The importance of data quality in open banking and API adoption

April 27, 2022

Innovative technologies have made financial processes more efficient, reduced the number of errors and transformed how customers view and interact with their money. In terms of product development, measuring customer habits can generate better decisions, and businesses can create structured plans based on real-time API metrics and data to respond effectively to any changes in the market.
With the integration of additional SaaS-based applications and other services by more financial businesses, the opportunity for risk continues to increase too. The importance of data quality and security will only rise in a world where cyber-attacks become more prevalent, and a lack of compliance can be significantly detrimental to an organisation. API technology provides opportunities to innovate in the financial industry, enabling organisations a competitive advantage.

Businesses today are established on data, while finance-related organisations are established on customer trust. If the security of a customer’s money or information is compromised, the trust with the business is lost. An organisation must have 100% security of the data used in developing and implementing an API tool that needs that data to function.

Open banking services have given customers greater control over their finances. People can move and manage their money with greater security from stricter regulations. Open banking platforms are accessible from many devices, making them a simple and popular option for many individuals. The customer experience has improved significantly through open banking and provided several benefits, such as more affordable payment options and smart banking services.

Finance businesses can provide customised products and customer service based on intelligent algorithms that can predict the needs and behaviours of their customers. Consequently, any transactional data quality is dependent on how this data is initially structured. With such a variety of data collected, this can become challenging for data cleansing. Data teams will spend more time applying potentially ‘faulty’ data for analysis. It’s likely that valuable information could be lost or not considered, resulting in the need for more efficient data preparation.

Utilising Real-Time Decision-Making

The instant message-based transaction generated from APIs benefits users at all levels. These systems generate quick, standardised information based on preselected details encoded into the API. This standard structure results in less uncertainty for individuals and a more efficient test design that enables professionals to explore data quality issues.

How Open Banking APIs influence data quality

Protecting outbound data

Poor data within the API will result in operational and transactional problems by impacting reporting quality, searches and analytics. Financial professionals or anyone in a customer-focused position may have to search for specific customer accounts and, in the process, find duplicated data for the same individual. Duplicated records in online financial systems can cause discrepancies and take up unnecessary space, resulting in time and costly implications for a business. In some cases, internal reports could be on incorrect data and potentially be damaging when making strategic decisions on products or other services based on inaccurate data.

API Security Considerations

Systems may be at higher risk of malfunctioning when poor data passes through an API. Quality checks must test against data structures and avoid any potential security breaches. While many cases of API security problems are unintentional, there are intentional cyber-attacks which can leave business systems inactive for long periods.

When APIs are exposed to external systems, it’s critical that security and data measures are in place and data professionals can manage all data types. Centralised services in the finance industry committed to data quality management must collaborate with the relevant regulatory and legislative groups to understand and manage these processes.

While defining the problem of data quality in open banking is relatively simple, the solution can be challenging and ignoring the issue can result in considerable problems for a business. The rapid development of technology has made it challenging for organisations to handle customer data. Technology is one of the least regulated markets, while finance and banking are the most heavily regulated industries, and data quality is critical to security.

Any customer data shared with third-party groups via an API will always pose a possible risk. If any of this information is inaccurate, the risk of exposure will rise further. Managing this risk involves having data quality solutions that ensure the customer data collected from open banking APIs are complete and correct.

Data quality assurance within finance must incorporate data governance measures and include a centre of data quality excellence. Establishing these frameworks and plans for data quality standards in open banking data ensures these problems can be solved.

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Transforming the industry with embedded finance

April 20, 2022

The job of a senior finance leader has never been more demanding than it is now. Today, people are consistently searching online for new products and solutions, watching new media, making purchases and sharing content and experiences on social platforms. This significant transition towards digital behaviour means the customer experience has become a top priority for businesses.

A positive customer experience is vital to enable sustained growth in business. It promotes loyalty, retains customers and enhances brand reputation. CEOs of international banks and finance companies are focused on managing volatile economic conditions by eliminating any hurdles that may influence profit margins. They understand that growing a sustainable and profitable business requires investment in digital and analytics. The majority understand that their business must adapt to remain competitive in the future but recognise that this change will inevitably require some investment. The challenge is transforming to this new model without incurring high costs.

Determining the ideal customer experience requires recognising the diverse competition, understanding the main KPIs that drive success and creating a clear strategy. Businesses are exploring new technologies that provide smart experiences for future generations.
A new wave of businesses that apply data and technology as the core of the user experience is rising. In the financial services industry, online payment platforms are launching seamless check-out and payment options that enable them to take a more dominant role in the finance world. During this process, businesses gather significant behaviour data. Based on this asset, companies have progressed into other markets such as lending and online retail, rivalling traditional bank payment services at an accelerated pace.

What senior leaders should be aware of is that smarter investment decisions to improve the customer experience and their profits are often connected to the development or use of other platforms. Platforms are generating efficient data-focused processes that enhance the customer experience and the overall costs. Implementing this process, however, can be challenging and requires a focus from a user experience perspective with support to avoid any major costs.

To increase growth plans, business leaders are exploring the ecosystem business model in platforms, offering an interconnected set of services where users can utilise differing options in a singular experience. According to a study by McKinsey, customers are supporting this shift, with over 70% saying they are open to integrated ecosystems.

As markets converge, there is an appeal to provide everything for everyone. In reality, senior leaders must focus on their core capabilities and not get too carried away with their offerings. A major challenge that appears with shifting to an embedded eco-system platform is to determine the focus of a business and what capabilities it requires within the organisation.

With the move to ecosystem platforms, lots of new data-focused opportunities and challenges are emerging. Businesses are utilising AI and big data to generate new insights and information. It’s not a simple process, but if done correctly this information can enhance predictive accuracy and generate valuable information for a business. Business leaders who successfully transform their company towards an eco-system platform often understand the power of AI and data in driving efficient customer experiences and increasing profitability. It requires thinking innovatively, being smart and having the confidence to adapt when necessary.

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The rising popularity of embedded finance

April 13, 2022

Embedded finance is rapidly expanding, particularly in recent years. Google reports that searches for embedded finance have spiked in the last two years, partly due to funding for startups introducing new embedded finance solutions and big banks wanting to explore this new market.

Interest in embedded finance is increasing for various reasons. Juniper Research predicts that the market will exceed $138 billion by 2026. Another reason for this growth is that the pandemic has encouraged businesses to rethink their offerings and explore new fintech solutions. While there are opportunities, the development of embedded finance comes with new challenges, particularly concerning data privacy and complying with current regulations.

If a non-financial organisation provides a financial service that enables a seamless customer journey and no platform movement, it is considered an embedded finance solution. The concept is closely related to open banking. British and EU regulations mean big banks and other financial institutions must share consented customer data. Smaller businesses can utilise these data feeds, and as a result, it empowers startups to offer better financial services.

While there are talks in the fintech industry about how successful open banking has been, several startups have tapped into this market over the last few years. Embedded finance expands on the idea of open banking, expanding the service beyond fintech businesses.

Reports from BaaS provider, Vodeno suggest that over 50% of retailers and eCommerce companies in Europe will increase their services or plan to start offering embedded finance solutions in the coming year. Innovation in customer experience is the primary driving factor behind developing embedded finance.

Traditional retailers and eCommerce companies recognise that their customers expect a seamless shopping experience. Processes like taking users to an external payment portal are not acceptable anymore.

The challenge, however, is these solutions can be costly, and many smaller companies cannot purchase their financial solution. Most companies utilise fintech startups for these solutions. Most traditional financial interactions were often controlled by banks. Today banking-as-a-service (BaaS) means all businesses have access to innovative embedded financial solutions that are cost-effective and simple to integrate.

However, there is growing competition from larger industry businesses attempting to capitalise on the embedded finance industry. Big companies like JP Morgan intend to use some of their tech investment budget towards developing embedded financial services. Rival business Goldman Sachs recently announced its banking-as-a-service portal for developers.

Barclays recently announced its Rise Start-Up Academy, a digital skills programme for fintech professionals. The first project for developing new ventures focuses on embedded finance. The pandemic has increased the adoption of embedded finance solutions.

While startups have dominated the industry, incumbent businesses are starting to explore the market. Lower interest rates have made it more difficult for big banks to compete on price. A further factor relates to the global health crisis and how this has changed opinions toward alternative financial service providers.

While there have been significant changes, reports suggest that the average customer remains reluctant to shift their money from traditional institutions. It’s becoming clear that non-traditional financial service providers are acquiring the trust and attention of customers. In response, larger businesses need to be more creative with their products and services. The result has been increased availability of new services, including embedded finance solutions.

Embedded finance enables established financial organisations to reach out to existing clients via different channels. There is a rising demand for embedded finance solutions. Businesses looking to introduce these services have several challenges before moving forward with this option.


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Data remains the biggest challenge to TCFD adoption

April 6, 2022

New data initiatives intend to deliver transparency in climate reporting.

Recently, the US Securities and Exchange Commission announced a draft measure requiring US-listed businesses to disclose climate-related risks and their greenhouse gas emissions. The ruling was announced in response to investors requesting further guidance on how to report on climate-related impacts. Some have criticised the plan believing it is creating an added burden for businesses disclosing information.
The announcement represents a significant step in financial climate reporting. Policies and regulations greatly vary from nation to nation, but the US has been lagging behind Europe in requiring companies to disclose data on their climate-related impacts. The US has preferred a market-driven approach towards reporting and disclosures, while Europe has created a taxonomy with guidance on what specifically is an environmentally sustainable activity. The differing approaches toward regulations and frameworks result in fragmentation and uncertainty for financial markets. Industry experts are urging more collaboration, and the use of a common language to support the financial industry in disclosing climate-related information.

A recent report called ‘Forging the path to international standards in sustainable finance’ explores these issues in detail. The mentioned report will launch at a virtual roundtable with financial industry leaders examining the alignment of international markets and sustainability standards.

Back in 2015, the Financial Stability Boards created the Task Force on Climate-related Financial Disclosures, providing a framework for businesses to disclose climate-related risks and opportunities. The TCFD measures have become mandatory in certain areas, and many plan to follow a similar path.

Pedro Guazo, a representative of the UN Joint Staff Pension Fund, is addressing the challenges and risks created by climate change in its investment activities. Guazo explains that the fund wants to ensure its stakeholders have complete transparency in the processes, scenarios and metrics used to integrate climate-related risks and opportunities into their investment process.

Adam Banai, executive director of the Magya Nemzeti Bank of Hungary, one of the first central banks to publish a TCFD report, emphasises the important role central banks play in encouraging the adoption of TCFD recommendations. Banai admits that financial markets in his region aren’t ready to shift towards a more sustainable way of working and believes the bank must lead the way in delivering the support and guidance needed to improve this transition.

Banaii believes that a key reason why markets aren’t willing to integrate environmental, social and governance factors into investment decisions is because of data. Data has posed the main challenge when compiling reports, especially in finance and the scope of business portfolios. The more complex and varied a portfolio, the more difficult it is to find relevant and comparable data from other businesses.
While this is difficult for larger businesses, it is even more challenging for smaller enterprises that usually lack access to resources to collect and measure data. Banai believes that with time more financial organisations will collect and share data because continued rising demand will lead to more data production and collection.

The TCFD focuses on standardising approaches toward climate-related financial reporting. The more areas that adopt its recommendations and more businesses producing TCFD reports, the more realistic it will become that we can reach net-zero. However, until relevant data becomes more available and accessible, the challenges to adopting TCFD on a large scale will continue.

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