Open Banking APIs the Top Technology for the Future of Innovation

Infosys Finacle, part of EdgeVerve Systems, a product subsidiary of Infosys, and Efma, a global not-for-profit organisation, launched the 10th Annual Study of Innovation in Retail Banking. The report is authored by Jim Marous, Publisher of the Digital Banking Report and Co-Publisher of The Financial Brand. Celebrating the 10th anniversary of the research, the report explores a decade of banking innovation and looks ahead at what’s in store for banking in 2022.

“More than ever, the importance of an innovation culture became apparent for organizations that want to become leaders in both digital transformation and customer experience. There is a significant shift occurring in the banking industry, with more organizations looking to innovate in areas directly impacting the consumer, as opposed to building innovations that only impact efficiency and technology improvements,” said Jim Marous, Owner and Publisher of the Digital Banking Report and author of  the study.

The research, in which over 300 banks globally participated, found that respondents see Open Banking APIs as the top technology for the future of innovation, with it being stronger than ‘emerging’ areas such as machine learning, chatbots and RPA. The research found that in the short term, banks will leverage Open Banking for compliance such as the Payment Services Directive (Europe), Unified Payments Interface (India) and New Payments Platform (Australia).

Vincent Bastid, CEO, Efma, said “In recent years, banking institutions have been facing disruption head-on, with advancements in customer service, personalization and mobile applications through a combination of Open APIs, AI and machine learning. The 10th edition of this report highlights advancements made in the last decade but also predicts a dramatic transformation in payments, mobile wallets and lending.”

The research also found that overall, organizations are taking a strategic perspective on the need for innovation ROI. In 2017, 31% of firms had an innovation ROI perspective of one year, compared to only 17% this year. In addition, 63% looked for an ROI in 1-3 years as opposed to 54% in 2017.

Respondents believe that retail banks consider digital commerce platforms (such as Alibaba) and technology giants as the innovation leaders for 2022. Similar to previous years, the greatest impact of transformation is expected to be in the areas of payments, mobile wallets and lending in the next three years.

Investment in Banking Innovation

With legacy technology being identified amongst the top three barriers for innovation, 74% banks are increasing investments in technology modernisation.

50% of the organizations believe that product delivery channels followed by new product innovations will be where most innovation will take place in the next four years.

Impact of Modern Technologies

Open banking APIs are seen as the top technology impacting banking in the next year by 65% of the respondents.

Banks rated only a moderate level of organizational readiness to leverage technologies to deliver expected business outcomes for open banking, conversational interfaces and cloud processing.

Deploying and Measuring Innovation

The need to collaborate with external partners continues to be the highest focus when sourcing talent for innovation. Innovation over the next 12 months will be delivered through investments in co-innovation with other partners, a dedicated innovation team along with collaboration with large tech firms.

The presence of an innovation officer increased significantly over the past year. In 2017, only 37% of the organizations surveyed had a dedicated executive to lead the innovation process. In 2018, the number jumped to 48%.

Banking in 2022

After existing digital channels (mobile and online), digital assistants, social media and third party channels are expected to be the primary channels for banking by 2022. Close to half of the respondents believe that less than 40% of the current workload would move to public cloud by 2022. According to 70% of the respondents, AI is expected to have a significant impact in transforming customer service / support by 2022.

Sanat Rao, Chief Business Officer and Global Head, Infosys Finacle said “The 10th edition of the Innovation in Retail Banking report strongly illustrates the pace at which the traditional banking model is evolving. The need to invest in a solid platform strategy focused on business benefits and more compelling experiences for customers, employees and partners is central to remain competitive. This report will help banks sharpen their digital vision and benchmark their plans with the industry peers.”