Amid increased security breaches and financial crime at incumbent banks, security has become a paramount concern for these organizations. However, it’s rapidly becoming clear that banks won’t be able to shore up their defenses until they tackle the vulnerabilities caused by outdated technology.

Ever-evolving financial crime methods are the single biggest concern for UK banks, at 44%, according to a new survey of 168 UK banking members by LexisNexis and the British Banking Association (BBA). At the same time, the study found, 92% of respondents are concerned that their organizations’ legacy technology will become an obstacle to combating financial crime in the next one to two years. This means that only 39% of banks feel ready to protect themselves against criminal threats specific to cybercrime.

Respondents cited specific technological obstacles to fighting financial crime caused by legacy systems:

  • 41% of respondents said they’re worried their legacy systems can’t respond in a timely manner to new forms of financial crime as they arise. This is probably because most banking systems in the UK were installed between 25 and 40 years ago, and are highly inefficient at processing data in real time. In addition, these systems were designed to deal with much smaller data volumes.
  • Moreover, 53% of respondents said they were frustrated by the difficulty of transferring data between their multiple, disconnected systems. This is likely down to the siloed nature of current systems, which segregate data according to specific banking divisions, making it hard to derive a higher-level picture of many factors including the bank’s own risk profile.

An inability to fight financial crime is just one side effect of a more fundamental problem for banks. In a digital economy increasingly centered on data handling, dealing effectively with financial crime means being able to analyze data accurately, and in real time, to garner actionable insights. However, even in the face of such high concern about inadequate financial crime defenses, only a small number of banks have begun the process of replacing their legacy technology with new systems designed for a modern banking environment. Most banks have been deterred due to the expense, duration, and operational risk such overhauls entail. As cybercrime becomes more sophisticated, banks will have to make a call about whether continuity or the security of their systems is a higher priority in the long term.

Open banking is the democratization of access to data previously exclusively owned by legacy financial institutions.

The open banking trend is being driven by a number of factors and will ultimately become the norm. That means retail banks need to rethink their business and operational models if they want to maintain the positions of dominance in the financial ecosystem.

Sarah Kocianski, senior research analyst for BI Intelligence, Business Insider’s premium research service, has compiled a detailed report on open banking that explores the drivers behind open banking in detail, outlines the options for banks as they look to update their business and operational models, and explains the likely potential winners and losers of open banking.

Here are some of the key takeaways from the report:

  • Open banking is most often facilitated by a technology known as Application Program Interfaces (APIs) which have enabled the business models and success of some of the most well known startups of recent times.
  • There are a number of drivers behind the open banking trend, the most obvious of which is regulation that forces banks to give customers access to their data, or enable permissioned third parties to access their data.
  • Banks adopting open banking are taking a number of different approaches, from just taking the necessary steps to comply with regulation, to actively embracing the concept in an effort to maintain their retail banking dominance.
  • Banks are using different models of open banking, including app stores and sandboxes. Which model, or combination of models, a bank adopts depends on its priorities and the drivers it finds most imperative.
  • Open banking will have a significant impact on fintechs. With access to banks’ systems and vast data stores, fintechs will be able to provide more personalized products, while operating with greater autonomy. However, open banking will also increase fintechs’ regulatory and cybersecurity burdens.

 In full, the report:

  • Explains the concept and mechanics of open banking.
  • Outlines the drivers behind its increasing adoption by global retail banks.
  • Highlights the different approaches banks are taking to open banking, and explores the advantages and disadvantages of each.
  • Explores the future of open banking, including its impact on fintechs.

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