Open Banking: Levelling the Digital Playing Field for Treasuries of Tomorrow

Digital platforms have begun to penetrate industries and alter supply chains. As traditional companies digitise their business models, transactional and financial flows will undergo a paradigm shift impacting treasurers and banks alike. Open Banking is perhaps the symbiotic factor that can level the digital playing field.

Three centuries ago, the industrial revolution marked a fundamental change in mankind’s history; the development of machines surpassed the physical abilities of humans and animals. Today, as the world seeks new fuel for economic growth and inclusive development, technology-enabled business models are re-defining economic activity with great equalising potential for society i.e., crowd-based capitalism, job creation, financial inclusion, remote access to education and healthcare to name a few. This phenomenon will transform corporations and communities over the next decade and perhaps bring about the fourth industrial revolution. 

An offshoot of this revolution is the advent of digital platforms. The digitisation of supply chains is impacting business more than any other digital initiative, accounting for up to two-thirds of incumbent companies’ revenue growth, and more than 75% of their profit growth [1] where digital ecosystem reinvention is well strategised and executed. Building a fully digital supply chain often involves the creation of a new ecosystem. This opens the door to a reshuffle of the ways in which value is distributed among various players in the value chain, and will provide companies with new opportunities to create value – such as via new partnerships, revenue/business models and market access. 

Fig 1 - Digital platform initiatives in traditional companies

Fig 2 - Open Banking: From standalone service provider to ecosystem orchestrator

It's not just start-ups

As such, platform-driven business-to-business (B2B) ecosystems are poised to achieve macroeconomic scale of approximately USD10tr [2] in socio-economic value creation opportunities between 2016 and 2025, across 10 industries. Whilst high-technology companies, ‘unicorns’ and start-ups are already part of the narrative, traditional incumbents and industry leaders are becoming digital natives, with more than 50% of Global 2000 [3] companies expecting to see most of their businesses creating digitally-enhanced products, services and experiences by 2020. Figure 1 shows an indicative compilation of digital platform initiatives being pursued by traditional companies [4], cutting across industry sectors.

Open Banking is to banking what digital platforms are for companies

In Open Banking, banks and other providers orchestrate financial ecosystems around themselves – either as a platform ‘owner’ or participating in others’ platforms as financial service providers, or a combination of both using digital technologies such as application programming interface (APIs).  This develops into an ecosystem. Banks would thus take a holistic approach to providing liquidity, managing risk and facilitating transactions – by delivering curated financial solutions enabling the entire network to become more resilient and efficient.

This approach is in sharp contrast to the conventional banking approach of serving single-client relationships. While fintechs may look to disaggregate parts of the banking value chain, leading players will look to seize opportunities. A 2016 Accenture survey of banks found that 83% believe platforms will be the ‘glue’ that brings organisations together in the digital economy, and when tapped with Open Banking could drive up returns on equity by more than 5% – for both mature or emerging market banks [5].

From a treasury practitioners’ perspective, Open Banking offers the best of both worlds – by responding to their current needs and also to reduce the complexity introduced by digital business models.

Fig 3 Open Banking: Levelling the digital playing field

Fig 4 - Unlocking ecosystem alpha

The banking model of future

Standard Chartered envisions Open Banking via its unique ‘Banking the ecosystem’ strategy. With digital technologies and collaborative partnerships as our cornerstones, the initiative seeks to deliver a differentiated value proposition to clients and their suppliers, sales channels and their customers across its unique footprint. 

Since the launch of this strategy, several value propositions have been co-developed with clients and partners, reaffirming the ecosystem strategy – of which a couple of illustrations are highlighted in figure 4.

Aside from regulatory moves such as the Payments Services Directive (PSD 2), Open Banking initiatives are starting to gain traction both at an industry level and with banks including attendant players such as fintechs and ERP providers looking to play a role in mediating digital platform flows.

Ultimately, few players can bring the depth of local expertise, the breadth of solutions and the spectrum of relationships across all sizes of businesses to orchestrate resilient financial ecosystems and drive global trade, commerce and investment. Incumbent banks with these attributes and backed by a concerted innovation strategy and relentless execution have a good chance of creating the banking model of future.

Notwithstanding numerous open questions such as those surrounding digital identity, the monetisation of data flows and cyber security that need to be addressed, Open Banking will vitalise digital finance. As corporate treasurers gear up to support digital firms using a more connected and live treasury management approach, Open Banking could well be the fulcrum for treasurers to operate the treasury departments of tomorrow.