Open banking is one of the top topics internationally when it comes to the future of the financial industry. It remains to be seen whether open banking offers great potential for the Swiss financial centre and whether it will influence or revolutionise the banking sector. Client requirements are also changing radically in Switzerland, new players are emerging and innovative technologies pose additional challenges for banks. Clients increasingly use financial services from a range of different providers – preferably on their mobile devices.
What is open banking?
Open banking could be described as the ambition to make financial services simpler, faster and more reliable for customers. Technically speaking, it is a standardised and secure way to share data within an ecosystem of banks and third-party providers. This new network gives customers easier access to a wide range of products and services via their own bank or third-party providers, thus creating new opportunities to jointly offer customers added value. In contrast to outsourcing, the third-party provider remains in control of the service and responsible for fulfilling the associated due diligence obligations.
In 2018, Hypothekarbank Lenzburg (Hypi), together with Sonect, led the way in creating Switzerland’s first open banking ecosystem. Using the newly integrated Sonect app, Hypi customers can withdraw cash securely and free of charge at selected retail outlets, with the amount debited directly from their Hypi account.
Opportunities and risks
Due to their strong customer base and customer confidence, Swiss banks have the opportunity to play an active part in shaping this trend by designing optimised interfaces and deciding which strategic framework for open banking will work for them. The opportunities presented include expanding the customer base by improving the customer experience, potentially increasing efficiency and generating further sources of income. In comparison, banks in the EU are forced to open up to third-party providers, whereas financial service providers in Switzerland are free to choose whether to use open banking or not. This pragmatic approach could prove a competitive advantage for Switzerland in the future, since greater flexibility often results in increased innovation and customer focus.
Banks must be open to this and trust third-party providers; this is the only way for both parties to benefit from the exchange of expertise. In the long term, there is a chance that third-party providers will position themselves as the link between banks and customers and scale their business model disproportionately based on the banks’ large customer base. If third-party providers succeed in steadily expanding their product portfolio, banks will benefit from the increasing customer activity.
However, this new trend also entails risks for data protection and IT security. And intensive data transfer also offers a larger target for cybercrime, where data may be stolen, compromised or misused. Confidence in the Swiss financial centre should also remain high with open banking. When opening interfaces for third-party providers, this must be considered and appropriately managed and controlled.
Open banking – yes or no?
How should customer requirements be met in the future – in an ecosystem or single-handedly? This is the strategic question that banks now need to ask themselves.