Temenos enables Open Banking, and the Revised Payments Services Directive (PSD2), for banks to collaborate with other players in the banking ecosystem.
What is Open Banking?
Open banking is the adoption of common standards for collaboration between banks and other players within the banking eco-system of third parties such as developers, customers and partners like fintechs, telecoms, retailers or other banks. Widespread uptake of open banking globally, accelerated by Regulation such as the Revised Payments Services Directive (PSD2) in Europe, will lead to new opportunities and challenges for banks. Expected to come into force by late 2018, PSD2 is intended to increase competition and innovation within the European banking industry in order to improve the banking experience for the end-customer by opening account information to third parties, such as aggregators of customer financial inforamtion across multiple institutions, or payment providers. Banks are likely to respond to the directive by not merely complying, but by exploiting the directive to create new business models aimed at creating new and deeper relationships with customers and at generating new revenue streams. For this reason, it has implications well beyond Europe. Accenture has described PSD2 as an “open banking laboratory” that will be closely watched by the rest of the banking world.
This whitepaper argues that the widespread uptake of open banking globallyLearn More
Where is the value?
For the bank: Open banking is the resulting global phenomenon of the disintermediation of the banking value chain. Traditional full-service banks that are used to doing everything themselves, are being forced to re-evaluate the way they do business. Open banking affords banks the opportunity to benefit from third-party innovation by accessing the latest technology, skills, methodologies and mindsets of agile third parties. Gartner predicts that this will open up new revenue streams for banks, contributing up to a 30% increase in annual banking revenues*.
For the customer: Open banking makes data, algorithms, transactions, business processes and functionality available to other players in the banking eco-system which provides the end-customer greater control over which financial products and services they consume and from whom. Customers are able to create their own curated virtual everyday banking universe that is a portfolio of cherry-picked offerings from multiple providers of financial services.
Those banks that proactively position themselves at the center of this universe rather than those that find themselves at the periphery, will be the winners.
How should banks respond to Open Banking and PSD2?
Open banking is as much about the establishment of an improved IT architecture as it is about structural change across the banking industry. An API-based end-to-end integrated architecture that enables ease of consumption of third party banking products and services as well as the other way around will be a key requirement to support the open banking business models of the future.
PSD2 is a catalyst causing a step change in the industry’s perception, understanding and willingness to embrace open banking. While it is a European directive, it has implications beyond Europe because of its stated intent to increase competition and innovation in the industry for the benefit of the end-customer.
“Open banking will fundamentally shift banking in the way internet banking did more than a decade ago. We will see many new ways of distributing banking products. This will create more choice and value for customers.”
- Jarkko Turunen, Nordea’s head of Open Banking
We believe banks can respond to PSD2 in three ways:
How does Temenos help banks?
Temenos provides a fully integrated front-to-back API-based solution architecture that will enable all three levels of response. The Temenos Solution Architecture will help banks to not only comply but to implement a strong API-based framework that will capitalize on the investment required for the regulation per se. This architecture fully corresponds to the commonly accepted industry definition of an API-based technology platform for open banking.
Temenos Core Banking provides complete end-to-end processing capabilities across retail, private and corporate banking using common core components. The Temenos Front Office product family supports aggregation of customer information. The Temenos PSD2 APIs enable aggregation of account balances and account movements on to the Front office components, allowing customers to view their accounts, balances and transaction summary via the Temenos Channels. This aggregated data is used throughout the Temenos stack (which also includes Temenos Analytics and Temenos Risk and Compliance solutions) to generate insights using embedded analytics.
Key frameworks underpin the Temenos Solution Architecture.
The three frameworks linking user experience, record keeping (core banking and payments) and analytics/reporting, are interaction, integration and data.
- Temenos Interaction Framework enables simpler and easy access to the capabilities in the Front and Back Offices from the Channels and also for third parties via APIs.
- Temenos Integration Framework provides easier B2B integration capabilities through messages.
- Temenos Data Framework separates reporting data from the more volatile transactional data and persists in column store tables for faster queries and near real-time distribution to the analytics and reporting solutions.
Temenos Component framework helps build the record keeping capability within Temenos. Temenos Design framework enables customisation and configuration to the core banking and payments applications. Temenos Platform framework enables middleware and database independence.
At Temenos, we want to give our banking clients the greatest flexibility, whichever strategic option they choose. By providing an integrated, real-time yet open architecture that allow banks to collaborate with multiple partners flexibly and seamlessly by exposing and consuming open APIs, we want to ensure that technology not only does not constrain banks’ desired business model but gives them an advantage over their competitors who are either grappling with the cost and complexity of legacy-based architectures or working with unproven yet-to-scale API-based core banking capability.