) in the UK, it has been difficult for banks to gain customer confidence and comply with regulations such as GDPR and PSD2 which depend heavily on customers, who may or may not provide consent to their data being used to develop new products and services.
Though identity verification and fraud prevention are important opportunities for banks’ open API initiatives, there are risks associated with data loss, identity theft, data protection violations, money laundering, and financing terrorism. With banks aiming to be fully digital, their operations will be completely managed over the web which creates an environment requiring heightened security.
In open banking, aggregated customer data such as transactions and balances held on the third-party provider’s infrastructure and servers (open APIs) pose a significant risk to cybersecurity. With government agencies and financial regulatory bodies proposing independent authority to oversee open banking standards, governance, and compliance requirements, banks must have complied with GDPR and PSD2. Failure to accommodate GDPR and PSD2 regulations as part of the open banking framework may expose banks to the risk of financial or reputational loss.
Impact on trade finance
Many banks across the globe have started providing products and services related to trading finance using open APIs. HSBC for example has released a new API that enables its partner banks to issue local guarantees in markets where they do not have a presence. The banking guarantee API allows HSBC partner banks to build applications for their customers, enabling them to have visibility of the status of their guarantees on their own banking platform, even though the guarantees are delivered by HSBC.
In the world of trade finance technology, we have set the new open banking standard by launching APIsure™ which is a win-win proposition for both Surecomp and our banking customers. Banks are now able to experiment and build apps without any dependency on Surecomp, allowing them to offer new experiences and features while protecting the core. Similarly, Surecomp is able to focus on product innovation instead of spending time and effort delivering costly customization. APIsure™ has associated documentation and a sandbox environment that is freely available to existing customers!
Hopefully, this whets your appetite to learn more about the benefits of open banking. Click here to learn more about APIsure™, and please don’t hesitate to contact us for a more in-depth discussion.
The opinions expressed in this article are intended for informational purposes only, obtained from multiple sources across the internet, and should not be attributed to Surecomp or any of its subsidiaries or affiliates. Any representation to the contrary is expressly disclaimed.