In banks, innovation has traditionally occurred behind closed doors. Faster market penetration is calling on banks to cooperate with their partners and co-create innovative solutions.
The digital transformation has become an inescapable reality across industries and sectors. The move towards a digital center revolves around which business models and value chains are digitised to the greatest extent possible. In this climate, banks, in particular, are on the verge of a digital vortex.
Danske Bank’s senior vice president, Jon Schäffer embraces this change with open eyes and sees the opportunity to embark on new business ventures, in collaboration with fintech startups and partners across industries. This takes place against the broader backdrop of fierce competition in creating the most sophisticated platforms for third-parties.
“Notoriously, during the past 10 years, banks have focussed on cost value – i.e. driving cost down – and, for quite some time, we have focussed on the value of customer experience. None of this is really transformational innovation, it’s more about automating and digitising products and processes. What we are throwing ourselves at now is defining the future of the financial industry. The most defining ones – those surviving the digital vortex we are currently in – are the banks who manage to build and create a true platform value,” Shäffer advised.
In the same vein as retail industries (Amazon) or media and entertainment (Netflix) – where the winners have been the companies that have been able to build cost, experience, and platform value – the financial sector is facing the same threats and opportunities.
But this is easier said than done. Simply put, banks were not built to be open; most of them struggle with legacy infrastructure that holds them back. As they continue to feed off of the global competition of big techs as well as fintech startups, banks will have to cross that divide.
“The threat is real, long-term, and it will change the way we look at our current business models. It is becoming increasingly harder to be a bank that serves all customer segments with multiple products across many countries. Banks need to decide where we want to excel and own the customer interface, where partnering up is the better option. In this new era, having a strong platform and becoming the best partner bank is a strong competitive advantage. To succeed, you need to create a change in mindset and culture. Establishing trust and improving how we collaborate with partners across other industries will be key in the future,” Schäffer observed.
In short, internal banking innovations are no longer enough. One of the main obstacles to expanding the scope of innovation has been a lack of public accessibility and open banking interfaces (so-called APIs) that allow a third-party to bring new applications and services to draw data from banks. Danske Bank has reached a point where co-innovation in collaboration with third parties is the key to opening up and readying for innovation. If a startup wants to use bank data to, say, create a visual overview of a customer’s spending, it needs to connect with the bank’s system through an API to get the data automatically. Giving third parties direct access to banking data opens up a huge landscape of new services for customers, not to mention business opportunities for many companies.
“The long term winners are the banks that manage to make products available where the customers are, and that requires more openness to integration,” Schäffer remarked.
Danske Bank is on a mission to transform what it means to be a bank – to become more open and better at cooperating with, and integrating, partners. The company has already engaged in a partnership with the largest insurance company in Denmark, Tryg; the Danish scaleup and API-platform, Nordic API Gateway; the subscription management service, Minna Technologies; and the real estate startup in Finland, Tomorrow Tech.
For Danske Bank, the Nordic API Gateway is a vital partner in their efforts to provide an open API platform. Today, Nordic API Gateway hosts sophisticated APIs from several banks, while their competitors only provide basic APIs that live up to the bare minimum of what is required from the European Union’s payment directive, PSD2.
“We are the only provider that has existing connections for all Nordic banks already in place. When the launch of PSD2 occurs in September , we can offer a smooth transition with stable operations. It is our goal to provide better and more sophisticated APIs than just PSD2. For that, we are already partnering with banks to provide premium APIs that go much further than PSD2,” Rune Mai, CEO of Nordic API Gateway shared.
By enabling data aggregation across all Nordic banks in one location, the Nordic API Gateway offers new possibilities for developing solutions and services for its customers. Essentially, investing in the platform is an investment in the future of Danske Bank.
“By providing API’s through our own Danske Bank Developer Portal and via Nordic API Gateway, partners have the freedom to choose which platform they will extract data from,” Schäffer noted.
Bank as a financial marketplace
“By making APIs available, we provide the opportunity for third parties to integrate solutions into our channels, and perhaps even more importantly, to integrate bank products into other services, such as in retail, mobility, real estate, and so forth. With the right strategy and focus, the opportunities are numerous,” Jon Schäffer says.
Open banking is still early stage, but two-way integration is already happening and driving innovation and new business models across companies. And looking into the future, it is not hard to imagine how these interconnections could turn open banking into an open ecosystem of data and functionalities across multiple sectors and industries.
Much like the business model behind digital marketplaces today – i.e. companies or people selling goods (or services) and people looking for these goods (or services) – Open Banking has the potential to mature into an ecosystem where data and functionalities can be found and bought.
And if this marketplace were to happen, it could become the real innovation that completely changes the market dynamics for financial services. A marketplace, where financial incumbents no longer need to reinvent the wheel – or even build the wheel – to create innovative commercial vehicles.