Raidiam: The Importance of Digital Ecosystems in Finserv

Today, digital ecosystems provide the foundation from which a whole host of innovations, digital disruption and use cases can occur across the banking, financial services and consulting industries.

Examples of digital ecosystems vary from those established and managed by sector regulators to ensure compliance with mandated requirements, to individual businesses aiming to adopt a platform business model. These businesses drive the distribution of digital services through third parties to maintain a competitive edge in the market.

A digital ecosystem essentially provides a platform to enable a diverse range of benefits for individuals and businesses and unlocks new commercial value for all parties involved.

But how have they become so important today? 

We speak to Barry O’Donohoe, Co-founder and CEO at Raidiam, and one of the key figures involved in the UK’s move to adopt Open Banking, on the importance of the digital ecosystems Open Banking enables today. 

The importance of Open Banking collaboration

For Barry: “The importance of digital ecosystems comes down to not only what they enable, but how they make it happen.

“The secure sharing and use of data is critical to unlocking a range of benefits across sectors, communities and businesses as we transition to a truly digital society and economy that contributes to economic growth and prosperity,” he continues.

“Critical to this is embedding trust from the beginning – which is paramount when it comes to data sharing – and ensuring that all interactions are secure and compliant with the rules and that the consent of the data owner is ensured at all times.”

Indeed, it was PSD2 that brought about this step change in financial services. As Barry notes: “Payments has always been a business built on collaboration but the requirements of this legislation have forced it to a different level. 

“There is suddenly a range of third-party providers (TPPs) who can access banks’ payments infrastructure and customer data sets and seek to offer innovative new products and services. 

“The traditional players in this market have needed to collaborate on how best to enable this in a way that doesn’t open up themselves or their customers to potential fraud and misuse, but at the same time isn’t anti-competitive. 

“A clear example here is how best to negate the need for ‘screen-scraping’ so that a customer is able to provide a TPP with access to their account to execute authorised actions and control how much they can see and do this without needing to disclose confidential login details.”

There are clear benefits to Open Banking collaboration for the economy too. A recent United Nations report has estimated the economic value and return on investment for data ecosystems as 32x; i.e. for every 1 dollar invested, it generates a 32-dollar return.

The return on this is realised through social benefits, environmental benefits and institutional benefits. The report also highlights that, because integrated ecosystems at a national level act as the building blocks of regional and global systems, efforts to develop and strengthen national data systems will further support the creation of robust regional and global data ecosystems.

The report says: “Data ecosystems offer an outstanding opportunity to maximise resource efficiency and impact, enabling decision makers to improve lives and livelihoods by better understanding the world around them and acting in more effective and targeted ways.”

Digital ecosystems: Driving innovation

Notwithstanding the economic benefits, digital ecosystems have been instrumental in changing how consumers access and use their financial data.

“We’ve seen innovations such as niche products for people with particular needs (for example, dementia) as the ability to access, share and use consented data enables such products to be created and operated appropriately to protect the customer from any form of financial abuse,” notes Barry. 

“Another significant innovation we’ve seen in the UK is HMRC becoming the first tax authority in the world to integrate Open Banking into its systems. 

“They now provide the ability to pay a tax bill directly from your bank account with the reference information all pre-populated and securely shared with your account provider – reducing the risk of mistakes and making it a viable, easier and faster way to pay than using a credit or debit card.”

The banking sector as a whole has seen significant investment as a result of PSD2 regulations. 

This modernisation is necessary to future-proof FIs’ digital channel technology and service infrastructure across Web, Mobile and API. Investment in technology has provided customers with more modern digital experiences for managing their financial lives while making the sector more cyber-secure and resilient. 

Modern digital channels have benefited third-party providers by enabling innovative new customer propositions and have also helped banks serve their first-party customers more effectively.

This is why, Barry says, “for an enterprise, the innovations brought about by having a digital ecosystem are multiple and quite frankly, endless”. 

“For example, providing enhanced customer service by making it easier for customers to be onboarded, find and access the services they need from those on offer, and benefit from reduced form-filling. 

“From an internal perspective, enterprises can gain full visibility and management of all their services in one place to increase operational efficiencies and identify cost savings.

"We’re seeing new and exciting use cases spring up all the time, from introducing a simpler and easier house purchase experience to holistic management and access to volunteering and social care services. Digital ecosystems really are the basis of innovation in every walk of life.”

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