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Open API is Just the Beginning...

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26 April 2018
Eiichiro Yanagawa

The Japanese banking industry has long pursued an integral model or vertically integrated model of business. The majority of financial product services are created and sold in-house. Even highly specialized product services procured externally center on the product services of group-affiliated companies and keiretsu companies’ product services.

Celent believes that a turning point is coming - one in which the flow of product services will exceed the limits of vertical integration, and a shift to modular models (horizontal and vertical divisions of labor) will occur. The low-interest financial environment is transforming banks into companies that compete by marketing financial products, selling a vast array of products such as investment trusts, insurance, trusts, and real estate-related loans. Banking channels in their capacity as reliable aggregators are expected to offer advisory services related to financial services in general. A decoupling or split of the creation of and sales of financial product services is already afoot.

Advisory business operations as an aggregator of financial services and the creation of and sale of financial products have already been partly unbundled and are in the midst of a shift to a more modular model (horizontal and vertical division of labor). In addition, human resources and organizations are also making the requisite changes to their possessed expertise. Nevertheless, the core business and fundamental operations are unable to change. Why? This is because business and IT architecture are resisting evolution and change. The Japanese banking industry experienced one-sided, unbalanced and shared, common core systems, but it has yet to experience unbundling.

It might seem as though vertical division of labor and horizontal disintegration have already proliferated enough.

New financial service providers that are not the traditional financial institution are deftly using new technologies to engage customers, and with products and services, across financial infrastructure segments to secure a new customer base, and, in the process of doing so, forming a new community around these activities.

In the competitive environment of the new financial services industry, opportunities for traditional financial product service operators will erode as TPPs (distributors and new service providers) deprive them of opportunities to engage in dialogue with customers.

That involves more than the temporary deterioration of the revenue environment for traditional financial institutions, but rather also includes the risk of losing future business opportunities due to changing customer needs and loss of core customers

The open banking market will move toward an era of co-creation and competition for the seamless provision of goods and services. For new financial service providers, as competing individual companies in innovation it will be difficult to cover all financial products and services.

In the areas that new business operators are not eager to eager, namely the sectors in which just there is already a robust the selection of conventional products and services, and because under the current regulatory framework the account and customer information fundamental to transactions upon which customer instructions are based can only be executed/accessed through traditional business operators’ authentication and APIs, this all means that it is too early to count out incumbents and their existence can’t be ignored.

However, at the same, the fight centering around the UI for users, that is, the fight over mobile apps will only continue to intensify. Customers can access all account information from mobile apps, selecting the most appealing product and service offerings from a wide range of options, and completing the transaction with one click. In today's digital and hyper-competitive environment where customer experiences are shared nearly instantaneously through SNS (in particular, negative comments) the financial product services sector will presumably no longer be afforded special treatment or insulated from these digital realities.

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