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While the concept of open banking is straightforward in principle and the value proposition is clear, implementing an open banking model is not a simple endeavor.

Security is a huge concern, as open banking significantly expands the risks of unauthorized access, cyberattacks, data breaches, and fraud. Financial institutions must take care to understand the security protocols of the third parties they are doing business with and be assured that their customers’ data is secure while in motion and at rest throughout the lifecycle of a product. New design patterns and secured business processes and models have to emerge if financial institutions are to make it seamless, empowering, and valuable for their customers to share their personal information.

Operational requirements are another challenge. A benefit of open APIs is that they facilitate a financial institution’s ability to integrate new products and services without having to perform a “rip and replace” of legacy applications. However, blending legacy infrastructures with modern tools and technologies via open banking does require changes to the existing architecture and substantially increases the complexity of the IT ecosystem. Financial institutions can suffer from a lack of understanding regarding the best practices for integrating open APIs into their infrastructure.
The fact of the matter is, moving to an open banking model requires a long-term digital transformation strategy focused on technological and organizational agility. Such a multi-year digital transformation requires significant investment and encompasses more than technical aspects such as APIs and security parameters and legacy integrations. Financial institutions must take into consideration how their internal operations, branch capabilities, and back office processes will be affected. A culture shift will be needed as employees adjust to a new way of doing business, and clear and targeted communications are vital to ensure a great customer experience as new products, services and features are rolled out.

To position themselves for success not only in the near term but also in the long term, financial institutions must think strategically about the open banking transformation. This includes being outcome-based, customer-centric, and future-oriented.

Ultimately, open banking is about achieving agility and flexibility to stay abreast of ever-changing market trends and customer expectations. More importantly, embracing open banking today opens the door to innovation and opportunity tomorrow.

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