Open Banking: The perfect storm to shake up banking as we know it.
It’s maybe the first time in history where an industry is being forced to open up without the possibility to have an agreement with its counterpart. And even though the PSD2 is leading to the biggest technological innovation in retail banking since the Internet — it’s only one piece of a giant puzzle.
A wise man called it a game-changing cocktail, and I couldn’t agree more. If PSD2 was a “stand alone” it probably wouldn’t change much. But at the same time we see many new players entering the market, and solutions for mobile payments and instant payments are popping up all over the world. And then we have The General Data Protection Regulation (GDPR) which tells us that customers now fully own their own data. These are all pieces of the Open Banking puzzle.
Will the funny acronyms level the playing field?
XS2A (an acronym for Access to Accounts, which gives a whopping hit on Google) is about the rights to access account information and the initiation of payments by third parties (TPPs). This changes the landscape so that we can access our accounts not only via the channels the banks offer — mobile, netbanks or file transfer — but also using new services created by third parties.
This is a great thing. I don’t necessarily have to rely on the services offered by banks, but I get to pick and choose whatever suits me the best. When shopping online I can pick the payment method that I prefer. And I can download one of the brilliant budget apps that will give me an easy overview and that can be my personal finance advisor.
These services are of course already out there in the market, and I expect many more to come.
But the new thing is that now these services and the providers of them will be regulated. Now you might think that regulation is a boring thing. But on the contrary, regulation is very much needed to make payments secure and to protect customers. I don’t want just anyone to be able to see all of my sensitive data that is stored in my bank. And I definitely don’t want my money to end up in another person’s account (unless I purposely made a transfer to it).
The word “Open” means “as open as I like”. It does not mean complete uncontrolled access to everything and anything! We can’t sacrifice our security and protection to open up for innovation — we need to find a way to do both.
And then came the RTS…
The European Banking Authority (EBA) recently published the final draft Regulatory Technical Standards (RTS) on strong customer authentication (SCA) and common and secure communication (CSC) as a part of their mandate under the PSD2 (Gah, even more 3-letter acronyms to keep track of).
The draft RTS from EBA was heavily debated from the very beginning, but what is the fuss all about? Well, I guess it’s mostly because the TPPs will not be allowed to continue screen scraping, as it is not considered a secure procedure. It’s now up to the bank to define the interfaces to be used by TPPs when accessing the accounts. This means the TPPs will depend on the banks to provide something useful, that will not limit the usage and that will make it possible for the TPPs to continue to create new innovative services to the customer. If this interface doesn’t provide the necessary features, then the TPPs will have a hard time continuing their business.
Of course, this might be the case if banks would put up a fight. But why would they? It’s not about competition, it’s about collaboration. We all need to work together to create the best services for the customers.
In the end, it’s all about the customer. Happy customer, happy life — Right?
Opportunity knocks and we should open the door
I see this as a great opportunity, as it will create competition and boost innovation. And I’m sure most bankers agree with me. It will turn the channel thinking upside down, for sure. But banks should not protect their channels and try to be the only ones providing innovation. A well-managed open banking interface will open the usage of wider brainpower for the good of the customer.
As customers and users we are increasingly demanding new and innovative services, to use 24/7 and in real-time. This indicates that there is a need to make the most of the joint innovation power of Fintech and more traditional financial industry players.
I look forward to new partnerships and, as the banker I am, to collaborate with others to create amazing customer value.
Heck, at the end of the day I’m a customer myself and I look forward to get some amazing apps — regardless of who makes them.
Who do you think will be the winner in Open Banking; is it Banks, is it Fintechs? I’ll bet my money on the customers.
A “perfect storm” is an expression that describes an event where a rare combination of circumstances will aggravate a situation drastically.
About the author:
I am a Senior Business Developer working in nordeaopenbanking.com. I have been working in the payments industry for 20 years, was an early adopter of mobile payments in general and initiated the very first Swish payment in Sweden, but I am probably considered a late laggard compared to the millennials.