12 December 2017
The future? Banks become open ecosystems and collaborate with fintechs
With the introduction of the Payment Services Directive 2 (PSD2), data of the bank customer, after his consent, becomes practically a common good. As of January 2018, banks are obliged to open up bank account details to third parties. This makes the PSD2 perhaps the most disruptive and exciting development in years. This introduction, combined with the possibilities offered by new technologies, will create opportunities for innovation and new digital business models such as paying with social media. This changes the rules of the game and clears the way to a virtual open banking ecosystem.
Tech giants like Facebook, Airbnb, Uber, Amazon and Apple have all flourished in the open platform economy by providing a platform for third parties; a business model based on a combination of community, data and technology. This increases the value of the platform as soon as there are more people who use the platform. Moreover, this open ecosystem is much more powerful, because various platforms exchange information with each other. This is where it becomes interesting for the payment industry that is constantly challenged by disruptive fintechs. But what is the role of banks in this new economy?
The answer is that banks themselves must become an open ecosystem, which means that they must open themselves up to the outside world; something far removed from their DNA. By literally and figuratively opening up, banks can nowadays not only develop their own cash management solutions, but also enable third parties to do so. These third parties (e.g. fintechs) are often quicker and more flexible, have a better understanding of modern customer interactions and can therefore offer innovative financial solutions that solve new problems and provide a better user experience.
From platform to a banking ecosystem
The key to success in this is co-creation. And that goes much further than just opening up data to bank and bank customers. “In my view, traditional payment providers and fintechs can achieve more if they work together rather than compete. Fintechs can work with banks and payment providers to help them successfully enter the digital payments market. In turn, the traditional players can provide additional security to the fine-tech companies through their key infrastructure and regulations, giving their customers more peace of mind while modernizing the payment process,” said Michael Steinbach, CEO of equensWorldline.
This banking ecosystem idea is a logical consequence of PSD2; after all, the ecosystem is a landscape in which financial and innovative organizations share information with each other and join forces. Think of start-ups, fintechs and other companies that actively collaborate with traditional banks. This way, innovative services and products can be worked on together. Banks that switch from being a service provider to a platform have a great chance of success, because they see technology changing around them and by working together with partners, they are better able to serve their customers. This ecosystem is therefore a first step to make banks, financial services and payments much faster, safer and more controlled.
API Developer Portal
However, in order to be a platform, the digital gateways to the bank’s data and services must be opened up. The best option is an API (Application Program Interface). For example, selected functions are opened to external developers in a secure and controlled manner via an API Developer Portal. For example, it allows selected banks to develop new applications on existing assets and infrastructure. This helps developers in their innovations, as they can build on top of the API and create applications that fit their specific business needs. This is much more efficient and effective for developers than making applications from scratch.
Banks such as Crédit Agricole, ING, ABN AMRO and BBVA have already embraced these APIs and host their own app stores to give customers more opportunities to use innovative apps developed by third parties. All this must of course be done safely, scalable and efficiently, which has led to the creation of an open initiative to facilitate access to payment services called Convenient Access to Payment Services (CAPS). CAPS is an initiative of the European payment processor equensWorldline and offers banks an efficient and effective way to connect to a potentially large number of TPPs (Third Party Providers). This places the bank account in the center of the payment experience. equensWorldline offers solutions for a number of problems caused by PSD2. For example, CAPS offers a standard API for the payment initiatives and account information services required by the regulator; it provides valuable information such as contact details verified by the bank and ensures timely fraud detection.
Ultimately, of course, the main aim of banks is to make life easier for all stakeholders. On the basis of PSD2, fintechs and banks in the modern payment industry can jointly develop new services and solutions for consumers and businesses, creating a new revenue stream. Think of Tikkie from ABN AMRO, which you can use to ask for money back to family or friends via WhatsApp. And Yolt from ING, enabling customers to gather information from different accounts to gain a better understanding of their finances. An ecosystem, based on equal and open structure (and not on one platform), is a great start to achieving this.
And the biggest win-win? This is in close collaboration between stakeholders from different industries and sectors because of this ecosystem.