Open banking is happening all over the world, mandated or not. Customers have high expectations of being able to access relevant products and services easily in all areas of their life and that now extends to banking. Open APIs meanwhile have allowed for an ecosystem approach making it easy to bolt on additional offerings to a bank’s core platform. Sharing data to make this happen for customers makes sense in terms of attracting and retaining customers through a value-added proposition. Switzerland is no different – its wealth management sector is the most important pillar within the finance industry and so the challenge is how best to move to an open finance model in a way that best suits this sector.
Innovation is thus key
In Switzerland, there is no obligation for banks to share customer data with third-party providers. Automated access to interfaces is at the discretion of the bank concerned. Accordingly, there is currently no regulatory requirement for licensing and authorization of third-party.
This means that banks are free to decide for themselves who they work with and who is allowed access to their interfaces and the data. This ensures that the collaboration between bank and third-party provider is based on market forces and specific use cases that add value for customers. providers to simplify or replace the prior audit of third-party providers.
Richard Hess, Head of Digitalization at the Swiss Bankers’ Association (SBA) comments: “Market actors have recognized the opportunities that arise out of a broader adoption of open finance – innovation, automation and efficiency gains and cross-organizational business processes and data exchange being among the major reasons. For banks, collaboration with third-party providers by means of standardized interfaces boosts efficiency and generates new potential sources of revenue. Open finance makes it possible to improve the customer experience as a result of seamless transitioning between different offerings. Data sharing also enables banks to access third party data and use them to offer innovative products.”
And Sven Siat, Head Connectivity at SIX Banking Services adds: “The key element that we are all agreed on are standardization of APIs. We need to make standards usable and decide on a set of minimum requirements for third-parties so that we can have confidence in networks of open APIs. We also need to be able to carry out due diligence- again to make sure we are keeping things secure. Contractual terms are also an area for attention. What should the rules be around data privacy, for example? The idea is that by coming to industry agreement we avoid bilateral agreements that soon spiral out of control and are hard to manage.”
The SBA and Swiss Fintech Innovations (SFTI) have worked with all the relevant financial centre stakeholders to agree on the roles (see here) each will play in future cooperation on open finance, particularly in terms of API standardization.
SFTI is acting as a central forum, drawing up the necessary business and technical principles and recommendations for open finance in Switzerland in conjunction with the leading national and international stakeholder groups and partner organizations. Its working group is broad-based.
An early success story is the OpenWealth platform. Its purpose is to define, distribute and then implement common standards and thus create an ecosystem. Its open API standard for the wealth management community has started with portfolio and transactional data, as well private client compliance data shared between portfolio management systems and banks. Currently, there are openly available APIs for payments, mortgages and wealth. Others are coming for KYC and cards., bringing together representatives of banks and insurers as well as fintech and technology firms.
An early success story is the OpenWealth platform. Its purpose is to define, distribute and then implement common standards and thus create an ecosystem. Its open API standard for the wealth management community has started with portfolio and transactional data, as well private client compliance data shared between portfolio management systems and banks. Currently, there are openly available APIs for payments, mortgages and wealth. Others are coming for KYC and cards.
Hess describes the environment as dynamic. “By having standards, we enable a ‘plug-and-play’ approach among the market participants regarding an easy, seamless and secure data exchange. That way we get a market where banks can cooperate with third-party providers and easily and securely exchange data (with the consent of the customers) in many different domains, e.g., payments, wealth, mortgages, pensions.”
Take-up
Siat says that the success of current innovations will grow and more case uses are identified. “If we can prove conclusively that our standards and platforms work then banks will take confidence from that and work to create ecosystems and therefore be able to attract customers and more assets,” he says.
Hess agrees: “We need appealing use cases that show the vast opportunities of open finance for all participating actors, willingness to invest and to be a first-mover, generally accepted APIs for secure data exchange and finally customer awareness and demand for these new kinds of services. For this, trust in the market participants is the essential foundation to build on.”
Once more established and accepted, the consensus is that the industry will move to more of an open finance model.
Hess explains: “Current developments indicate that we are moving from open banking to open finance. As such, we are moving beyond just access to payments data and services towards access to wealth management data, like position data and transaction data. Open finance has the potential to radically change the way how value is created in the wealth management industry for the benefit of the customer. While the product itself may stay the same, it’s rather ‘how’ these products and services are ‘produced’ along the value chain and who is offering them to the customer at what time along their value chain.”
Siat comments: “We will see quick uptake in the asset manager space where people are used to sharing data and see a trajectory from retail to mass affluent and then finally into the wealth domain. Non-wealth managers will start to embed brokerage into their proposition and then neobanks and cryptobanks too.”
Moving that further along with embedded finance, where finance becomes embedded into everyday products and services, is likely
Siat comments: “Engel & Völkers estate agency has embedded an account and payment capability, for one, and other merchants are aiming to create similar offerings. The wealth management industry will work to extend its reach into products and services likely to be used by potential wealth clients and we will see more and more activity. For example, a supermarket might look to identify affluent customers that buy sustainably and then offer ESG finance to them.”
Having accepted and workable standards and platforms will be a key enabler of open and embedded finance.
Hess says that for third-party providers, such as FinTechs, open finance offers the prospect of launching their products and services with fewer technical and regulatory hurdles. “Cooperation with established financial services providers gives them access to a broad customer base, enabling them to rapidly scale their business model,” he says.
And Siat concludes: “The Swiss industry has made a really good start and the next step is to have the conversation with other players like portfolio managers, asset managers and wealth managers to get this up and running.”
Who are the main players in pushing open banking and open finance in Switzerland and what are they doing?
Swiss Bankers’ Association (SBA):
Assuming a coordinating role in conveying the industry’s concerns towards politicians, authorities and the general public.
Swiss Fintech Innovations (SFTI):
A central forum, drawing up the necessary business and technical principles and recommendations for open finance in Switzerland, in conjunction with the leading national and international stakeholder groups and partner organizations.
OpenWealth Association:
Aims to define, maintain and operationalize the Open API standard for a global wealth management community, in close exchange with SFTI.
Openbankingproject:
Wants to offer professionals working in the financial industry a one-stop-shop with relevant information about application programming interfaces that fintech companies, banks and providers with an operational base in Switzerland are developing and using.
Platforms:
bLink by SIX which is a platform for standardized interfaces (APIs) to financial institutions as well as to software and service providers, Swisscom Open Banking Hub or inventx Open Finance Platform.
This article was part of The Wealth Mosaic's Swiss WealthTech Landscape Report (2021). Access the full report here.
