2 Table of Contents Preface 3 Executive summary 4 Open banking may become outdated before it ever gets off the ground; long live Open X 6 An evolving open banking ecosystem is setting the course for the future: Open X 7 When it comes to banking transparency and shaping Open X, APIs will be vital 12 Security concerns and ineffective collaboration may slow Open X adoption 16 Structured collaboration will help to mitigate the challenges of open banking and Open X 21 Future state Banking ecosystem players break tradition, adopt new roles 23 Specialized roles emerge and challenge traditional conventions as the financial services industry begins its transition towards Open X 24 Regulations and stakeholder activities will influence open banking maturity 30 Closing thoughts 32 Methodology 33 About Us 34 Acknowledgements 35World FinTech Report 2019 Since publishing our inaugural World FinTech Report in early 2017, the financial services industry has been grappling with changes spurred by open banking. Now the stage is set for the transition to an impending future phase we call Open X. Four fundamental shifts in market dynamics exemplify Open X : moves from Product to Experience, Assets to Data, Ownership to Shared Access, and Building or Buying to Partnering. As a result, Open X will allow the industry to leapfrog open banking principles and foster a seamless exchange of resources, improved experience for customers, and expedited product innovation. And although todays incumbent banks may not be perfectly suited to orchestrate this Open X ecosystem, they can profitably succeed in new roles. Only a short time ago, the FinTech era dawned, with agile challengers offering customers quick and convenient single services to compete with the bundled-products model of established banks. Today, amid a surge in partnerships and collaborations, banking products and services are being rebundled via a more convenient and fluid platform and the actual provider of any one service seems less critical than banks control of touchpoints and ability to deliver superior customer satisfaction. The open ecosystem of the future will feature emergent new roles that challenge traditional banking assumptions. Firms will be required to assume a position that aligns with their core capabilities and external operating environment. Ecosystem players will strategically decide to act primarily as a Supplier, Aggregator, or Orchestrator. They will work to enhance the value in each of these roles by leveraging data and expanding into non-financial products and services. Incumbent banks that effectively enhance their integrated (traditional) model will be best positioned for success. The focus should not be legacy products, but on leveraging data that helps to drive customer value, provide integrated services, and enable data and insights-driven decision making. Moreover, technologies such as machine learning, artificial intelligence, and blockchain will increasingly become useful to improve efficiency, foster innovation, and boost the quality of production and distribution of financial services. Although nascent, the new ecosystem is quickly evolving. Incumbents, newcomers, and third parties will need to collaborate to address and overcome uncertainties and ambiguity around process standardization, regulations, and entity roles. The emerging open banking ecosystem, invariably to be followed by Open X, provides a broad range of new opportunities. While a few players have taken initial steps forward, many remain unaware of prospects or potential threats. We believe those players that strategically select complementary partners, adapt their business models, leverage new technologies, and recruit talent with pertinent skill sets will be positioned to grow profitably. First movers and the most prominent players will define new ecosystem roles, standards, and management. The future is Open X, and our industry must prepare for a new operational age within a shared-marketplace. Anirban Bose Financial Services Strategic Business Unit CEO long live Open X An evolving open ecosystem is setting the course for the future As banking ecosystem partnerships become more accepted and valued, the industry is rebundling services. While the open banking concept is still emerging, it is at risk of quickly becoming yesterdays news. The next phase is Open X a shared marketplace in which players leverage data extensively and collaborate with other players to provide customers with a seamless experience. Banks will need to smoothly integrate within the overall customer journey and experience irrespective of whether or not they control the whole process. APIs are set to play a vital role in open banking and beyond Active participation in API standardization initiatives will help banks gain or retain a leadership position in the Open X environment. Security and compliance concerns as well as unwillingness to collaborate may slow Open X adoption As Open X affects the spectrum of financial services business lines, banks and FinTechs will have to leave their comfort zones and work collaboratively to overcome organizational and technological challenges. Structured collaboration will be key to mitigating the challenges of today (open banking) and tomorrow (Open X) FinTech firms struggle to scale up operations; while some banks stumble when it comes to effective FinTech collaboration. Tapping into the collaborative ecosystem of players while also playing niche and strategic roles will be keys to surviving and thriving in the Open X world. 6World FinTech Report 2019 World FinTech Report 2019 An evolving open banking ecosystem is setting the course for the future: Open X As ecosystem partnerships become more accepted and valued, the industry is rebundling services. Traditionally, customers turned to banks as their primary provider of bundled financial services. Then, the FinTech era dawned with agile challengers offering quick and convenient targeted services versus a range of financial solutions. This unbundled, often unregulated, approach, was in stark contrast to incumbents business model of bundled products that allowed consumers to access all possible financial services via a single institution. Unbundling had implications for established banks as well as for new entrants as each learned they needed more comprehensive strengths to attract and retain business in transformative times. However, relevance came with conditions. Either unilaterally improve capabilities, products and services or collaborate for win-win outcomes. Participation from FinTechs and rising customer expectations are some of the best things that have happened in the financial industry. They force incumbents to leave their comfort zone, change their business model, culture, and technology architecture, to trigger a digital transformation tsunami.“ Siew Choo Soh Head of Consumer Banking and Big Data/AI Technology, DBS We see our partnerships with FinTechs as win-win solutions they bring to the table technological and human-centered design expertise, agile methods, and a start-up mindset. At the same time, FinTechs benefit from our extensive resources and network of millions of customers, allowing them to scale up quickly.“Sham Arora CIO Foundation Services & Technology Strategy, Standard Chartered Bank Fast forward to today, and the industry is in the midst of a surge in partnerships and collaborations, with banking products and services being rebundled via a platform where users can satisfy a variety of financial needs. The actual provider of any one service seems less critical than banks control of touchpoints and the overall improvement of customer satisfaction. As an example, after acquiring its banking license, Orange Bank successfully connected to a network of partners to develop capabilities of a full-fledged bank. Orange Bank supports contactless payments through its partnership with Wirecard, Backbase supports its omnichannel banking, Franfinance provides consumer credit services, Djingo (powered by IBM Watson) provides the virtual advisor solution, and Moneythor supplies personal financial management. By connecting to specialized FinTech players and other solution providers at the back end, a telecom player can provide a variety of financial services and control customer touchpoints. 1, 2, 3, 4, 5 7 1 FinTech Futures, “Wirecard provides paytech to Orange Bank,” November 06, 2017, bankingtech/2017/11/wirecard-provides-paytech-to-orange-bank. 2 FinTech Futures, “Orange Bank turns to IBM Watson for virtual advisor tech,” March 07, 2018, bankingtech/2018/03/orange-bank-turns-to-ibm-watson-for-virtual-advisor-tech. 3 FinTech Futures, “Moneythor supplies PFM tech to Orange Bank,” December 05, 2017, bankingtech/2017/12/moneythor-supplies-pfm-tech-to-orange-bank/. 4 Les Echos, “Orange Bank is betting on free and instantaneous,” April 20, 2017, lesechos.fr/2017/04/orange-bank-fait-le-pari-de-la-gratuite-et-de-linstantaneite-165847. 5 Finovate, “Backbase Omnichannel Banking Powers Frances Mobile-Only Orange Bank,” November 20, 2017, finovate/backbase-omnichannel-banking-powers-frances-mobile-orange-bank/.