Monetary and Banking Research Institute
Date:2/17/2020 11:36:16 AM   |   Code : 334682   |   View: 56

Breaking the Bureaucratic Barrier; the Most Important Challenge of Open Architecture

The CEO of Ertebat Farda Company emphasized that the most important challenge for decentralized banking and open architecture in the banking system is to break the bureaucratic barrier.

According to the Public Relations of the Monetary and Banking Research Institute, Hamed Ghanadpour in an interview with the News Agency of the 9th Annual Conference on Electronic Banking and Payment Systems, on the status of new technologies such as Blockchain, Artificial Intelligence, Metadata, Cloud Computing, etc. in Digital Transformation said: Importantly, digital transformation has 2 points; the first is to create new customer experience, and the other is to transform business patterns.

"New technologies are underpinning the shift to digital transformation," he said. "Blockchain, artificial intelligence and other technologies, in general, can be the foundation of change, and they are the driving force behind digital transformation, but digital transformation does not necessarily mean having these technologies."

According to the e-banking expert, “The value chain in the financial industry and banking system has matured and stabilized over the past few years; banks and institutions have begun to provide services. Despite the serious changes in the financial business environment, the traditional structures in this business are breaking down.”

The CEO of Ertebat Farda company cited the aftermath of the digital transformation as affecting the entire financial ecosystem, including customers, regulators, and financial institutions, and said that fundamental changes in the financial ecosystem are also the result of the inevitable push of digital technologies and the pull of customer demand as a driving factors of innovation.

Concerning the cost savings of banks using modern technologies in digital transformation, Ghanadpour said: The traditional structure does not allow banks to invest directly in new technologies. At the moment, trends are shifting towards platforms, and banks should not go directly into owning these technologies.

He explained that it is not reasonable for banks to invest directly in Blockchain or other new technologies, but that they should move to launch platforms that work in the technology domain and that they will only do banking.

"Open architecture has opportunities and challenges, and new models of revenue generation and distribution will be developed using it," said the e-banking expert on the agility of bank structure using open architecture and decentralized banking.

"With the open architecture, secure channels must be created to connect to customer systems and protect their privacy, which are challenging issues. On the other hand, comprehensive models of governance need to be developed and the responsibilities and obligations of banks and third parties must be clarified," said Managing Director of Ertebat Farda.

"One of the most important challenges for decentralized banking and open architecture is to break down bureaucratic rules and cultural issues because they create resistance to change," he said.

Ghanadpour described the implementation of open architecture as a factor for the agility of banks and added: "Basically, with open architecture implementation, some of the services that were previously provided within the branch would be performed by a third party. Decentralized banking and open architecture mean exactly that not everything happens within the bank branch and structure, and this automatically cuts costs and builds networks."

"With the open architecture, third parties are involved in the process of providing financial services and banks are doing banking on their own," he said. "With the open architecture, customers will have even less access to banks' software and services. Part of the service is transferred to a third party. It will ultimately lead to lower costs and increased profitability for banks."

On how far banks can trust third parties and provide their Open APIs, Ghanadpour said: "We in Iran should not invent from scratch; the world has acceptable standards in this regard, and we can benefit from these standards. They are working on open architecture and open banking around the world, practically pushing the PSD2 and answering many of the existing questions."

Ghanadpour said that in Iran, banks do not understand the language of Fintechs and that the existing platforms can be a translator or, better yet, an excellent interface for transferring concepts between them.

Only one of the target audience for open banking are Fintechs, and its scope covers almost all businesses, and many traditional businesses even require banks' Open APIs.

"Open banking helps Fintechs to grow faster, but now our experience shows that the amount of service that Open Banking offers to non-Fintech businesses is far more than the service it provides to Fintech businesses because it has more general target audiences," he said.

Managing Director of Ertebat Farda called the most critical challenge of implementing open architecture in Iran are bureaucratic, cultural and totalitarian issues and explained: There is a way of thinking from both banks and businesses that prevent the rapid development of open banking. Of course, some banks are leading the way.

"Despite widespread changes in the banking network space, totalitarianism remains one of the most serious open banking nuisances, and mental models need to be changed to address this challenge," the e-banking expert said.

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