Open Banking

A Perspective for Financial Institutions

March, 2019

Presented by:

Ankit Sharma, [email protected]

Manager, Strategy&, part of the PwC network
Mexico FS Advisory
Strictly private and confidential
For discussion purposes only
 Content 1. Setting the scene
2. Implications - Financial Industry
3. The way forward - Incumbent Banks
4. What the future holds?

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Open Banking
Setting the scene
Open Banking will change the way clients, banks and Fintechs operate in the financial ecosystem
developing new business models...

Without Open Banking… With Open Banking…

Platform Bank
Banking-as-a-Platf
API orm API
App App
App API App API
App
Online
App Open
Banking
API API
API App
App App

API

API
App Personal Finance
App API Manager
App
Online Open
App Open Open
Banking API
API API
API
App App

Open
API
API
App
App API
App
Online
App Open
Banking API
API App
API
App App

• Different applications and user experience for each bank • Disruption in traditional relationship between bank and their clients
• User connections are straight, dedicated and closed • Interoperability for external consumers through APIs
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4
… and these open banking trends go back to 2012, however the use of APIs in banking has shown
an exponential increase in the recent years...

Every year more banks and financial institutions have …and the number of public APIs available in the
started using APIs and improving their Open Banking financial industry has exponentially grown in the past
capacities… decade.

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

PwC 5
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Source: PwC Analysis
 ...with different countries using different approaches for Open Banking; however almost all have
a block a set of common elements.

United PSD2 NACHA Mexico Hong Singapur Australia New

Kingdom (EU) (USA) Kong Zealand

Payment initiation
x x x x x x x Payments and accounts are
Payment Status
x x x x x x x the central part of initial phases
of open banking and the main
Payment account objective of traditional
information
x x x x x x x x
open banking regulations
Product information
x x x x x
Product Opening
x x x
Fraud & Risk reduction
x x
Customer Insights
x x
Credit Scoring
x x x x
Other deposit accounts
x x x x x x x x
Loans
x x x x x x
Insurance
x x x x
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Source: PwC Analysis
Open Banking provide greater competition, improves efficiency, and remove friction for all
players from big traditional banks to start-ups and consumers...

Implications for Banking Market Participants

Small and Medium

Open Banking Models Banks FinTech Startups Consumers
Enterprises (SMEs)

New services – Access data from Easier account history porting from Increased accuracy and Faster credit assessment Authorizing personal data
other financial institutions. previous banks speed of credit allowing businesses to access so providers can
assessment through secure loans faster offer expanded set of
direct data access financial products
New channels – Accessing third Enhanced channel experiences with Lender integrations with
party audiences by placing the service additional data accounting software to
within another’s context easily submit loan
applications
New utilities – Providing a new Streamlined digital sign-up and identity Enhanced fraud Leverage APIs from
utility to enable others verification across accounts and detection by monitoring account providers to
applications patterns across multiple streamline payment
accounts. reconciliation instead of
manual input
New platforms – Enable third Access to additional customer Access to consumer data Customization and
parties to connect with Banks and transaction data instead of buying data from Banks to deliver bundling of product
other services and innovate from credit bureaus to determine risk personalized products offerings from different
levels. Banks or FinTech startups

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Open Banking
Implications - Financial Industry
Each bank layer has a critical role to play in the Open banking era to help transform financial
services, open banking is not just the task of the technology layer...

• Understand unmet customer needs

• Identify opportunities through new channels, or new services through own channels
Customer relationship layer • Translate implications for customer journeys

• Develop / product service syndication strategy

• Cultivate required partnerships and channels for collaboration to satisfy unmet customer needs
Product & Delivery layer identified above

• Identify opportunities enabled by Open Banking to syndicate key services through new channels,
or new services through own channels
Operations layer • Meet security, privacy and other requirements and expectations

• Develop and maintain APIs and SDKs

• Develop and maintain rails into third-party service platforms
Technology layer • Meet security, privacy and other requirements and expectations

• Risk: Re-orient risk and compliance frameworks

• Strategy: guide choices about value proposition and way to play
Support layer • Human Capital: ensure required skill mix
• Legal: align contractual arrangements to new risks and opportunities

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...and the interaction between these layers is being transformed; vertically through value chains
and horizontally through customer interaction...

Bundled Un-bundled Re-bundled

Customer 3rd party 3rd party

relationship layer take-over take-over

Product and delivery 3rd party 3rd party

layer Collaboration Collaboration

Operations Layer

3rd
Technology layer
3rd party
outsourcing party
outsourcing

3rd
Support layer 3rd party
outsourcing party
outsourcing
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Open Banking
The way forward - Incumbent Banks
Substantial work is required just to comply with minimum requirements but compliance alone is
not enough, banks must prepare for Open Banking now...

● Ensuring compliance with all ● Readying the digital and data

Wait and see Walk, Run, Fly global requirements with engine Euphoria
margin of safety ● Strengthening security and
● Staying sufficiently ahead of governance mechanisms
Complying with Disciplined, intentional mi requirements that no ● Clarifying strategic Actively preparing to
requirements as they and practical steps change in regulation will be a opportunities and pathways compete in an
emerge surprise. for growth ‘unbundled’ banking
● Taking active ‘no regrets’
steps today even if not yet Exposing as much product and
● PSD2, GDPR, and future
necessary data as possible
rules
● Generally staying abreast of
developments ● Customer accounts
● E.g. strategy or digital teams ● Transaction information
present regular updates to ● Product
ELT
● Otherwise making no Where possible, making choices
unnecessary commitments based towards openness
● E.g, APIs with write as well
as read access
● Open rather than closed APIs
● Noting that in each case
significant security and
privacy considerations and
requirements come into play

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...and banks must make strategic decisions and select the most appropriate model depending on
their capabilities, strategy and focus...

▪ Incumbent banks are

currently all in the top-right
quadrant – integrated
Customer Experience Master Traditional (integrated) providers of banking and
financial services.

▪ In a world of Open Banking,

many will migrate to other
areas of the strategic matrix.

▪ Many executive teams and

Infrastructure master
Product master boards especially of smaller
banks are already thinking
about how to create a future
differentiated and
strategically defensible
position.
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...to opt for Customer experience, incumbent banks must begin with a particular unmet need or
business proposition in mind and be open to evaluate buy/build/partner decisions...

Customer relationship layer

HNW
Mass
Mass
Branches /
Micro / SB
Business /
Business Institutional
Customer Experience
Affluent Contact
Center
Centers
Master
Product and delivery layer
Consumer Business Payments Insurance Players with distinct customer value
and Savings and
credit and
services
credit and
services
transaction investments
Markets and risk
transfer
proposition aligned to specific segments.
services

Operations Layer • Often adjacent to banking and seeking to

Mailings,
Payments
and Lending Markets
Security, AML
and protection
Property, grow value proposition
cash, cards from financial
procurement
transaction services operations
and logistics crime and other
services
• Orchestrate ‘bundle’ of services to deliver
Technology layer digitally
Customer
solutions & Transaction Common
Core calculation
applications and registries (GL,
(CRM ERP Data engines (capital,
asset and core
origination
enablement
platforms)
engine(s)
risk, ftp,etc)
banking) • E.g. Bud, Buddybank, Alipay, Quicken,
Treefin etc.
Support layer
Outreach Legal and
Human and other
Risk Finance Strategy
Capital communicati commercial
on services
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Illustration
...to opt for infrastructure master, banks must consider playing the role of financial services
aggregators and consider offering competitors’ financial services and products...

Customer relationship layer

HNW
Mass
Mass
Branches /
Micro / SB
Business /
Business Institutional
Infrastucture master
Affluent Contact
Centers
Center

Product and delivery layer

Consumer Business Payments
and Savings and
Insurance Players with distinct technology or operations
credit and credit and Markets and risk
services services
transaction
services
investments
transfer capabilities that can be digitally enabled

Operations Layer ▪ Often leveraging or seeking to leverage

Mailings,
Payments
and Lending Markets
Security, AML
and protection
Property, global or super-regional scale
cash, cards from financial
procurement
transaction services operations
and logistics crime and other
services
▪ E.g. FIS, Fidor, PEXA, Mambu
Technology layer
Customer
solutions & Transaction Common
Core calculation
applications and registries (GL,
(CRM ERP Data engines (capital,
asset and core
origination risk, ftp,etc)
enablement banking)
platforms)
engine(s)

Support layer
Outreach Legal and
Human and other
Risk Finance Strategy
Capital communicati commercial
on services
PwC 15
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Illustration
...to opt for Product master, banks must consider partnerships and acquisition of specialized
FinTech players to re-bundle their existing offerings with innovative products...

Customer relationship layer

HNW
Mass
Mass
Branches /
Micro / SB
Business /
Business Institutional
Product master
Affluent Contact
Centers
Center

Product and delivery layer

Consumer Business Payments
and Savings and
Insurance Players with distinct capabilities that can be
credit and credit and Markets and risk
services services
transaction
services
investments
transfer digitally distributed via other Banks

Operations Layer ▪ As with utilities, often leveraging or seeking

Mailings,
Payments
and Lending Markets
Security, AML
and protection
Property, to leverage global or super-regional scale
cash, cards from financial
procurement
transaction services operations
and logistics crime and other
services
▪ E.g. Insurance companies, Digital
Technology layer payment/Wallet providers
Customer
solutions & Transaction Common
Core calculation
applications and registries (GL,
(CRM ERP Data engines (capital,
asset and core
origination risk, ftp,etc)
enablement banking)
platforms)
engine(s)

Support layer
Outreach Legal and
Human and other
Risk Finance Strategy
Capital communicati commercial
on services
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Illustration
...or opt to continue being the traditional integrated player, as the future for integrated players is
not necessarily untenable, however it won’t be an appropriate strategy for everyone

Customer relationship layer

Mass
Business / Traditional Traditional banks seeking to
Mass Branches /
HNW Micro / SB Business Institutional retain control of end-to-end
Affluent Contact
Center
Centers (integrated) value chain

Product and delivery layer

Consumer Business Payments Insurance We expect to see large successful players
and Savings and
credit and credit and
transaction investments
Markets and risk surviving and thriving in the upper-right
services services services transfer
quadrant for a very long time.
Operations Layer
Payments Security, AML
Mailings, Property,
and Lending Markets and protection
cash, cards from financial
procurement
transaction services operations
and logistics crime and other
services

Technology layer
Customer
solutions & Transaction Common
Core calculation
applications and registries (GL,
(CRM ERP Data engines (capital,
asset and core
origination risk, ftp,etc)
enablement banking)
platforms)
engine(s)

Support layer
Outreach Legal and
Human and other
Risk Finance Strategy
Capital communicati commercial
on services
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Illustration
Open Banking
What the future holds?
 1 Open Data

Available public information about banks and

their value offerings
2019
✔ Better understanding of the current FS sector
landscape

Complying 2 Aggregated Data

Regulations: Statistical information about product
Navigating through use and consumers

Open Banking Next steps1 ✔ Identification of opportunities for

better financial products & services
Regulations
3 Transactional Data

Your personal financial information

✔ Personalization of financial
services and products

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1 Assuming that Mexican Regulation will follow a similar path as UK Regulation.
 1 Clarifying strategic opportunities and
pathways for growth and in the
meantime...
a. Identify the appropriate ways to play in the new landscape, and the
..and banks can start capabilities, assets, experiences, business models and partners
preparing for the needed to do so

commencement of Open
Banking now even 2 Readying their digital and data engine
and...
without knowing the a. Define architecture of core API libraries and data objects
exact nature and timing b. Identify and establish access to third party data and other capabilities
of the compliance that
will be formally
required..
3 Strengthening their security and
governance mechanisms...
a. Define security, access and architecture strategy
b. Develop strategy to deal with potentially commercially sensitive
information
c. Onboarding, audit and complaints
d. Enhancing data governance, security, third party oversight in Open
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Open Banking puts customers at the center helping create new experiences and must be seen as
one more milestones in direction of openness, digitisation and partnership with Fintechs...

1 Greater push from regulatory authorities for open API frameworks

to create open and integrated ecosystems across geographies

2 Increase in the number of banks offering open APIs driven by the

need for increased rate of innovation

Future trends
and impact of
Open APIs
3 Increased partnerships between FinTech startups and banks to
provide open APIs collaboratively

4 Rise in number of FinTech startups fueled by easier access to

financial data from Banks provided by open APIs

5 Banks and FinTech startup APIs to be monetized by creating

tailored solutions, targeting different customer segments and
banking services based on a collaborative model
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Thank you!
Ankit Sharma, Manager, Strategy&, Mexico FS Advisory
[email protected]
+52 1 55 8070 2655

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