RETAIL BANKS MUST

EMBRACE OPEN BANKING

OR BE SIDELINED
By Thorsten Brackert, Stefan Dab, Steven Kok, and Maarten Peeters

M ost retail banks assert that

they’re “open” to open banking. In
several markets, regulations have forced
tive potential, the real disruptive force will
be generated by incumbents that seize the
potential of open-banking ecosystems to cre-
them to be. In other markets, fintech ate long-term differentiation and growth.
innovation is driving the trend. But what
counts for being open varies. Too many
banks remain stuck in a tactical mindset Instead of Opening Channels,
focused on compliance and on fending off Banks Keep Closing
the risk of disintermediation. Opportunities
In developing their open-banking programs,
Yet, a few retail banks view open banking many retail banks are stymied by road-
differently. They believe that it offers more blocks of their own making. Too many
opportunity than risk, so they are embrac- continue to approach innovation narrowly
ing it with bold plays centered on strong and incrementally, focusing on financial-
third-party relationships and innovative services-related opportunities that fit within
business models. They recognize that creat- their current offerings or on low-hanging
ing an open-banking ecosystem creates tre- improvements stemming from compliance
mendous opportunities for improving the with regulations such as the second Pay-
overall customer experience and that ment Services Directive, known as PSD2.
third-party partnerships will be a source of
competitive advantage. In addition to letting near-term, defensive
concerns dominate, many banks silo initia-
BCG data shows that open banking has the tives under IT, leading to an overemphasis
potential to add or erode retail-banking rev- on technical details and too little attention
enues by 15% to 25%. Therein lies the real on building out the broader business mod-
threat to established players. Although some el. The commercial model is also frequent-
industry observers point to fintechs’ disrup- ly misunderstood. Many banks equate
 open banking with application program- en the core bank and acquire market
ming interfaces, but APIs constitute just share from less responsive competitors.
one piece of the open-banking ecosystem. Many joint solutions of banks and third
parties require little technical invest-
Incumbents that fail to change their course ment and allow banks to breathe new
risk becoming little more than regulated life into existing services faster than
infrastructure utilities, their experience they could using traditional in-house
mirroring what happened in the telecom- developments. Services that make use
munications sector a decade ago, when es- of transaction data and analytics, as
tablished players failed to recognize the well as account aggregation and
disruptive potential of over-the-top en- personal-financial-management tools,
trants. The new players were able to domi- are particularly attractive to individuals
nate the lucrative mobile-app business, and small businesses. (See Exhibit 2.)
leaving incumbents to compete over undif- Banks that are early movers have seen
ferentiated, lower-value products. positive results. A collaboration with
Tink, a Swedish aggregator, for instance,
allowed ABN AMRO to add online
Defining a Winning budget tools and a personal-financial-
Open-Banking Strategy management solution to its existing
When it comes to acting on the opportuni- daily-banking-product suite, and a
ties that open banking presents, retail similar partnership with Kabbage
banks have clear advantages. They can use allowed Santander to provide seamless
their trusted-advisor status and institution- origination of small-business loans.
al depth to build new services, enter new
markets, and expand their customer base. •• Creating a New Distribution Chan-
nel. As they mature, the most successful
Exhibit 1 illustrates three effective ways to fintechs will become powerful distribu-
turn open banking into a long-term avenue tors of financial services. Some are
for growth: already well on their way. Ant Financial
leveraged its huge user base of pay-
•• Reinforcing the Core. Banks that do a ments to become one of Asia’s largest
good job of integrating third-party distributors of investment funds. The
functionality can significantly strength- UK’s MoneySuperMarket is evolving

Exhibit 1 | Three Winning Open-Banking Strategies

REINFORCING CREATING A NEW LAUNCHING INNOVATIVE
THE CORE DISTRIBUTION CHANNEL VENTURES
Fintech Fintech

Bank Bank
Financing Budgeting
tools

Bank Financing Payments

+ +
Core Challenger New
bank banks ventures
Analytics Account
engine aggregation
Fintech Fintech

End customer End customer End customer

Augment the existing core bank offering Become a preferred partner to third parties Create new businesses and
business models
Source: BCG analysis.

The Boston Consulting Group | Retail Banks Must Embrace Open Banking or Be Sidelined 2
 Exhibit 2 | Five Promising Use Cases

PERSONALIZED PERSONALIZED PERSONAL ACCOUNT-TO- INSTANT POS

SAVINGS OFFERS AND FINANCIAL- ACCOUNT MOBILE CONSUMER
LOYALTY MANAGEMENT POS PAYMENTS LOANS
PROGRAMS AGGREGATORS
Help customers Provide tailored Let customers Provide secure Provide consumer
set aside savings rewards from monitor and transfer smartphone-enabled loans on demand
and maximize merchants of funds across banks digital payments at at the POS
interest gains interest and accounts a merchant’s POS

Customer interest (%)

53 51 31 25 13
Source: BCG quantitative survey analysis.
Note: Customer interest is the share of customers who consider the service attractive. POS = point of sale.

from a price comparison website to, banks filled a critical void and created
among other things, an online distribu- loyal partners.
tor of financial products, including
mortgage loans, credit cards, and even •• Launching Innovative Ventures. APIs
current and savings accounts. and third-party relationships can help
banks build disruptive new business
Still, while fintech growth raises the risk models that operate outside the bank’s
of disintermediation, it also brings core business. This approach might
opportunities. Strategic partnerships include, for example, launching inde-
with fintechs help open up third-party pendent challenger banks or new
networks, providing banks with an businesses devoted to a specific vertical
important new distribution channel for market or product. Although this
their products and services. (See the strategy is not a new one for banks,
sidebar “The Wells Fargo Experience.”) open banking makes it easier to start
They also allow banks to enter growing and scale disruptive businesses.
niches in which they may lack experi-
ence or permission, giving banks Whereas before, banks might have built
business volume they might not other- a digital front-end or challenger bank
wise be able to tap. from the ground up, today, with the
help of open banking, banks can
Because attractive fintechs have lots of fast-track such development by combin-
suitors, a savvy bank must become a ing features and functionality from
“partner of choice.” Providing fintechs several third parties and enabling
with top-end financial products, rich third-party access to aggregated custom-
functionality, and critical integration er account information from many
support can help these young business- banks. For example, Santander re-
es extend their offerings while creating vamped its original challenger bank,
a source of business and competitive Openbank, adding a new cloud-based
differentiation for banks. Fidor Bank banking backbone by assembling
and solarisBank, for instance, found a various components from within the
ready audience in fintechs and third bank and across its network of partners,
parties that lacked banking backbones as well as a full API layer to provide
and couldn’t afford the steep costs of new ways of distributing banking
building and maintaining their own. By services. By keeping the venture at
commercializing their infrastructure arm’s length, Santander was able to
and selling banking as a service, the avoid legacy constraints and adopt a

The Boston Consulting Group | Retail Banks Must Embrace Open Banking or Be Sidelined 3
 THE WELLS FARGO EXPERIENCE
Recognizing that open banking could from other financial services platforms
become a primary digital interface, Wells and to open accounts for different types
Fargo was among the first banks to create of services. Wells Fargo also partnered
a formal open-banking ecosystem—with with specialists in key niches, such
a well-aligned structure, partnership as accounting-software providers for
model, and technology platform. small businesses. In addition, corporate-
banking customers can now use the
To ensure governance and accountability, Wells Fargo Gateway developer portal
the bank established a separate organi- and its APIs to easily integrate their
zation for its open-banking channel, with corporate-account data with their
dedicated product and technology teams. business’s enterprise resource planning
Expanding its API portfolio, Wells Fargo and accounting systems.
entered into formal partnerships with
promising fintechs. Then, to provide Secure, tokenized “handshakes” be-
flexibility and make the platform tween the bank and third-party servers
especially attractive to developers, it allow Wells Fargo customers to choose
built a secure developers’ API portal exactly which account information they
entirely from open-source software. want to share with partners. These
efforts helped Wells Fargo improve
These strong third-party relationships customer service and extended the
and the thoughtfully designed developer- bank’s reach into third-party networks.
centric platform helped the bank usher a Today, the bank offers more than 25 API
variety of APIs to market, including those use cases across payments and data
that made it easy for customers to services, making it one of the largest
access their Wells Fargo bank accounts open-banking platforms in the world.

modern IT architecture, simultaneously with third parties to scale innovation and

developing an independent revenue embed banking functionality into a variety
source. of systems and services. Through market-
places, development communities, and cre-
Banks can use open banking to pursue ative partner collaborations, a bank can ex-
disruptive vertical plays: for example, pand its traditional service portfolio and
setting up new independent ventures to build “sticky” customer relationships with
grow niche products or services or third parties and individuals that increase
running the business as a product total lifetime value.
factory for an open-banking distributor.
ING used this approach to launch
several businesses, including Yolt, A Different Approach to
which serves as an independent Strategy Implementation
personal-financial-management aggre- Some banks have already discovered ways
gator for individuals; Payconiq, an to make the most of open banking. (See the
account-based mobile wallet; and sidebar “Open Banking Turned One Small
Cobase, an aggregator for small-to- Indian Bank into a Digital Leader.”) They
midsize enterprises. have recognized that to achieve open-
banking success they need to define, incu-
In support of these strategies, retail banks bate, and scale businesses in ways that are
must ramp up their API portfolios and en- fundamentally different from those of tra-
gage the developer community. A bank ditional banking. They need to consider the
that successfully forges a strong developer following imperatives as part of their strat-
ecosystem can promote cross-collaboration egy implementation:

The Boston Consulting Group | Retail Banks Must Embrace Open Banking or Be Sidelined 4
 OPEN BANKING TURNED ONE SMALL INDIAN BANK
INTO A DIGITAL LEADER
A small—but rapidly growing—bank in Smart partnerships and tailored innova-
India was eager to spearhead growth. It tions helped pave the way to growth. For
built an open-banking business unit example, a partnership with a core-
from the ground up, hiring a new team banking-system provider gave the bank
with the requisite business and technical exclusive access to a vast database of
skills and establishing a sales rhythm customers of credit cooperatives across
that matched that of other pure digital India. Using these connections to
financial services companies. To mini- develop a suite of solutions tailored to
mize risk and fast-track the effort, the small businesses, the bank accelerated
bank partnered with outside experts. growth. The bank’s APIs are now used to
Together, they identified the most disburse 80% of the microfinance loan
promising use cases, developed a book in India, and the bank powers 40%
supporting operating model, and crafted of the mobile POS market.
a comprehensive go-to-market approach.
The bank also created a unique business
To sustain a strong focus on implemen- model that generated revenues in two
tation, the bank concentrated on six ways: directly (through APIs); and indi-
customer use cases that were backed by rectly (through deposit income, transac-
a portfolio that ultimately included 25 tion fees, and data monetization). With
API-enabled products. The strategy industry-specific pricing models, reve-
proved extraordinarily successful. Within nues increased even more. In addition to
one year of the launch, the new contributing to the bank’s overall
open-banking business unit grew to profitability, these moves burnished the
represent a double-digit share of the bank’s brand and made it a rising star in
bank’s retail deposits. the eyes of the Indian business press.

•• Focus on true customer friction •• Think like a venture capitalist. Digital

points. To carve out distinctive value, advances shrink the cost of experimen-
banks must delve deep into the custom- tation, making it possible to fund a
er journeys of key segments to identify portfolio of initiatives, evaluate prog-
areas that are fundamentally broken ress, and then channel resources toward
and to surface unmet needs. With a the most promising opportunities.
clear understanding of those customer Venture capitalists have long operated
opportunities, banks can determine with this understanding. Phased
which open-banking strategy holds the investments and ongoing monitoring let
most promise, which APIs to develop, them embrace bold concepts that have
and which partners to pursue. One the potential to deliver exponential
large European bank found 40 potential returns—even proposed ventures that
use cases for its open-banking program seem unrealistic at the outset. Banks
but retained only the handful that can adopt a similar mindset with the
seemed capable of delivering the help of agile development practices.
greatest customer value. Instead of an incremental approach to
product development, which is pretty
The use cases were prioritized on the much the norm, minimum viable
basis of projected customer outcomes, products (MVPs) give banks the latitude
profit potential, scalability, and compet- to experiment with novel strategies,
itive differentiation; the bank applied present multiple early-stage ideas to
those insights to pursue relevant third- customers, and solicit feedback in quick,
party partnerships. (See Exhibit 3.) successive test-and-learn cycles. Banks

The Boston Consulting Group | Retail Banks Must Embrace Open Banking or Be Sidelined 5
 Exhibit 3 | Leading Banks Focus on a Few High-Value Use Cases

TYPICAL NUMBER OF USE CASES, BY SEGMENT OPEN-BANKING STRATEGIES

Focus of this article

~20
~15 Reinforcing the core

<10
Creating a new distribution channel

Launching new ventures

Retail/SME Corporate Enterprise-wide

Source: BCG analysis.

Note: SME = small-to-midsize enterprise. The enterprise-wide customer category includes all use cases affecting more than one business line.

should not be tempted to wait for the partners to access test data under clear
“perfect” solution and should avoid contractual terms that create an equal
conflating MVPs with minimal function- playing field for participants and define
ality. They should focus on determining areas of exclusivity. BBVA’s API Market,
what “great” will look like and give the for example, was built specifically with
business room to grow through experi- the needs of the bank’s external and
mentation and rapid course correction. internal developers in mind. It offers
Success requires a willingness to APIs, tools, and other supports that make
embrace long-term changes and to give it easy for developers to partner with the
the organization sufficient time to make bank in commercial opportunities.
those changes.
•• Align governance and technology to
•• Treat third parties as valued custom- manage competing businesses. The
ers. In an open-banking environment, a most successful open-banking portfolios
bank’s customer is no longer simply an include a mix of third-party and
individual- or corporate-account holder. bank-branded offerings, independent
Increasingly, a bank’s customer is a ventures, and distribution networks,
partner or developer. When third parties some of which may compete with one
are selecting banking partners, they are another. To manage that interplay and
looking for two elements: access to a provide the strong steering needed,
large client base and ready-made struc- banks need to align governance and
tural supports that facilitate collabora- technology across the open-banking
tion. Meeting these needs requires that ecosystem. For initiatives that reinforce
banks advance their business develop- the core bank, oversight can be managed
ment, marketing, and outreach practices. from within the bank’s existing business
Banks must invest time in understanding units, but in our experience, it is usually
partner needs and expectations—much best to run open banking at an arm’s
as they would any other highly desirable length from the legacy bank, operating it
customer segment. By reflecting on the as a separate sales channel or business
full customer journey, banks can pinpoint venture with a dedicated leader and
opportunities for adding value through, P&L. Moreover, to ensure efficient
for example, software development kits, management and oversight, banks
reference designs, and dynamic developer should strive to put that portfolio on a
communities, and make it easy for common technology platform. More

The Boston Consulting Group | Retail Banks Must Embrace Open Banking or Be Sidelined 6
 efficient data sharing can improve however, savvy institutions will use the op-
transparency, unlock commercial portunities that open banking offers to
opportunities, and support better strengthen their existing offerings, attract
monitoring and analytics. Achieving this the most desirable partners, and build bold
can be a challenge that could require and disruptive business ventures within
banks to modernize their application and outside their core business.
environment.
Succeeding with open banking requires re-
To succeed in open banking, retail banks tail banks to avoid the temptation to jump
need to lay out a vision that is based on into undifferentiated copycat initiatives.
their current starting point, identify and The banks that execute well-rounded and
prioritize use cases and commercialization far-reaching strategies will build important
opportunities, select potential partners, de- channels for growth. Those that ignore the
fine their operating models and technology market’s direction, permitting the bold and
requirements, and develop clear plans for fast-moving banks to widen the perfor-
implementation. Given the complexities of mance gap, will find themselves disinter-
this process, many banks benefit from out- mediated, out of pocket, and eventually,
side expertise. The results, however, can be perhaps, out of business.
transformative.

O pen banking will disintermediate

retail banks. There’s simply no getting
around it. Rather than see that as a risk,

About the Authors

Thorsten Brackert is a director in the Frankfurt office of The Boston Consulting Group and a mem-
ber of the retail-banking segment’s global leadership team. You may contact him by email at
[email protected].

Stefan Dab is a senior partner and managing director in the firm’s Brussels office and cofounder of the
payments and transaction banking segment. You may contact him by email at [email protected].

Steven Kok is a project leader in BCG’s London office and a core member of the Technology Advantage
practice. You may contact him by email at [email protected].

Maarten Peeters was formerly a senior knowledge expert and team manager in the firm’s Brussels office
and the global manager of the payments and transaction banking segment.

The Boston Consulting Group (BCG) is a global management consulting firm and the world’s leading advi-
sor on business strategy. We partner with clients from the private, public, and not-for-profit sectors in all
regions to identify their highest-value opportunities, address their most critical challenges, and transform
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information, please visit bcg.com.

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The Boston Consulting Group | Retail Banks Must Embrace Open Banking or Be Sidelined 7