30 September 2020
Digital platforms are the new High Streets
Tony McLaughlin, who’s responsible for Emerging Payments & Business development at leading global bank Citi, delivered a wake-up call for banks during Sibos last year, urging them to adapt to the platform world. His clear message was: “Software is eating the world and platforms have the biggest appetite.” A year later, McLaughlin notices that banks are a bit further ahead in terms of compliance, but not enough. “I think the sector needs to adopt APIs much faster.”
In this blog, McLaughlin looks at where traditional financial institutions stand regarding Open Banking and PSD2 and what the next steps should be. “People and businesses are meeting on digital platforms, not on High Streets anymore.”
First of all, are UK banks, with Open Banking, ahead when compared with European banks, with PSD2?
McLaughlin: “From a compliance perspective, I think UK banks are well progressed. However, from a strategic perspective, UK and European banks are in the same boat. The big question is: in this world of digital platforms, how do banks show up? Further than that, there is an enormous need for banks to come together and decide on what kind of APIs the banking industry needs to publish. Platforms are not waiting for 5,000 banks to come up with all kinds of different APIs; we need standardization. And besides that, at the moment we cover two bank services through APIs: payment initiation and account aggregation. Banks should publish APIs for all of their services. This means several dozen APIs, which also covers retail and wholesale banking. I don’t think banks have a good grasp of the chess game. Only through APIs will they be relevant to digital platforms.”
According to you, Open Banking is the first step towards an open data economy, right?
McLaughlin: “A question for society is: do we build on these banking examples and move towards an open data economy? I think Open Banking could be seen as an example of data portability, as a concept of GDPR. All of the power is now in the hands of the data processor, but the GDPR pushes the power back into the hands of the data subjects, the consumers. We have the right to move our data wherever we want, but this right does not have a strong implementation. Yes, banks are sharing data, but other sectors of society are not being asked to open up. Some banks say: ‘We are obligated to disclose bank information to big tech companies, but why are they not obligated to disclose data to us?’ Policy makers are already planning on greater data mobility across economies.”
What should banks be focusing on in the near future when moving towards a digitized and data-driven economy?
McLaughlin: “There are a few building blocks on which banks and regulators should focus in a pan-European way. One important one is a federated digital identity. This is a building block for the whole digital economy, not just for banking. Banks can play an important role in the creation of a digital identity that can unlock the full potential of Open Banking and the open data society. What is also important is the creation of a pan-European payment stack. I like the holistic approach that India has taken; their whole payment stack is very carefully constructed. A holistic set of capabilities can deliver the kind of payments that we want in Europe. Unfortunately, sometimes we tend to focus on the point solutions without taking into account the full picture.”
What do you mean by point solutions?
McLaughlin: “Some topics in the world of payments get a lot of attention but may not be the best way forward. Everything to do with cryptocurrencies has been discussed many times and is sexy compared to digital identity, while the latter is arguably more important as a foundational part of the infrastructure, because we need to build a good digital economy. The topics everyone talks about are not necessarily the right solutions. Sometimes empty vessels make the most noise. Let’s take a step back and consider the entire digital payments stack and optimize for that.”