It’s about time to define an Open Banking Strategy
Blog: Johanna Andersén
In autumn 2017, Deloitte conducted a survey regarding PSD2 in the EMEA region. We received responses from some 70 companies in 18 countries, 89 % of which were banks. All the major European banks were represented in the survey.
The key results are presented below:
1. Most felt that PSD2 mainly presents an opportunity. More specifically, opportunities were seen in business growth, as a catalyst for developing the technological environment and in better utilization of information. Just 4% of the respondents felt that PSD2 only poses a threat.
2. The majority of the respondents still focus on fulfilling the requirements. Whereas almost all indicated willingness to take advantage of the opportunities created by PSD2, only 25% of the respondents stated that they had strategic plans in place.
3. Most respondents believe that they will fulfil the requirements by January. At the same time, they believe that the main impact of the changes caused by PSD2 will not be felt until 1–3 years from now. Note: The Technical Standards (RTS) were released after the Deloitte study and now we all know that there is time to implement until September 2019.
4. The greatest concerns among the respondents are related to inadequate instructions regarding programming interfaces and user identification, liability towards third parties and the ability to create a positive user experience. Note: there is now more guidance to this due to the published standards but the long implementation period will be cumbersome.
Banks have great variety on their approaches to PSD2. None of them treat it as purely a regulatory topic. A few leading banks have taken bold moves towards Open Banking, of which PSD2 only creates the first step for. The purpose of PSD2 has been to increase competition and to force banks to open up their monopolistic positions. Open Banking means going further down this road than PSD2 dictates. These banks are already enabling other service providers to use their core systems and data through APIs – payments, accounts, mortgages, corporate services, data and loans to start with. And they are gathering active developer communities around their platforms just like Apple etc. have done.
Surprisingly many banks state that their strategy is to be ”a fast follower”: to observe the market and to react when something major happens. This is understandable, as PSD2 is hardly the only or an independent factor driving change. Artificial intelligence, DLT, new players, real-time payments, and the new expectations and roles of customers and employees are all simultaneously shaping the banks’ environment. The key issue is to understand the empowerment of customers and embracing it in operational renewal. However, it is hard to understand what to follow in this respect as customer behavior and Open Banking can lead anywhere and reacting will be nearly impossible. And creating a developer community takes time and effort.
According to the Deloitte survey, banks see that one option is to provide everyone services that are now only offered to the few and select, such as corporate services and asset management. Banks also believe that PSD2 will increase demand for consumer credit while improving banks’ methods to assess credit risks. Therefore, some Nordic banks have decided to steer away from universal banking: they have chosen the services to focus on and will offer other services in collaboration with others.
Many banks consider that payment services are still important for the customer experience and as a key source of earnings and want to contribute to the creation of new payment methods both collaboratively and independently. The customer’s role is changing profoundly, and I believe that we will soon see large corporations requesting their banks to pay for the privilege of managing their payment transactions. For banks, the transaction streams will soon be more valuable than gold or bitcoin, as they open up opportunities to build new services based on data. BBVA has already opened an API interface for aggregated data for card payments. In the meantime, one can only speculate how a merchant could make use of this data to develop its own services, location, pricing and offering.
So the original purpose of PSD2 is taking shape: banks are opening up and there are more players in the field. Although instead of fierce competition we are seeing more cooperation. And that is not bad at all. Also banks that have historically looked and felt identical, are starting to take different shapes. It is clear that in the aftermath of this storm, the offering and earnings models will be different from today – regardless of whether the services are offered by a bank, merchant or some other party. Hence it is high time to define Open Banking / PSD2 strategy. How will you grab the opportunity?