The open banking movement has been spreading across the world, with forecasts showing it’s gradually expanding to the United States. Open banking puts consumers in control of their financial data, allowing them to decide how they want to share their information. But companies in the financial industry can also see numerous benefits from it as well. Open banking can help banks and financial services organizations drive new revenue opportunities, extend their reach, improve customer relationships and response times, and can help them remain relevant to their customers.
However, successfully implementing open banking is not as simple as it sounds. The recent 2020 World FinTech Report discusses the hardships that early adopters of open banking are experiencing.
Partnerships are not yet paying off
According to the report, the majority of partnerships between banks and fintechs have not been successful. In fact, “only 6% of banks that have collaborated with fintechs have achieved their desired and anticipated return on investment.”
So what’s a bank to do? The report recommends that banks focus on cultural changes within their organization and embrace the idea of Open X. Open X is the free flow of information and the seamless exchange of data and resources combined with expedited product innovation, which leads to improved experiences for all customers.
The report also suggests banks should deploy fintech capabilities across their business value chain to enable seamless data sharing for the front office to the middle and back offices. This will also transform back-end operations, allowing them to connect with third-party providers.
Implementing both open banking and Open X does come with some difficulty. It requires banks and fintechs to work through several technological and cultural barriers in order to be successful. Nevertheless, if done effectively, both can reap positive results from the information being shared.
Middle and back office operations remain neglected
Another issue is that bank and fintech partnerships have focused exclusively on front office operations. Banks and financial services companies often invest heavily in robust front end solutions, yet they allow middle and back operations to stay where they are—in the back.
Despite the bright, shiny front-end interface, things like cumbersome manual processes, low scalability, paper-based documentation, and legacy systems greatly affect the customer experience. According to the report, mid and back-end functions are frequently left behind because of:
However, the report offers a 3-point solution to these struggles that involves propping partnerships up with enough structure to meet expectations. Effective collaboration, relies on people, business, and process maturity on both sides of the relationship.
Start with Modernizing Legacy Systems
As many IT leaders know, “back-end transformation can be a bumpy ride,” which is why organizations often neglect it. Modernizing your legacy systems is no easy task, but it must be done to bring true innovation to your partnerships and customer experience.
Many banks use manual, paper-based tasks that often impact customer response times. Additionally, banks are extremely reliant on mainframes as their systems of record. In fact, it’s reported that 58% still depend on legacy infrastructure. It’s up to banks to innovate or retain tools in order to integrate their legacy systems and create a more streamlined and customer-centric approach. Whether this means a partial migration and moving some of the information to the cloud or just better integrating their legacy systems, banks will need to deploy new business models to create better usability for consumers.
Contact us to learn how our mainframe integration tool, Ivory, can modernize your legacy system in order to improve customer experience.
-Amanda Bierfeld Williams, Marketing Coordinator at GT Software