SPONSORED CONTENT PRESENTED BY FINASTRA
By Christopher Papathanassi
It is a common problem for financial institutions. Consumers demand an increasingly flexible and streamlined lending environment, but banks are challenged to find the right capabilities and solutions to deliver on these expectations.
On the one hand, many large core providers inhibit innovation, offering a standard fare of products that fail to meet best-in-class standards. On the other, even partnering with some innovative fintechs on new capabilities can be a lengthy proposition, leaving banks behind the curve of customer demand.
In this environment, open APIs are creating product ecosystems where financial institutions can quickly and easily add new products and services to meet consumer demands as they evolve. Platforms like FusionFabric.Cloud create an open and collaborative marketplace for financial institutions.
Understanding How Market Challenges Are Driving the Need for Change
A look through history reveals that each major financial downturn, from the Great Depression through the global financial crisis, has shaped the direction of the industry. Likewise, the economic impacts of the COVID-19 pandemic have exerted an undeniable force across banking, accelerating the need for digitization and increased efficiency in lending.
Initiatives such as the Paycheck Protection Program in the U.S. were designed to shore up failing businesses by providing critical access to funding during trying economic times. According to the Small Business Administration, 5.2 million borrowers benefitted from the program in 2020.[i]
The rollout, however, was not without its challenges. Banks and credit unions found it difficult to keep pace with the high number of applications, and many businesses were initially shut out of the program as funding dried up before applications could be processed.
As the financial impacts of the COVID-19 pandemic linger, lenders are bracing for the impact of continued commercial and consumer demand as well as a rising number of defaults. To avoid unnecessary risk and ensure lending stability, banks are tightening portfolio and risk management.
Another area driving change across the industry is the current low-profitability environment. The top six U.S. banks saw profits fall from 32 to 95 percent over the course of 2020,[ii] but low earnings weren’t confined solely to the larger players. According to KPMG, most financial institutions will need double-digit cost reductions in 2021 to offset the severity of losses.[iii]
As a result, reducing costs becomes as important as acquiring and retaining profitable customers, all factors which can be augmented with the right digital solutions.
All in all, corporate banking is facing a period of radical change. Finastra’s research report focuses on the findings from respondents in corporate lending about the strategic roadmap and shift towards platforms, driving digital transformation and more. Download it here.
Open APIs Create an Open Ecosystem
In the current environment, financial institutions need not only cutting-edge innovation, but rapid access to the necessary products and capabilities. This is where open APIs come into play.
Open APIs are platform-based, inviting innovation and enabling an ecosystem of products and services. In this world, financial institutions can easily adopt a wide range of capabilities, including end-to-end origination, without making significant changes to internal systems or architecture.
Finastra’s FusionFabric.cloud, for example, is an open banking platform. By unlocking our core applications to fintech, system integrators, universities and financial institutions, we allow them to integrate their own apps with the Finastra ecosystem of products or to develop new ones on top of our cores. The result is faster time to market for financial institutions and a more future-ready enterprise.
Since adopting products within the ecosystem is fast and simple, banks are prepared to meet evolving customer preferences by easily unplugging from products that no longer meet the needs of customers or members, and then easily replacing them with newer innovations.
Beyond creating a more customercentric environment, open ecosystems also support financial institution goals when it comes to portfolio and risk management. Open APIs offer two-way data flow, aggregating both consumer and bank data which is then available to financial institutions.
Banks gain insights that can be used to realign credit portfolios and standards as well as a deeper view into consumer behavior. These in-depth insights can be used to drive more targeted marketing, acquisition and retention efforts.
Open ecosystems are particularly applicable to the current low-profitability environment, providing financial institutions with a cost-effective means of meeting consumer demand while taking advantage of digital efficiencies to streamline operations. Since open ecosystems offer a store of pre-built apps, banks and credit unions also save on development costs. More importantly, financial institutions have the power to expand revenue streams by offering more products and services to consumers.
Ecosystems allow financial institutions to extend beyond core banking products, meeting customer and member needs across a wide variety of related offerings. A recent study indicates that seventy-four percent of consumers are using more than one banking app to gain access to the number of services they need to manage their finances.[iv] Through an open-ecosystem, banks and credit unions can provide more of these services, gaining the associated revenue as well as future customer wallet share.
In a low-profitability environment where consumer preferences change rapidly, an open ecosystem provides financial institutions with options and the ability to rapidly scale to meet evolving needs.
Learn more about the everchanging corporate lending market and the journey to 2025 in Finastra’s research report. Download it here.
[i] Stacy Cowley and Ella Koeze. “1 Percent of P.P.P. Borrowers Got Over One-Quarter of the Loan Money.” The New York Times, Dec. 2, 2020. Web.
[ii] Elizabeth Dilts Marshall, et al. “U.S. Banks Say Cost Cuts Mostly out of Sight During Coronavirus.” Reuters, Apr. 17, 2020. Web.
[iii] “Banks Overcome Pressing Cost Challenges to Be Fit for the Future.” KPMG. Retrieved from https://home.kpmg/xx/en/home/insights/2020/07/banks-look-to-overcome-pressing-cost-challenges.html.
[iv] Yogesh Joshi. “Consumer Survey Puts Three Digital Banking Theories to the Test.” The Financial Brand, Dec. 15, 2020. Web.
As Global Solution Lead for Lending at Finastra, Christopher Papathanassi is responsible for the overall line of business within the field, and works cross functionally to provide support with deal execution, validation and execution of go to market activity, product strategy and bringing thought leadership to the market. With over 14 years in the industry, he is an experienced commercial lending specialist. Prior to his current role he worked on the bank side where he held a variety of roles within lending, both on the business and change management side. He holds a bachelor’s degree in business management from Bournemouth University.