Financial experts regard open banking as a game changer for the sector

Vlerick Business School’s framework provides a basis for choosing a position

The European regulations on open banking, which will enter into force on 14 September, will not cause any big bang on the Belgian financial market. Customers must first become aware of the many benefits that open banking has to offer. What is more, the law is limited to current accounts and payments. What is certain, however, is that open banking can drastically reconfigure the landscape of the financial sector. There are already indications that the hitherto relatively closed banks with a dominant market position are beginning to transform into open ecosystem players that embrace digital innovation.

This is shown in a survey conducted by Vlerick Business School among various experts in the Belgian financial sector and elsewhere, specifically banks, insurers, bigtech, fintech, consultants, and the regulator. Based on this survey, Professors Steve Muylle and Bjorn Cumps worked with the postdoctoral researcher Willem Standaert to come up with a framework that maps out the strategic dimensions of open banking and helps market participants to set a strategic course. Their findings were compiled in the white paper ‘Open Banking: Opening the Gates’.

Download the white paper 'Open Banking: Opening the Gates'

Regulation, market and technology are the driving forces

14 September is D-Day for banks to get in line with the technical specifications that should allow bigtech or fintech players as well as those from other sectors to exchange financial data or make electronic payments securely. This is the final part of the Payment Service Directive 2 (PSD2), which stipulates that banks must open to third parties who need bank details to offer their services to consumers. With this legislation, the European Commission’s wants to stimulate competition by allowing non-banks to enter the financial services market.

It is not only the legislation that accelerates open banking. The market has changed as well. Willem Standaert: “To begin with, the experts mainly see benefits for corporate clients. They often have accounts with multiple banks and may also benefit from efficient integration with other applications via open banking. Awareness among retail customers still needs to grow.”
As for providers, the experts predict that bigtech players will pose the greatest threat. “Although fintech start-ups have a faster decision-making process and more room to experiment with technology than the banks, bigtech companies have a lot of technical expertise and a large user base.

Finally, technology also plays a key role. More and more digital technologies are available, which, in combination, lead to digital innovation. Bjorn Cumps: “Bigtech and fintech players are the main driving forces behind digital innovation. The most important technology to enable open banking is the Application Programming Interface (API). An API determines the communication flows and data exchange between two programs. In this way, third parties can access account details or make payments on their customers’ behalf.”

Strategic framework for open banking

Steve Muylle: “Until now, digital banking was often limited to online and mobile banking applications, in addition to physical branch offices. That means that banks offer banking products via their own closed multi-channel ecosystem. Open banking, however, opens up the door on three fronts, namely products, customers and ecosystems. If banks want to remain relevant, they need to transform. But how should they do that? Our new framework maps out the strategic dimensions of open banking. On each front, three levels of openness can be combined. Finally, access to data and geographical range also play a role.”

1/ Reinventing products
  • Offering third-party banking products (e.g. aggregating different current accounts at different banks).
  • Offering third-party financial products in addition to a company’s own range (e.g. insurance products).
  • Offering non-financial services (e.g. selling public transport tickets via a mobile banking app).
2/ Based on the customer’s experience and needs
  • Bank-centric: for needs such as saving or investing, the bank is the customer’s logical first point of contact. The bank can meet these needs with its own products via its own channels.
  • Bank-customer-centric: the bank needs other players and products to meet the customer’s needs in their customer journey (e.g. purchase of a house). The experts mainly see opportunities in the areas of property, personal financial management, health, and entrepreneurship.
  • Customer-centric: financial services (e.g. payment and transaction services) are only a limited part of the customer journey. For example, a customer booking a trip may also need travel insurance. Offering an integrated customer-centric service can play a key role in setting oneself apart from the competition.
3/ Competition at ecosystem level

A bank’s own channels are not enough to offer the customer a total experience. Cooperation across sectors is possible in two directions:

  • Banking-as-a-Service: the bank is part of the customer journey at a third-party business
  • Banking-as-a-Platform: the bank opens itself up as a platform for third parties
  • General Purpose Platform: the bank also offers a platform for non-financial services

Steve Muylle concludes: “Finally, we must not forget the influence data and geographic location has on this new, open view of products, customers and ecosystems. Whereas banks used to have exclusive rights to data concerning their products, customers and channels, they now have to share them or are dependent on third parties. That means banks must also ensure that they maintain a relationship of trust with their customers. Furthermore, the experts believe that knowledge of the local market and cultural differences remains crucial. When the extension of services or applications doesn’t get off the ground, this often has to do with geographical differences.”

Discover our expertise in financial services

Want to know more on what we can offer you on financial services? Because the financial services industry is multi-faceted, our Vlerick Centre for Financial Services adopts a broad approach. We connect closely with different industry players – from banking to insurance and market infrastructure – and cover a broad range of management domains – from financial management and regulatory compliance to business and operations management and FinTech. 

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