6 December 2018
Taking advantage of open-banking disruption
There is no doubt that fintech firms are disrupting the banking sector. Customers are beginning to rely more on the convenience and ease of use of digital services, which is adding strain on traditional banking institutions.
A key element is the development of APIs
In 2018, there will be an even further shift towards fintechs and new technologies with the implementation of the revised Payment Service Directive (PSD2) throughout the European Union, which is not ‘just another regulation’ requiring a mere operational and compliance approach, but an accelerator of the already ongoing change in the financial industry. The ‘Access to account’ for Payment Initiation and Account Information Services (‘XS2A’) included in the directive will accelerate this by forcing banks to open up consumer payment accounts data and functionality to third-party companies offering financial services. A key element of this is the development of Application Programming Interfaces (APIs) by banks.
However, the idea that traditional banks and innovative fintechs are facing off against each other is an old one. fintechs and banks should not be considered enemies of each other. Rather, they should recognise that they can both benefit from these new conditions. In fact, they both achieve their goals fastest when they work together. They can help each other to convince customers of their capabilities and to continue playing a leading role in the financial world of the future.
Cooperation with fintechs can enhance banks’ attractiveness
Fintechs can digitalise banking processes as they are experts in developing new banking products and digital services that can be conveniently implemented into existing bank processes via APIs. By integrating state-of-the-art services, banks are not only contributing to their image as future-oriented and digital financial institutions, the financial model is also being revamped and new financial resources are emerging. Customers who are already looking for uncomplicated, digital solutions for their daily finances will be accommodated and will not have to look for alternative providers for each individual service.
Cooperation with fintechs can enhance banks’ attractiveness. Following the old principle that 20 percent of customers generate 80 percent of turnover, a large share of the resources was often made available for customers with large assets. However, many banks are now aiming to expand their business amongst standard customers so that they can make a significant contribution to the overall result in the future. Thanks to the additional revenue generated from fintech services, it is now worth concentrating on that 80 percent. The services developed by fintechs, which banks integrate directly into their platform via XS2A, help with customer retention and they offer all users an improved and updated customer experience.
Fintech solutions and traditional banking
Through cooperation with fintechs, lending institutions can finally offer solutions that have long been on the wish lists of many customers. With fintechs on board, traditional financial institutions benefit from secure networks and state-of-the-art solutions that significantly shorten processes that were previously rather lengthy. And all of this comes without any costs for internal development.
The real goal for banks and financial institutions is to find the right mix of fintech solutions and traditional banking.
Few initiatives that have already resulted in usable products
The Lombardy Region’s report “Fintech services for Lombard SMEs” cites a survey by the Bank of Italy that analysed the adoption of technological innovations applied to financial services carried out by the Bank of Italy in December 2017. The study clearly shows that Italian credit intermediaries are attentive to the phenomenon of technological evolution, have launched a large number of projects (283 surveyed by about 50 banks) but at the moment there are very few initiatives that have already resulted in usable products or services from customers.
The most active Italian banks are the large ones, but the activity of smaller credit institutions such as Banca Sella stands out: Banca Sella was in fact able to propose some fintech solutions and above all it has undertaken a very wide project of support to the ecosystem of the development of new solutions also through the promotion of the Fintech District of Milan.
Other medium-sized banks, such as Banca del Piemonte, pursue an indirect fintech strategy, based on the participation in the capital of external initiatives. This is true for most of the large groups, which exploit both on internal development and on open innovation by leveraging external actors in order to accelerate their development.
Furthermore, Consorzio CBI and Nexi developed the CBI GLOBE (Global Open Banking Ecosystem) platform, a new solution which will enable participants across Europe to simplify the fulfilment of their PSD2 obligations regarding the telematic connections for the exchange of information and payments with third parties, while also enhancing the level of protection for consumers. It is estimated that the solution will allow Italy’s banking sector to save up to 185 million Euros, equal to roughly 40% of the total investment that it would otherwise have to bear to upgrade its systems.