Open banking has been hailed by many as a positive step towards the next phase of banking. What makes this concept so interesting is the sharing of banking data through application programming interface (APIs) that deliver enhanced capabilities to the marketplace. McKinsey states that the benefits of open banking are multiple including improved customer experience, new revenue streams and a sustainable service model to serve traditionally un-served/under-served markets.

One of the biggest challenges to achieving success in Open Banking is the applicability. To generate bylaws and industry standards that are to be adhered by all can be a daunting task. But one particular organisation that is striving to standardise the open banking experience for all is the Banking Industry Architecture Network (BIAN). Established in 2008, BIAN is a not-for-profit association tasked with developing a common architectural framework for banking inter-operability issues. Earlier this year, BIAN published an updated version of its standardised global IT architecture model called Service Landscape 6.0 (SL6.0). This model contains 26 new types of semantic APIs providing banks and software developers consistent guidelines for creating and implementing APIs in the larger banking ecosystem.

BIAN has prominent members from the industry that include ABN AMRO, Banco Galicia, Bangkok Bank, Credit Suisse, ING, JP Morgan Chase, DBS, Nomura, Citi, CIBC, KfW Bankengruppe, Societe Generale and Wells Fargo among many others.

The organisation also has onboard a network of prolific IT vendors such as Temenos, Capgemini, IBM, SAP, Infosys, FIS, Fiserv and Finastra among others, which work with banks to deliver technological support.

For Hans Tesselaar, banking veteran and executive director of BIAN, the past year has been insightful and exciting. “When we started in 2008, we had no standard on banking. Following the 2008 economic crisis, the world began to see the need to spend money wisely. Banks have business needs, and we identify the critical information that’s necessary to flow between banks.”

Open Banking has split wide open the very principle of conventional banking—in that the flow of information between banks has to be open. And Tesselaar believes this is an immense opportunity for banks to understand their own processes better. “Banks can now really understand the backbone of processes within, and optimise them accordingly.” BIAN works with banks to establish standard operating procedures, on the back of nearly 51,5000 use cases. The organisation is actively working on educating banks and enabling more APIs. This is one of the fastest moving endeavours for the company, and Tesselaar is excited at the prospect of making technology highly digestible for its banking partners.

Having supremely enhanced technological offerings at banks is no longer a luxury, but a necessity. Tesselaar puts it aptly: “Banks are becoming more like IT companies, not the other way round.” Despite initial reluctance over embracing transparency in banking and open exchange of information, it has fast become obvious that banks need tech to survive. Mainly because of the advent of fintechs. Several fintech companies are headed by banking executives, who were bogged down by banking conventions that hampered their scope for innovation, while fintech is all the rage in developed countries and even emerging markets. Tesselaar thinks Open Banking is among the best opportunities for fintechs to really deploy innovation and not buck the trend of payment models alone. “Fintech can help banks in so many ways, but the focus now is only on making banking functions technologically sound. This is a great chance for aspiring technology savants to get into the dynamics of a bank, and make these very processes faster, more efficient and safer.”

Great ideas have to be led by great leaders, so therein lies the problem to Tesselaar’s hope for the industry. One of the most critical roles that can achieve the fine balance between banking and technology is that of a Chief Information Officer. Someone with sound technology proficiency and a deep understanding of banking functions can be the answer to bridging this divide, he believes. “A good CIO can drive change at a pace that’s in line with the industry expectations, and not change things every few years. Overhauls of any kind, especially in this industry, take time and money.”

Almost a year since Open Banking and one thing is evident that it’s here to stay. Tesselaar and his organisation are at the forefront of this inevitable change.

To know more about BIAN or to sign up as a member/vendor, log on to www.bian.org

The post The backbone of change in banking appeared first on International Finance.

Hans Tesselaar

January 22, 2016: One of the fastest growing divisions of the international finance industry today is Islamic banking. The industry, mostly hailing from the Middle East, is estimated to value in excess of $1.48 trillion. Look ahead further into 2016 and we can expect to see this fascinating sector of financial services continue to gain traction as major companies put their global ambitions into action. With around 1.6 billion Muslims across the world, there is certainly demand for Shariah compliant financial services far beyond the Middle East.

But Islamic banks, which comply with the Shariah Islamic Banking Code, are facing their fair share of complications, much like the banks we are more familiar with in the West. In this phase of rapid international growth, the Islamic banks need a robust IT infrastructure that can adapt to growth and perform to the same standard as the big international banks.

Technology-enabled business transformation

In order to sustain this rapid growth, Islamic banking, as with all global financial systems, requires technology-enabled business transformation. This is essential to drive further speed to market and keep pace with the growing demand for digital financial solutions.

To do this, Islamic banks need to work with high profile technology consultancies to find solutions that are easily adapted to the Shariah business model – which in itself is very difficult – the Islamic legal code is complex for consultancies to navigate without prior experience in the field. As a result, many Islamic banks have traditionally developed tailored, in-house banking technology systems. This is a massively labour intensive undertaking for the bank – and becomes increasingly challenging the faster Islamic banking continues to grow internationally.

In the Middle East, National Commercial Bank based in Jeddah, Saudi Arabia, is working with BIAN member TCS Bancs to upgrade its core banking system. This Shariah compliant upgrade is a bid to strengthen National Commercial Bank’s Islamic banking market growth strategy. By working with other BIAN members, who have experience in developing bespoke solution for Islamic banks, National Commercial Bank’s core banking system is robust enough to withstand the pressure of growth.

Complex compliance hurdles

Despite the complex nature of Islamic banking and compliance with Shariah, Islamic legal code, the industry is committed to competing on a global scale – as evidenced by changing regulation to support this. On January 1, 2016, the Qatar Financial Centre Regulatory Authority’s (QFCRA) new Islamic Banking Business Prudential Rules 2015 officially came into play – which are designed to support the QFCRA’s ongoing commitment to meeting high international regulatory standards, as well as the continued development of the QFC as a leading financial and business centre in the region.

This year, we could see some compliance relaxed to enable Islamic banks to further flourish internationally, without compromising their religious obligations to their customers. We could also see Western financial centres open up to Shariah compliance, particularly here in the UK. With the right infrastructure in place, Islamic banks have the potential to flourish beyond their traditional markets. The unique approach of Islamic banks, especially with regard to interest payments, may be quiet appealing to customers in the West.

Rapid scale-up

Some Islamic banks have found themselves in a position where they have been forced to scale-up quickly, due to the rapid international growth in the industry, but this has caused an impact on the IT architecture across the industry. Islamic banks have been forced to layer on complex technology systems – creating a web of convoluted technology, without a clearly defined IT architecture.

In Asia, Bank Negara Indonesia (BNI), which is recognised as one of the fastest-growing and most innovative banks in the region, began a process of architecture transformation when faced with growing competition from sophisticated foreign banks. BNI upgraded its inflexible legacy IT environment to TCS BaNCS Core Banking, which enables it to support both conventional banking and Shariah-compliant Islamic banking, with completely separate accounting on the same physical infrastructure.

Addressing the barriers

While Islamic banks’ specific compliance rules may differ from other international financial systems, they share the same goal of achieving high levels of customer satisfaction and delivering growth in sales and profitability. As such, more needs to be done to encourage corroboration and collaboration across global banking technology – to ensure international banks are able to work with and understand the complex requirements of Islamic banking – fuelling further growth in the sector. By relying on a service-oriented architecture (SOA) that separates processes into business functions, banks can straighten out this infrastructure mess into building blocks of pre-defined services – thus making collaboration more manageable.

The Banking Industry Architecture Network (BIAN) is a member driven, not-for-profit association dedicated to supporting banks worldwide to overcome core banking IT issues. Built of a collaborative group of banks, service providers and software vendors, including Oracle, Microsoft, Commercial Bank of Qatar and BML Istisharat, the community has designed a framework to enable banks to standardise the international banking IT landscape. We are building a framework that works for banks across the globe enabling true international collaboration between banks – whether Shariah compliant or otherwise.

The key to banks becoming globally competitive is first to embrace collaboration. By identifying the basic business capabilities that are standardised across all banks – and adding Shariah specific functions – banks can start to operate on a truly global scale. Standardisation across banking IT will enable banks to ultimately differentiate in the areas that matter: offering a fantastic service to customers.

Islamic banking is piquing the interests of customers worldwide, not only for religious reasons but also ethically. Many people want to change how they do banking and Shariah inspired financial services can satisfy that desire. In order to sustain the growth trajectory that Islamic banking is experiencing, the banks concerned must transform the back end of their business with technology. Revamping aging IT architecture will be hugely impactful for Islamic banks. Introducing the cloud and a set IT infrastructure that allows them to pick and choose the best IT services for them can ensure they are in the best position to introduce new partners and services to their network.

Hans Tesselaar is Executive Director, Banking Industry Architecture Network (BIAN)

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