FinTech Futures - Open Banking

Opinion piece by Tine Holvoet, Senior Research Associate at Vlerick Business School

Improving payment services is more than launching a new app. Let’s discuss the less sexy side of payment innovation, being infrastructure change and payment policy. PSD2 is the legal framework for innovative payment services. You could hardly call it a buzzword, nevertheless it is everybody’s cup of tea in anticipation of 13 January 2018. That day, the revised payment directive becomes applicable. The European Commission’s main effort to strike a fair balance to support innovation, ensure fair competition, enhance security of payments and increase consumer protection.

PSD2 could be wrongly understood as a way to force banks to offer data access through open API’s to any third party with a trusted licence. As influencer Chris Skinner states in the Finanser: “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.” Still, PSD2 is a clear invitation to plug-and-play. The European Commission is working to create an efficient and integrated market for payment services in the EU and PSD2 is an important step towards that Digital Single Market.

Silvia KersemakersThe revised Payment Services Directive promises to deliver the best outcomes for both customers and the industry, and we all realise that policy innovation involves very different parties. “Regulation and financial innovation: not each other’s enemy” stresses Silvia Kersemakers (European Commission, DG FISMA), expert in large-scale projects on secure information exchange across the European Union. She has been closely involved in the preparation of the Commission proposal for PSD2 and the negotiations on the final text which was adopted end 2015. Currently, she is working on the so-called Level 2 measures which are being developed by the European Banking Authority under PSD2 in the area of payment security and supervision, for endorsement by the European Commission. She is literally bridging between the letter of law, and the right interpretation of the policy.

Maarten VerbovenWhen asking during the latest Fintech Futures event which banker likes PSD2, only one man raised his hand. Maarten Verboven (Head of Product & Channel Management at Hello bank!) is enthusiastic: “Banks have an excellent position to explore new markets!” Recently rewarded for the launch of the first online mortgage in Belgium, he stresses the difference between developing another app and the aim to make buying a home simple and transparent. He sees open banking as a means to offer innovative products and services to a young and dynamic community in the most seamless way possible. Central in Maarten’s talk is the concept of the user journey and the integrated services along the entire value chain.

Lars MarkullListening to Lars Markull (API evangelist at figo), I wish I was a Berliner. Or at least I wish I was at the forefront of API Banking, building on the German XS2A infrastructure. In Belgium it’s a long lost memory, but in Germany and Austria people can still buy local, choosing from over 3,200 financial organisations. No surprise that account switching services are already the norm. Fintechs like figo have already been dealing with multibanking and account aggregation for years now. No wonder that Lars is optimistic about PSD2 as “the one missing link for banking as a platform”. His main advice for success in a changing landscape is “to understand fintech not just as a technology, but as a culture or mindset”. In his story the cosmopolitan consumer is key, touching upon the most avoided topic within payment innovation, being what to expect from the customer?

The user is promised an advantage in cost reduction and improved product quality, but this advantage is mirrored against a buzzing misuse of data. For the time being, the potential information asymmetries are not yet tangible. Silence is loud regarding the estimated skills of all users to manage their own data. The EBA flags risks for consumers, mostly in the shape of information asymmetries, data misuse and data security. What if consumers may simply not understand the information on how their data may be used, and keep on ticking empty boxes?

Meaghan JohnsonA clear value chain framework can define the users and processes in the payments and cards ecosystems. Such a framework could better map who is impacted by this particular innovation. When skimming the value chain, at the heart of things, “banks are where people safely deposit savings,” says Meaghan Johnson (Director of Research at 11:FS). Building on the art of saying no, she continues, “banks need to be good at three things”: looking after money, facilitating payments and lending money.

At the heart of the average consumer? Probably not protecting data, cost reduction and improved product quality.

To conclude, we had the right people in the room, as no less than 210 banking professionals  answered “yes we can” in an effort to unlock the advantages of open banking. Fintech Futures proved its urgency, as the event on Wednesday 15 February 2017 was fully booked in only a couple of hours.

Looking for an update on today’s challenges in financial services? With FinTech Futures we share new, independent and impactful views on technology, regulation and user experience. Experience future scenarios first hand, get a grip on today’s buzzwords, participate in our fintech network! Contact [email protected] or @TechTine. 

Tine Holvoet holds a track record of multidisciplinary collaborations. She recently shifted her focus towards innovation and disruption in the global financial services sector. Not exactly being the typical finance girl, she is exploring new formats for knowledge sharing and experience exchange on finance. Together with Prof Bjorn Cumps she has set up FinTech Futures, a format to share new, independent and impactful views on technology, regulation & user experience.

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