The Future of Open Banking in 2023

Speakers: Jim Marous & Ritesh Jain

[Music Playing]

Jim Marous (00:13):

Hello and welcome to Banking Transformed, the top podcast in retail banking. I'm your host, Jim Marous, founder and CEO of the Digital Banking Report and co-publisher of The Financial Brand.

Jim Marous (00:23):

Open banking has become a major driver of digital transformation across the entire financial sector, revolutionizing payments, lending, investments and transactional ecosystems almost overnight.

Jim Marous (00:35):

But the full potential of APIs and open banking have yet to be realized. The question is, will 2023 be the watershed year for open finance in the U.S. and globally? Or a regulation in the slow economy's slow innovation process down to a crawl?

Jim Marous (00:52):

We have Ritesh Jain, Fintech founder, PhD and Advisor and previous CTO of HSBC, in the Banking Transformed Podcast. Ritesh shares his perspective on the growth of API from open banking and what he expects to see in 2023 and beyond.

Jim Marous (01:09):

Tough economic times will most likely impact investment made by financial institutions in innovation and digital banking transformation. That said, open banking still has a role throughout the entire financial services ecosystem, especially as we enter 2023.

Jim Marous (01:27):

So Ritesh, where do you see the biggest opportunities around open banking and innovation in 2023? And how will this innovation be impacted by the current economic uncertainty?

Ritesh Jain (01:38):

First and foremost, thank you Jim, for inviting me over here and pleasure to be here. What I see open banking opportunities in 2023, specifically from the perspective of potential downturn, is a lot more opportunity for the fintechs as well as the large financial institutions because there are umpteen use cases around the payments. As you know, in the financial world, everything evolves and revolves around the payments, so we love that.

Ritesh Jain (02:07):

So, there was quite a lot of opportunity for fintechs and the financial institutions to offer lending to the customers, offer lending at very lucrative rates and provide benefits to the customer for their own financial wellbeing, because that's what customer would be looking at for the fintechs, as well as financial institutions because they would be going through a potential downturn and the cash is going to be a difficult for the customers.

Ritesh Jain (02:37):

Similarly, there are lot of use cases that we can talk about specifically from the consumer credit card perspective, or similarly in the commercial or the corporate credit card perspective as well. So, there are umpteen use cases in the potential that I see and the use and growth of the open banking in 2023, with respect to the potential downturn.

Jim Marous (03:00):

It's interesting, I've said often that consumers are already embracing open bank without even knowing it. Because from my institution, my situation, I have my traditional financial institution relationships. But then they have other relationships with other types of financial institutions, including my card relationships, my loan relationships, sometimes my investment relationships. And I kind of have this whole open banking ecosystem, but it's not driven by one financial institution.

Jim Marous (03:29):

At the same time, all this is happening, governments are playing a more and more important role, especially in the U.S. and some other countries where they're doubling down on their efforts to control fintech expansion, try to make the regulations similar between traditional and non-traditional financial institutions.

Jim Marous (03:46):

How do you see regulation possibly impacting negatively or positively the whole open banking potential?

Ritesh Jain (03:55):

Very interesting, Jim. We need regulations around the various financial innovation. Regardless, because what we have seen in the crypto market quite recently and over and over again, and let's not even talk about the large financial institutions as well, what we have seen with likes of Wells Fargo and others as well in the recent times.

Ritesh Jain (04:15):

So, the open banking is a new phenomena. It's a bank is opening up their channels, or I call it as, banks are washing up their dirty laundry in an open space. So, the third-party providers are consuming the banking services and offering the better services to the consumers.

Ritesh Jain (04:35):

The thing which is really going to be interesting is from the customer security and the customer data and the regulation around the customer authentication. So, for an example FCA as you know, that we started from the UK in the open banking space and FCA has recently come up with a regulation where they are getting rid of the 90-day re-authentication process in the customer journey, which is a very good and positive sign because that was a point where 20 to 40% customer would give away from open banking network.

Ritesh Jain (05:14):

But providing that option to the customer and putting that onus onto the open banking platform is a positive sign that we will see a lot more growth in the open banking space, as well as the customer utilization of the open banking channel and the third-party providers. And we'll see quite a lot of stickiness around it.

Jim Marous (05:33):

It's interesting, we've seen some major advances in the last few years around use of APIs in open banking, but how have these advances really helped the consumer? What have you seen in the marketplace? Because you have a more global perspective than I do in many cases and I know many of the advance have been done in the UK, in India, in the Far East and things of this nature. But what type of major innovations have you seen around the open banking ecosystem that have helped the consumer?

Ritesh Jain (06:01):

See, there are umpteen use cases that we have seen at across. The basic thing that bank has started offering was the PFM, that is the Personal Financial Management, in terms of the account aggregation.

Ritesh Jain (06:13):

But what we see for the benefit for the consumers is getting rid of the charges. So, account to account transfer, that is one thing. And using the real-time payments that's beneficiary for the customer because charge reductions.

Ritesh Jain (06:29):

Obviously, it is going to put some pressure onto the merchants as well. So, there are, as we know that there's quite a significant pressure on the merchants over the period of time that the merchant discount rates should be reduced or MDR should go to zero in certain jurisdiction. And that's what we see in India for that matter.

Ritesh Jain (06:46):

And so, the customer is getting benefit by consolidating the data, by the data aggregation, by the payment initiation service where they can initiate the payments directly from the accounts. And that benefits merchants as well.

Ritesh Jain (07:04):

So, it's a win-win situation for merchants as well as the customer. And on the top of that, with the data aggregation, customer get quite a lot of offers from the service providers, for the variety of the things that they use day in and day out, specifically for that matter, utilities or the other services that they use day in and day out. So, it's a win-win situation for the customer as well as the service provider.

Jim Marous (07:34):

So, open banking has a potential to fuel growth and provide the impetus to build solutions for underserved segments, both in the consumer area and in small businesses. Can you provide some success stories that you've seen around the providing of additional services for underserved markets?

Ritesh Jain (07:55):

See, I have a very clear view on the underserved market because when people talk about open banking, they talk open banking more along with the financial inclusion. Yes, open banking has got potential to fill the gap of the financial inclusion to an extent.

Ritesh Jain (08:14):

Let's be realistic for the financial inclusion, the biggest challenge is the identity. And the biggest example that we have seen in the global market is like UPI and Aadhaar card which is the unique identity solution in India, which has raised the significant problem of financial inclusion in the country.

Ritesh Jain (08:32):

But let's be realistic, when we talk about the financial inclusion, it's not only about access to the basic financial services. Basically, people need money. So, what you need to do is provide access to the money, how you are going to do that, because the people who are out of the financial services remit, they do not have a record, how you are going to establish that record, that credit.

Ritesh Jain (08:57):

So, it's about utilizing the alternate data of the consumers. And there are umpteen examples in the African market as well as in Asian market specifically India, as well as southeastern Asian market as well, where the financial institutions or the microfinance company is capturing the alternate data and lending to the consumers, those who are not even into the mainstream financial service or financially excluded.

Ritesh Jain (09:25):

So, there was a huge opportunity, but let's not get clouded that open banking is going to address the financial inclusion problem completely.

Ritesh Jain (09:34):

And let me give you another perspective, Jim. The interesting thing that I've seen in the financial inclusion side, the most of the countries that we talk about, the financial inclusion is growing at a rapid pace, but the challenge comes down to the financial literacy as well. So, the financial literacy is becoming a lot bigger challenge than the financial inclusion.

Ritesh Jain (10:00):

And the second challenge is access to money. So, by just providing a bank account is not going to solve the problem for the customers. You need to provide access to the money.

Jim Marous (10:10):

It's interesting, you talk about access to the money and that brings up buy now pay later, which is in a way an open banking solution. As we look at it now, if I had asked you this question 12 months ago, we would've probably said this is an overwhelming success with some asterisks as to, okay, maybe it's created its own problems.

Jim Marous (10:30):

Is the buy now pay later solution, really a good solution the way it's been presented or what flaws have been seen in the whole buy now pay later solution, in the marketplace. Obviously, it's provided access to credit, but there's also been credit provided to people that probably shouldn't have had it. What do you see, is the final outcome a success or somewhat of a failure?

Ritesh Jain (10:53):

Thanks Jim. It's very interesting one again. So, I had a very interesting conversation on buy now pay later when it's colliding with the open banking. So, the buy now pay later, whether you talk about the buy now pay later, again, it evolves and revolves around the money. It's the evolution in the financial services and let's be realistic, it is nothing new.

Ritesh Jain (11:16):

It has been existing earlier and thanks to the digitization by the banks and the fintech and the financial services, as well as the retailers as well, they have reduced the friction from the customer journey and the companies have took that as an opportunity to introduce a new product, which is embedded finance in the buy now pay later. It is an excellent product, but at the same time it comes with its own challenges as well. It removes the friction.

Ritesh Jain (11:49):

But as long as you consider buy now pay later as another credit agreement to the consumers, it's great. If you don't, then we are pushing people into a debt cycle. We have already seen that with the debt, the growing debt in the various economies.

Ritesh Jain (12:07):

For an example, like UK has 60 million population, 66 million credit cards in rotation, with over 60 billion outstanding credit card debt. And this is just the credit card debt I'm talking about. That is obviously minuscule comparison to the U.S.

Ritesh Jain (12:23):

At the same time, I'm privy to buy now pay later, with the right regulation around it. So, if the credit viewers are getting the data of the buy now pay later and it is considered as a credit agreement, it's great because ultimately if we look into the — who is making money out of it, the companies, those who are providing the buy now pay later services, the merchant is taking the hit, obviously that is going to be passed on to the consumers and the financial institutions who are backing up these companies as well. They're eyeing the top line growth. Similarly, like the credit card, it's a similar sort of business if you think from a different lens.

Ritesh Jain (13:07):

So, everybody's eyeing that top line growth and they're hoping that customer will default.

Jim Marous (13:13):

Yeah. And it's a structure, the regulation, but also, it was easy to justify some of these models when the economy was strong. But now that payment is difficult to make for some people, then it creates its own problems.

Jim Marous (13:29):

When we look at open banking overall, it can be executed in many ways including banking as a service, banking as a platform and even embedded banking solutions. Which model do you believe has the greatest potential, of those three?

Ritesh Jain (13:47):

Thanks Jim. As you said about open banking and there are different model and I call it as a revenue generation model as well, like the banking is a channel, right?

Jim Marous (13:57):

Right.

Ritesh Jain (13:57):

So, now what we are seeing, like a lot of banks that they have got their own developer poodles like BBVA has got API_Market or the api.hsbc.com for HSBC or the developers.barclays.com for the Barclays.

Ritesh Jain (14:13):

Similarly, we have got a banking as a platform as well. Likes of Bankable and the Mambus of the world and the Solus Bank, BBVA, Green Dot and multiple others as well.

Ritesh Jain (14:25):

On the other hand, we have got a distributor and the aggregator model as well. So, the typical distributor model that we look into it as like N26, they were the only ones after the financial crisis in the market. Or the aggregator model, which is like the played Finicity two-layer, which is typically open banking platform. That's what we call it.

Ritesh Jain (14:49):

So, the model that I'm seeing and which I'm seeing growth with, is the banking as a service platform. We have discussed some umpteen times in the past as well, that banks need to understand that they don't want to become a dumb pipe over the period of time.

Ritesh Jain (15:07):

So, what they need to really do is offer the services to the consumers as well as to fintech and build that ecosystem where they can flourish. I wouldn't say just survive, but flourish.

Jim Marous (15:19):

Yeah.

Ritesh Jain (15:20):

So, the banking as a service model. At the same time, I see quite a significant growth in the aggregator model as well, with the new products and services coming out specifically in the UK market like the VRP, the Variable Recurring Payments. And so, yes, there's quite a lot of growth in these spaces.

Jim Marous (15:38):

It's interesting, because when we look at this, every bank is trying to take on an open banking platform, trying to determine if they should do banking as a service. And we saw in the research we just conducted as far as the way organizations said they're going to be structured, that a lot of organizations are trying to go to the embedded banking platform, are trying to change the way they deliver services.

Jim Marous (16:01):

But do you really see, especially in the U.S., where there's so many financial institutions and you mentioned that it’s a way to help financial institutions flourish, but it's just really a way to help all financial services firms flourish. In other words, does the open banking platform actually cause a consolidation in the marketplace where there'll be less survivors? Mainly because there's only so many people that can play in the open banking field.

Ritesh Jain (16:28):

So yes, that's what we are going to see sooner rather than later in the market. With the potential downturn as well. I wouldn't say just in the open banking, but overall, in the … sector as well.

Ritesh Jain (16:39):

The biggest challenge for the fintech sector — so whether it's a fintech or the financial institution, they have got their own challenges, their set of challenges. The financial institution, they struggle with the agility and the go to market, churning out the product quickly and the culture.

Ritesh Jain (16:57):

But at the same time, they have got significant amount of customer base as well as significant amount of wealth or the capital.

Ritesh Jain (17:06):

Fintechs are nimble, but at the same time they don't have capital. That's what they need. And the cost of capital is significantly higher. Similarly, their customer acquisition cost is significantly higher as well.

Ritesh Jain (17:20):

So, the challenge that they are going to face during the downturn, it is you will not be able to get more customers. The beauty is going to lie in how you are going to retain your customer and serve them better.

Ritesh Jain (17:35):

So, it's going to be a tough combination doing a potential downturn between the fintech and the financial institution. They got to work together. And we will see quite a lot of cash which fintechs and the financial institutions would be out looking for the cheap deals.

Ritesh Jain (17:53):

So, we will see a consolidation in the market overall. But as you widely said about the open banking as well, just there was a limited market and that's why we have seen quite a lot of interest from the payments companies, as well as the financial institutions in the open banking players.

Ritesh Jain (18:10):

Whether we talk about the fallout deal of Plaid or Visa Alias or the Finicity from the MasterCard or the other deals as well, because it's very simple whether you want to invest that much time in building something or if you are deep pockets go and buy it. So, build or buy the solution.

Ritesh Jain (18:30):

So yes, there's a significant potential for the open banking, as well as we'll see a consolidation of the open banking platforms sooner rather than later.

Jim Marous (18:41):

On the other hand, and you referenced it in the economic situation we're in right now, a lot of Fintech providers have to look at new funding mechanisms, have to look at new ways to grow because certainly the marketplace for VC capital is not as strong as it was a year ago even.

Ritesh Jain (18:59):

So, I think, on the other side, do you believe that we're going to see a whole lot more partnerships between traditional finance institutions and fintech and even maybe the acquisition of fintech to grow this open banking platform and to spur innovation in open banking?

Ritesh Jain (19:16):

Definitely Jim, that is the way forward and that's what I was referring to earlier, that in the potential downturn we will see quite a lot of partnership and that's what we have been seeing and talking about, that banks and the fintechs need to work together because they have got their own set of challenges as well as the positives as well. So, if they work together, that would be a best combination.

Ritesh Jain (19:40):

So, the open banking platform or the fintechs can spin up the innovation at a faster pace. But let's be realistic on the other hand as well, the last financial institutions. They are gearing up for the competition. Whether it's from the culture, building up the innovation centers or the digitization.

Ritesh Jain (20:00):

So, I always say this that fintechs has worked as a catalyst for the large financial institution to flex their muscles. Like cryptocurrency worked as a catalyst for the CBDCs.

Ritesh Jain (20:13):

So yes, the fintechs, we can see that as a competition, but they would be better off with the partnership and building products and services together of building as well as rolling out and they can get benefit of the customer base of the large financial institutions, as well as the capital. Access to capital is a challenge.

Jim Marous (20:34):

Yeah. And the marketplace is going to get more robust because I think some fintechs are going to fall on the wayside, they're just not going to survive.

Jim Marous (20:43):

But I think as organizations open up their eyes to what they need to do from an innovation standpoint, open banking, embedded banking, banking as a service, all these things really lead us to a situation where the organization are going to really have to come together and bring, as you said, the fintechs don't have the scale but they have the speed, they have the agility while traditional banks have the capital, but probably not the speed and agility.

Jim Marous (21:08):

So, that's going to bring in a very interesting change to the marketplace overall. One that's being spurred by the fact that the marketplace has gotten tighter financially. So, let's take a short break here and recognize the sponsor to this podcast.

[Music Playing]

Jim Marous (21:25):

Welcome back. I'm joined today by Ritesh Jain, fintech founder and Advisor and previous CTO of HSBC. Ritesh and I have been discussing the potential of growth for open banking in 2023 and whether the potential will actually be realized in the next 12 months.

Jim Marous (21:43):

So Ritesh, again, with the transparency that open banking provides, banks are encouraged to offer digital services, fair pricing and increase security. Open finance is probably the next step in this evolution of open banking. How do you see the evolution of open banking beyond just financial services in the future?

Ritesh Jain (22:04):

See, open banking is a stepping stone. And it's stepping stone for the open finance in the future. What I see, it's a evolution of the financial services along with the payments. As we are seeing the phenomenon of payments are evolving from the currencies from … to the digital and the digital assets over the period of time.

Ritesh Jain (22:26):

Similarly, what we see, like the open banking getting into the groups of, apart from just the payments or the aggregation, that's what we see today, it is going into the overall financial wellbeing of a customer that is from the insurance. You will be able to see the real-time insurance sooner rather than later. You will be able to see the various sort of payments mechanism. We are seeing that growth in the different markets today and the different use cases. It depends on the national payment infrastructures as well.

Ritesh Jain (22:56):

Sorry, I'm not directly pointing to India, but what I'm saying like the payment capability depends on the payment infrastructure in a jurisdiction. So, what we are going to see apart from the financial services, we are going to see open banking is going to play a role across the customer life cycle.

Jim Marous (23:19):

Yeah.

Ritesh Jain (23:19):

And anything and everything where the payments are going to get involved and whether that will be your utility, whether that will be your mortgages, house purchase, renovations, automobile, you name the sector. And that's where we are going to see.

Ritesh Jain (23:37):

So, open finance, what we talk about, it's completely around the open data. So, the consolidation and aggregation of the customer data from the various sources and enable third-party providers to provide better financial services to the consumers. And that is open finance.

Ritesh Jain (23:54):

And we are already seeing that into the multiple sectors. And that is not only for the consumers. So, it is even for the common commercial sector as well. And the corporates and it is a much bigger value for the SMEs.

Ritesh Jain (24:11):

So, what we have seen a lot more use cases of the open banking in the SME lending, see the SMEs are the backbone of an economy. So, if you want to see the growth in an economy, you need to push the SMEs and provide them that support in the ecosystem, the financial support. And with the view of the alternate data, that's what we are seeing already and it is just going to grow from here onwards.

Jim Marous (24:38):

Well, it is interesting because we've seen some examples in Emirates NBD with the youth open banking model, also at Acacia. And we've seen it there as well where they've built complete relationships around the youth market, which is not driving the revenues from a banking side.

Jim Marous (24:57):

But what's happened is the partners that want to reach those consumers, those younger consumers with gaming, with technology, with communication with as you said, payments opportunities. This is building a whole new revenue model because it's not coming from interchange or from fees or the spread. It's really coming from the outside marketplace wanting those integrations.

Jim Marous (25:20):

I also think when you're looking at open finance, one of the potentials that's been talked about but not talked about is enough, at least in my mind, is healthcare. The integration of healthcare and finance, where you can actually innovate and use the different monitors we have around our health activities to build a financial model around improved health benefits and health wellness as opposed to just financial wellness.

Jim Marous (25:45):

So, I think there's a lot of opportunities. When we talk about open banking, when we talk about innovation, we're really talking about speed and scale. We're trying to make it easier, faster and to have it scalable in digital banking transformation. How do you think open banking will increase the speed of innovation?

Ritesh Jain (26:07):

See, the open banking is helping out building that ecosystem for financial institutions to open up their APIs for the various services. So, the open banking platforms are working as an aggregator and they're providing these services to the third-party providers, to build the services around it. So, it is directly helping up with the speed, innovation and the scale.

Ritesh Jain (26:33):

So, over the period of time, what we are going to see, we are seeing that today as well. But it is just going to grow in terms of the extent, it really doesn't matter that who is the service provider at the end of the funnel. The matter is from where you are accessing the service and that's what the future of the open finance that we are going to see. Whether the real-time insurance, the real-time payments, the real-time access to the services, the technology, the music, you name it and it will be there.

Ritesh Jain (27:04):

So, what we have seen the concept of the super-apps in the past, I see this more from the open banking perspective by utilizing the data from the various sources and providing the value to the customer for their overall financial wellbeing.

Ritesh Jain (27:20):

So, wherever they have an interest, whether it's related to the music, whether it's related to the health, whether it's related to the automobile, whether it's related to anything, ultimately it ends up in one thing that is the transaction.

Ritesh Jain (27:35):

So, the open finance will be able to consolidate all those transactional value to the consumers and provide the value. So, we are going to see a significant scale of that.

Ritesh Jain (27:46):

And just to give you an example about UK for that matter, in 2020 we were looking at the open banking users around a million or so and by last month we have seen the open banking users are around 6 million. So, it has grown exponentially.

Ritesh Jain (28:01):

And if we talk about, I wouldn't say just the open banking, but I would say the infrastructure. So, there are umpteen example of the infrastructure growth in the payment space or the open network space where you are building that ecosystem. We have seen that.

Ritesh Jain (28:18):

The best example if I can give you is the NPCI, the National Payment Corporation of India, the UPI, the Unified Payment Interface, which led and fueled the growth in the economy by democratizing the payments of for an example, FedNow.

Jim Marous (28:37):

So Ritesh, as you look to 2023, where do you see the most emphasis being around open banking and where do you see the biggest advancements being made? In your prediction for 2023, what do you see in the world of open banking?

Ritesh Jain (28:55):

See, in the open banking of what I see in 2023 is the growth in the use cases, specifically in the lending space. Whether it's in the retail landing, the credit card space, the consolidation of the credit card. I wish I could tell you more and I will be able to tell you more in a quarter or so, that what I'm doing in open banking space, in the credit card space as well, and the new product innovation.

Ritesh Jain (29:20):

So, we are going to see lot more use cases, specifically given the focus of 2023 and the potential downturn, we are going to see lot more use cases evolving around the landing space.

Ritesh Jain (29:33):

The second thing is providing the value to the consumers, whether consumers going to the music festival or whether they're utilizing the utilities or whether they're using any services, providing value around that. So, you will see lot more providers, the fintechs coming up in that space where they would like to serve the customer and making their life easier as well as the cost effective.

Ritesh Jain (29:57):

On the other hand, in the broader term, what I'm seeing there would be a lot many, it is not just the open banking, but from the Paymentwall’s perspective as well, we will see a lot more Paymentwalls coming for the cryptos and we will see Web3 and metaverse are lot more used words in 2022. We will see that is growing as well.

Ritesh Jain (30:18):

But specifically in the open banking, I have got a lot more expectation in the commercial banking and the SME space, rather than just the retail customer. There have been quite a lot of focus on the retail customers and there's a slightly less work done in the commercial space. That's where we are going to see the focus.

Ritesh Jain (30:38):

We have already seen in the retail space, where we are talking about the early salary, you can drop your salary at any point of time, you can change your service provider at any point of time with the better values and credit space. You can get a better credit than your credit providers. You can consolidate all that. We have seen these sort of use cases which are already in progress or already exist in one or the other economics. We are soon going to see growth in those as well.

Jim Marous (31:07):

It's going to be interesting as we get to 2023, because we have these economic headwinds and tailwinds. It depends on what way you look at it. As you said, it really provides a bigger opportunity for open banking both because of the partnership with fintechs as well as the striving for better efficiencies and effectiveness. Also, in this, you said in the corporate and small business area.

Jim Marous (31:27):

But as we look at open banking, as the potential gets bigger and bigger, do you see a movement from open banking and open finance to the emergence of super-apps, at least by the big finance institutions globally?

Ritesh Jain (31:41):

Yes, that's absolutely right. I definitely see that. It was years back and I was consulting one of the large bank and it was basically at that point of time you were building a super-app. Now, that is the way forward. When you think from the open banking, as I said, that is the stepping stone. What do you really want to achieve? You want to get the 360-degree views on a customer profile, on the customer. You want to be conscious, as well as you want to provide the contextual services to the customer as well.

Ritesh Jain (32:15):

So, what is the best way forward is bundling and unbundling of the services. And that's what we are seeing in the banking space.

Ritesh Jain (32:23):

So, I definitely see that the large financial institution has got opportunity here to utilize the open banking as well as the open data platforms and the data that they hold. I wouldn't call it open data platforms because that's a lot bigger to chew at the moment.

Ritesh Jain (32:42):

So, utilize the consumer's data, which they're already yearning together 360 to give you and provide the better services, because customer will be going through a difficult time in 2023. And it is not just about 2023, in the future as well, if the financial institution provider can provide the better value, they don't have to look outside.

Jim Marous (33:03):

Finally, as you look forward and we look at this big data and all the information about the consumer, there's still a question as to who will be at the center of the open banking or open finance solution. Will it be a financial institution or will it be a big tech company or somebody else? Where do you think the ownership, if there is such a thing as ownership of the open banking relationship will end up? Is it going to be at a big tech or is it going to be at a fintech or a bank?

Ritesh Jain (33:34):

Jim, I know where it's going. We have seen quite a lot of movement from the big techs recently as well, in this space, especially around payments. It was quite a few years back, I said, the Starbucks is a fintech. And — like, "Why Starbucks is a fintech?" I'm like, "They hold a significant amount of cash of the customers."

Jim Marous (33:54):

Oh, yeah.

Ritesh Jain (33:54):

And we are seeing the reality. We have seen from Apple in terms of card tapping facility. Applications working as a pulse.

Ritesh Jain (34:06):

Now what we are going to see, so who should we move away? Whether it's the fintech or whether it's the financial institution, with the big techs. So, I would say it's going to a very interesting market, for the large financial institutions, with the growth in the big techs as well. Because the big techs probably, I use this word as a very cautionary as well, but they wouldn't want to get into the mainstream finance. At least that's what they claim.

Jim Marous (34:41):

They don't want the regulation obviously. Yes.

Ritesh Jain (34:44):

Yes. So, big techs are claiming that they don't want to get into the mainstream financial services. But let's be realistic, as Bill Gates said long back, "We need banking, we don't need banks."

Jim Marous (34:56):

Right, yeah.

Ritesh Jain (34:57):

And in the future, that's the reality that we are going to see. The banks have to change the format that they work. If we talk about a sizeable bank, do you really need a quarter of a million people or half a million people to run a bank? That's the question.

Ritesh Jain (35:15):

So, the financial institution need to focus on couple of things, the culture, operational efficiency, because what is bringing them down is the cost. A large financial institution, if we talk about the top 10, they spend anywhere from say 5 to 12 billion a year in the technology. That is a significant amount of money. That's insane money.

Ritesh Jain (35:36):

So, that's what I said, that fintechs are working as a catalyst for the large financial institution to flex their muscles, to understand it. And what I see as in competition, the big techs are going to be a wakeup call for the banks.

Jim Marous (35:54):

Yeah. It's really going to be interesting because a big tech firm could easily be at the center and have finance being part of that whole open finance model.

Ritesh Jain (36:05):

Yes.

Jim Marous (36:05):

Or the big bank and it will have to be a big bank, can include payments and all the technology solutions around the banking solution. It will be interesting to see how it plays out because it's really going to get down to who can innovate faster and who you want to put your bets on.

Jim Marous (36:22):

As you said, the Apples of the world, the PayPals of the world, they're already have finance well ingrained in their organizations and they also have the innovation and funding capability to move forward. It's just a matter of saying, how many other elements can they bring? We look at how payments is, you mentioned it many times in this podcast, that payments really is one of the major driving influences.

Jim Marous (36:47):

And when you look at that, you look at what Amazon and other firms like that have done. And you look at also how WeBank in China has really embedded payments within their open banking model. It's going to be very interesting to see what transpires.

[Music Playing]

Jim Marous (37:04):

And I think, your major takeaway here, I think that I hear is that we're really going to see a lot of movement in the open banking marketplace in 2023, driven mostly by our economic situation. That it's making banks look at alternative solutions to get the consumer more embedded in their daily transactions and for engagement.

Jim Marous (37:26):

So Ritesh, thank you so much for being on the podcast today. I really appreciate your time and look forward to hopefully meet up with each other in 2023.

Ritesh Jain (37:34):

Thank you, Jim. And pleasure to be here.

Jim Marous (37:37):

Thanks for listening to Banking Transformed, the winner of three international awards for podcast excellence. If you enjoyed today's show, be sure to give our show a five-star rating on your favorite podcast app.

Jim Marous (37:48):

Also be sure to catch my recent articles on The Financial Brand and the research we're doing for the Digital Banking Report.

Jim Marous (37:54):

This has been a production of Evergreen Podcasts. A special thank you to our senior producer, Leah Haslage, audio engineer, Sean Rule-Hoffman and video producer Will Pritts.

Ritesh Jain (38:04):

I'm your host, Jim Marous. Until next time, remember, open banking requires an open mind and a willingness to change banking as we've known it in the past.