Open Banking for a Competitive Advantage Forging a secure path in a dynamic landscape

Guest post by Eleni Coldrey, Business Development Director at Equinix EMEA and lead for innovation in financial services

Regulatory changes mandated by the European Union aim to give consumers choice, transparency and data control. But the prospect of open banking—which requires sharing customer data via open APIs with competitors such as other traditional banks, online-only challenger banks, financial services aggregators and potentially retailers—may give those in traditional banking pause. However, as the financial services industry expands in Ireland, it is the only way those banks can hope to compete and thrive in the digital-first world.

As consumers, we want fast, easy financial transactions and visibility across all our accounts. Whether we’re paying for a cup of coffee with a debit card, using a smartphone app to split the lunch bill, applying online for a home loan or signing up for a streaming service from the living room sofa, we expect a user experience that’s both convenient and secure. The opportunities to enhance offerings for small and medium enterprises (SMEs) are perhaps even more obvious and enticing than in consumer banking, as investment flowing into the space demonstrates.

To succeed in this new environment, the brick-and-mortar banking world, built on the solidity of on-premises mainframes and entrenched networking habits, will need to transform itself into a digital provider of cloud-based financial services accessible to users anytime, anywhere.

Taking the hurdles in stride

Open banking requires collaboration with partners and the ability to manage their access to APIs. For traditional banking, the first step is transforming legacy IT infrastructures to be more efficient, agile and digitally ready to enable a quick go-to-market strategy.

To deliver the flexible, open banking experiences that consumers and businesses want and regulators encourage, the two ends of the financial spectrum—traditional banking and third-party providers (TPPs) of financial services—must join together in collaboration and “coopetition”.

The FinTech ecosystem, public clouds, and the public internet

TPPs in open banking, like other FinTech specialisms, typically turn to cloud applications to build and deliver new banking products and services. Clouds offer a low-cost entry point and a breadth of technology services for software developers to build on. The Microsoft Azure marketplace, for example, lists more than 150 open banking related apps; Amazon Web Services has similar numbers, as does Google Cloud Platform. A wealth of technology services is available to both banks and TPPs, and the reality is that a significant portion of the open banking ecosystem is truly multi-cloud.

But connecting with the cloud-based open banking ecosystem brings new challenges to the world of traditional banking and payments, which until now has typically relied on the internet and fixed networks. Traditional networks offer a service-level agreement and private connections, but they struggle for a couple of reasons. Firstly, delivering a new connection can take weeks and even months, which slows down time to market. Secondly, the approach requires that four parties come together: for example, a bank, a network provider, a cloud provider, and a TPP. Managing these connections is complex, costing both resources and time.

For financial services firms, retail banks, online banks, payment service providers and FinTechs, there is a common theme: they’re looking for solutions that will enable them to ensure regulatory compliance and deliver the services customers want.

Although public internet is the default connectivity in open banking, there are several critical issues that will impede growth in adoption as the industry is maturing:

• Timeouts: Cloud-based payment initiation service providers (PISPs) connecting to banks and payment rails over the public internet are experiencing transaction timeouts. An incomplete transaction frustrates the would-be buyer and is lost revenue for all involved in the transaction.
• Lack of monitoring and control: The public internet lacks the quality of monitoring that’s required for production applications. And you can’t fix a performance problem you haven’t yet recognised.
• Bandwidth: Workloads are constantly changing—for example, requests typically spike in around payday and daily commuting times—and companies need reliable and scalable connections to ensure business uptime. Ideally, bandwidth requirements should flex up and down to match the dynamic demand. With right-sizing hard to predict, companies sometimes overspend to make sure they’re prepared.
• DDoS: Open banking infrastructure will be an obvious target for cybercrime. The sensitivity and criticality of data involved demands the security and reliability of private connectivity—not the public internet. Unprotected infrastructures are vulnerable to distributed denial of service (DDoS) attacks and other security threats. This is critical national infrastructure, and customers need access to banking services 24/7.

TPPs are already located across numerous clouds, and at Equinix, we foresee that as they mature, they will inevitably become multi-cloud. Regulators will demand it, and doing so will protect the TPPs’ own economic needs. It’s imperative therefore that banks establish flexible multi-cloud access if they are to deliver the apps and services customers want. Equally, TPPs themselves already have a need for inter-cloud routing, as they build connections with partners located on different cloud platforms.

Open banking marketplaces and partnerships are not fixed and will remain fluid, as banks and TPPs test out working with each other, as new solutions launch and as consumers make their choices. Those in traditional banking will need to shift their mindset to see this fluidity as an asset; one that places choice and flexibility at the core of financial exchange.

Secure interconnection to clouds and partners

At Equinix, our customers and cloud partners have told us many times that there is a need for a new connectivity model; one that not only delivers on privacy and security but also on speed to market and flexibility. Open banking brings the efficiency of software integration with open APIs to the world of banking and commerce, but to gain real agility and efficiency, those open APIs must plug into software-defined networks.

Banks and financial services companies can use Equinix Cloud Exchange Fabric (ECX Fabric), built on Platform Equinix, to make their open APIs securely and easily accessible to partners worldwide, no matter how they connect, meeting a key PSD2 requirement. Fast, agile ECX Fabric interconnection with the ever-growing cloud-based open banking ecosystem speeds time to market and gives financial services companies a competitive advantage in several ways. It allows firms to securely integrate TPP services and solutions to comply with government regulations; quickly build new connections to cloud-native partners within 15 minutes, and secure the digital edge, prevent cyberattacks, and protect the integrity of company and customer data.

Secure private interconnection allows financial services companies to easily swap public clouds as a customer, and their own needs change. With the physical and virtual connections that Platform Equinix and ECX Fabric provide, firms can choose the partners that suit their business today, shift to other partners in minutes as requirements change, and gain the economic independence and flexibility that regulators encourage.