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Open Banking - A new era beckons
17 Oct, 2017 | Shishir Vyas
Open Banking and PSD2 regulations are the foretellers of a new era in banking
We have just passed the Autumn Equinox this year (22nd September) - the leaves are changing colour, the mornings are much cooler with the mercury dipping into single digits, and we are well on our way to the last quarter of the year.
What that also means, is that we are just a few months away from 2018, which is whenPayment Services Directive (PSD2) regulations are introduced across markets in Europe, and also the largest nine banks in the UK are required by the Competition and Markets Authority (CMA) to develop and adopt Open Banking API (Application Programming Interface) standards to allow sharing of customers’ current account data (with their consent) in a safe and secure manner, with other providers and third parties.
These are big changes to the banking regulation regime, and they are together set to shape the future of the banking industry, or redefine banking itself.
“CIO environments all over Europe will be heavily affected by
these new regulations. CIOs who can and want to move quickly
could use these regulatory changes as an opportunity to accelerate open banking and digitization" - Deloitte
“Making it possible to share data that banks have historically held will improve people’s banking experience..… Customers can look for a mortgage more easily, banks can find customers matched to a new product, and businesses can share data with their accountants” - The Open Banking Standard
The most significant impact of these directives will be to encourage new market participants to build better services for customers, and deliver the same in an efficient and cost-effective manner. Customers are the obvious beneficiaries here, and FinTech innovators stand to gain as well, from this enhanced access to the banking sector.
What about the banks themselves - how are they going to be impacted, and how do they respond to the increased competition? Since the banking industry, as we know it, is under
threat from these changes, they could well be expected to resist the change.
“No bank is going to just roll-over and give away their core asset: the customer; and by giving away the customer’s data, they might as well be doing that” says Chris Skinner, as he cites an article from The Financial Times that highlights how banks are lobbying regulators for tighter privacy and data protection rules for FinTechs. This adversarial approach looks at FinTechs as the enemy.
On the other hand, there are several leading banks that have embraced these changes and established well defined programs, offering APIs and support to partners - recognising the value of collaboration with new players, to achieve new goals. Spain based BBVA is a good example - they have been leading the way by exposing a range of APIs to approved developers and partners. “Their APIs include, Customer profile data, key account data, money transfer services, and aggregated card purchase data”
Mario Pardo, Head of Client Solutions, BBVA reiterated his support for the “democratisation of innovation” while he was in London recently (early September) at the the finals of the 2017 BBVA Open Talent FinTech for Companies competition.
Neil Ambikar, CEO of B2BPay (winner at the abovementioned competition) is a firm believer and strong proponent of the win-win potential of partnerships between banks and FinTech companies.
“We use existing banking infrastructure to solve serious problems like reconciliation, cash management and pooling accounts” - B2BPay
As mentioned previously, with just a few months to go for these regulation-driven changes to come into effect, there is a fair amount of speculation and debate on the outcomes and impact on the banking industry. One discussion that I’m looking forward to, is the wellorganised and highly-regarded Live Debate conducted by The Digital Banking Club, with the topic “Open Banking: Is it really going to breathe new life into the banking model”. The debate panel has a promising lineup, with representation from across the spectrum of Challenger Banks and leading incumbent players. This would be a good one to watch!
I believe that Open Banking and PSD2 regulations are the foretellers of a new era in banking - banks that are willing to relook at their business strategy and then able to establish new partnerships, to best meet the needs of customers, will thrive. On the other hand, banks that choose to ignore the opportunity presented by the regulation, or (worse) try to fight / resist the changes, would merely lay themselves open to be picked apart by their much more nimble opposition.
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