Open Banking: Financial Intermediation In A Data-Driven World.

The ongoing transformation throughout the banking and financial institutional industrial complex has seen a new economic infrastructure emerge, founded on datafication, digitalisation, and virtualisation. This industry has spawned the portmanteau FinTech (financial technology), where companies use new and emerging technology to compete with traditional banking and financial institutional systems. These products and services have been categorised as the ABCD of FinTech: artificial intelligence (AI), blockchain, cloud computing, and big data.

FinTech has proven itself to be integral to the ongoing presence of and survival of legacy banks and financial institutions. Foundational to the baking industry is digitally and virtually generated data, daily interconnecting banking with commerce and finance with consumerism. These seamless technological advancements have enabled incumbent banks to be more interconnected; their existing infrastructure and emerging platforms connecting them with established businesses and generating new and vital revenue streams.

However, the most unassuming yet most significant development in the nascent expansion of FinTech is the advancement of open banking (OB) and Banking-as-a-Service (BaaS). This blog will explore how OB and BaaS are becoming the intermediaries for banking and finance as their software is released more extensively throughout the banking and financial industrial complex.

Introducing Open Banking (OB) and Banking-as-a-Service (BaaS)

Today, OB and BaaS are the banking and finance industry’s dominant and innovative methods of intermediation. Collectively, OB and BaaS proactively impact the stifled traditions of legacy banking and finance, reflecting both the positive and negative externalities of traditional banking and finance, with both practices implementing application programming interfaces (APIs), allowing customers to share their personal banking and financial data with other financial service providers, such as budgeting applications, investment platforms, and/ or lending institutions.

This software benefits not only banking, finance, and FinTech, but is beneficial for the consumer, the hospitality industry, the insurance, and insurance technology (InsurTech) industry, merchants, retail, wholesale, telecommunications, and transportation.

OB is the practice of opening up banking and financial information, products, and services to third-party providers (TPPs)- who themselves are usually FinTech service providers, to construct customised applications and service software.

OB benefits the consumer, enabling them to seamlessly integrate their financial data into a safe and secure location, giving them a more holistic perspective towards their banking and financial status, as well as giving them access to new financial products and services previously unavailable to them, such as customised investment advice and lower-cost loans. From a business perspective, OB can help banks and financial institutions remain competitive, enabling them to foster innovations more effectively and efficiently, and allowing them to adapt, adopt, and collaborate with FinTechs and start-ups, advancing and developing new products and services. Moreover, OB facilitates banks and financial institutions to tap into new revenue streams and expand their client base by opening up their data, products, and services to TPPs.

Open Banking and New Zealand

Geographically, New Zealand is isolated, and with its relatively small population, the country is often ignored or overlooked on the global stage. However, it is in part because of these negatives that New Zealand is often a world leader, its renowned Number-8 wire mentality and sensibility propelling it to prominence.

New Zealand has embraced and implemented its individualistic interpretation and semblance of OB, in banking, finance, and FinTech, an online payment service provider providing online payment services to merchants and customers. This payment delivery service was initiated in the 1970s and 1980s, a tangible transition from paper to computer, and computer to digital. This transition has expanded its variety of personal and personalised banking, and the consumer and financial products and services available and offered.

New Zealand’s current banking and financial positioning is a testament to the regulatory changes that it introduced over this period, as well as the revolutionary developments of information technology (IT), the Internet of Things (IoT), big data, and other digital and technological advancements omnipresent throughout the interconnected construct of modernity.

While New Zealand’s contemporaries, such as Australia, Canada, the United Kingdon (UK), and the European Union (EU) have implemented regulatory OB into their banking and financial ecosystems, it is notable that the United States (US) has implemented deregulated OB into its banking and financial ecosystem.

In New Zealand, it is proposed that their TPPs will be subject to an approval process and that the recipient of data via an intermediary or third- party will be subject to legislation that will exist between the parties processing the transactional data. This exemplifies the New Zealand OB answer, its data being processed by an intermediary and a TPP using domestic EFT-POS transactions.

The banking and financial industries’ infrastructure, products, and services developed and advanced in the 1970s and 1980s, still support many banks’ operational services. Although the industry has not been able to implement and utilize many of the latest advancements and developments in the industry, financial intermediation continues in our data-driven, digitalized, and virtual world.

Pioneering New Zealand FinTech Youtap continues to advance and develop its software, making OB available to its extensive client base, adapted, and adopted to their centric demands and needs.

Youtaps’ OB strategy is to not only deliver a platform with APIs but to deliver a single-digit platform with multiple applications and APIs that securely deploy to the cloud. Youtap supports all core banking platforms and is deployed on a Software-as-a-Service (SaaS) basis, making it affordable for smaller banks and financial service providers looking to transition into the 5th Industrial Age.

Banking, finance, and FinTech, as well as consumers, the hospitality industry, the insurance, and insurance technology (InsurTech) industry, merchants, retail, wholesale, telecommunications, and transportation continue to be in a state of fluidity. And, as they continue to remain fluid, financial intermediation will continue to evolve. OB and BaaS will make things easier and less complicated in a complex, digitalised, and virtual world, as the world becomes more interconnected and reliant on each other for existence, and for financial survival.