24 September 2019
Citi delivers the ultimate wake-up call for banks
Open Banking is a test case for the banking industry. Can banks move into the 21st century, or will they leave a vacuum that will be filled by bigtechs and fintechs ? With this question, reflecting the urgency for banks to "show up" in the Open Banking space, Tony McLaughlin, Emerging Payments & Business development at Citi, immediately had the full attention of the well-filled room during the spotlight session ‘Open Banking - beyond regulation’. From his story it became clear that time is running out. "Software is eating the world and platforms have the biggest appetite."
Not a tick-box exercise
McLaughlin still sees several banks struggling with Open Banking. "Open Banking is not a compliance project or a tick-box exercise, it is a way for banks to move into the 21st century. There is a big gap between today’s banking reality and the expectations of customers in the digital economy. We are struggling with legacy and banks are anything except real-time and interactive. If we do not close this gap, then bigtechs and fintechs will take over."
The consequences are simple: banks will not play a major role in the future if they do not adapt. "If you don't adapt to the platform world, it will be difficult to survive." McLaughlin refers to high-street retailing but also to the recently declared bankruptcy of Thomas Cook. "It is not about having a fancy banking app, it is also not about having a good blockchain proof of concept, it is about banks serving customers’ financial needs via platforms. Financial services will be embedded into digital platforms, that is for sure. The question is: who will provide those financial services: banks, fintechs or bigtechs? If banks fail to show up in Open Banking then bigtechs will step in and we already see this happening today."
APIs are key
Just like in other sessions before, I noticed that APIs play a key role in this story. Banks need to develop APIs, but these also need to be standardized. "Bigtechs and fintechs want to build against standard APIs, not against 10,000 different ones. We need to come together and create the API standards that platforms need. Not on a national level, but on a global scale. We cannot afford to wait for regulators mandating such standardization, it must be something we do voluntarily. If we don't, substitutes for platforms will be developed by fintechs and bigtechs."
In addition, another important aspect was mentioned, one that I fully support: digital identity is crucial in the digital economy and banks have strong credentials here. Last year at Sibos it became clear to me that even though customers may not always like the banks they certainly still trust them. This trust together with the banks’ digital ID credentials are a trump card that they should play. In this respect, McLaughlin also points to the difficult implementation of Strong Customer Authentication (SCA) as part of PSD2. "That is not good, we are redirecting, there is too much friction. We need to search for a standardized digital ID."
Bank accounts and identity
I would say it was a strong and compelling speech by McLaughlin, in which he made it clear that banks should embrace Open Banking as an opportunity to show their relevance in the 21st century. If banks adapt quickly to this new reality and play their cards right then bank accounts should remain the primary store of value, banks can maintain their position as the primary source for lending and banks can become the guardians of the digital identity. If not, then banks should consider the famous quote from Bill Gates ("we need banking, but we don’t need banks") which was repeated later that day by CEO Kim Fournais of Saxo Bank. A harsh quote, but not necessarily untrue. In that sense, McLaughlin's session was the ultimate wake-up call.