Open Banking can turn into Beyond Banking, predicts Commerzbank

By Selwyn Parker

9 December 2020

The success of Open Banking depends critically on a mutually beneficial cooperation between traditional institutions and fintech to the benefit of clients, predicts an in-depth paper from Commerzbank, Germany’s market leader in corporate banking.

Citing several examples of productive partnerships between banks and fintech, the study entitled The Future of Cooperation in Corporate Banking essentially concludes that they need each other.

While established institutions have a large client base, fintech can provide the technology and focus that delivers original services that will unlock the potential of Open Banking.

“Close partnership at eye-level with other [parties] such as fintech or software companies are crucial,” the report notes while also pointing out that established banks often see fintech as a threat instead of an asset. “Open Banking is not just about building the next-best platform [but] about additional user value, bringing relevant parties together to create valuable solutions.”

Although regulatory and particularly payments-related developments have so far driven Open Banking, it should be seen as a huge opportunity. “Open banking should be understood in a much wider context,” says the report.

The key enabling technology is application programming interfaces (APIs) that allow software applications to talk to each other. “This generates flexibility and possibly a higher variety of functionalities,” argues the paper.

So far though, a lot of investment in Open Banking could be mis-spent. According to a survey of 290 financial executives in Europe cited by the study, nearly half of institutions said they had pumped more than €100m into Open Banking. Yet a lot of these budgets went into the leveraging of standardised APIs rather than into the development of industry-wide communication standards that would harmonise interfaces and harness the full potential of Open Banking.

“Open Banking is a set of technologies, tools, and the mindset to engage with others to jointly build solutions that create value,” the report highlights. Business and corporate clients want tailored and integrated services such as integration of cash management solutions in their enterprise resource planning systems. “With a flexible technical infrastructure and flexible banking products, it is possible to design more individualised solutions together with our clients,” Commerzbank has learned from its own experience.

However this will require institutions to break with the habits of the past and work with non-banking partners including third-party providers such as retailers – and particularly with fintech.

”Many fintechs provide specialised banking services such as OptioPay [a payments processor that alerts users to buying opportunities] or even full-stack banking solutions such as Revolut,” the report notes. “They may be considered as threats to established banks but there are definitely numerous possibilities for cooperation and co-innovation.”

And more banks appear to be coming round to these opportunities. According to a study by EFMA, the non-profit networking facilitator,  and technology consultant Capgemini, 89 per cent of banks now leverage their APIs to work with fintech. “Specialised fintechs may complement the [banks’] services with their capabilities to form a whole ecosystem of independent actors that collaborate to offer rich services that address highly individualised needs with innovative solutions,” says Commerzbank, citing the study.

Overall, the paper argues that Open Banking is much more than a payments-driven concept that will be largely wasted until established institutions wake up to its potential. “We see three levers to create value through Open Banking: product supply, aggregation, and orchestration,” Commerzbank maintains.

The corporate specialist makes a plea for what it calls “Beyond Banking” that would tap the capabilities of fintech. In one example Bank of America collaborates with Flywire, a payments platform for universities, hospitals and businesses.

Commerzbank appears to be ahead of the game in exploiting the potential of Open Banking. Its corporate payments API, for example, offers business and corporate clients seamless access to its own payment solutions. And another API allows client companies to offer finance to their clients under their own brand directly at the point of sale, but without needing a banking license. In the background Commerzbank handles the approval process.

The future will be different, warns Commerzbank, with corporate clients demanding highly specific services tailored to their particular industry and business needs. For instance, industrial and commercial companies want cash management, payments, reverse factoring and short-term financing. “We expect that new solutions, by combining the capabilities of different parties, will increase dramatically in the future,” predicts Commerzbank.

And that will require the help of fintech. “Established banks are leading in terms of trust whereas fintechs seem to be ahead in creating value for their users,” the report concludes.

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