5 February 2020
Open Banking 2.0
“Banking is necessary, banks are not,” said Bill Gates back in 1990. After almost 30 years today this appears to be incredibly true thanks to big changes in the banking system such as the introduction of the new European directive on payment services, also called PSD2 (Payment Services Directive 2).
2019 will be remembered as the “real birth of the Open Banking”, in fact even though PSD2 officially entered into application in January 2018 it still has to start to bear fruits with European banks now obliged to open some core services (i.e. Payment Initiation, Account Information, Confirmation of funds) to fintechs. Doing so, third parties will be granted access to payment data increasing the competition among traditional banks’ practices and changing the relationships between consumers and financial institutions.
In this disruptive evolution promoted by PSD2 there are the premises of a new way of doing banking, more open and more accessible, both to customers and businesses, questioning the old logic and traditional balances and finally allowing new competitors to enter the market. Indeed, Open Banking represents the opportunity for Third Party Providers (TPPs) to develop their own businesses either by consuming data or APIs opened by financial institutions, but also by teaming up with banks to bring additional value to end users.
There are however two main hurdles TPPs may face. The first one is the fragmentation of the APIs opened by financial institutions; even if several standardization initiatives suggest a potential convergence of standards within Europe, the current fragmentation still requires significant effort from TPPs. This could bring even more struggle at a global level with the emergence of some local initiatives. The second hurdle is consumers’ trust; the seamless adoption of new services by end users will require TPPs to be exemplary regarding the management of end users’ consent and data, forcing TPPs to be transparent when it comes to security issues, and investing more resources in the implementation of fraud solutions.
To go beyond the PSD2 and support our customers on the Open Banking topic, equensWorldline offers a Digital Banking platform that includes all the features to help banks to design their APIs and easily include partners in new business models thanks to a powerful monetization engine. The platform also includes a developer portal playing a key role in the management of their TPP community via API documentation, forum and FAQ. To cap it all, the billing topic is also addressed by our platform by providing a way for banks to automatically generate bills and invoice TPPs depending on their API consumption.
What are other companies doing to enter this fast paced, ever changing open banking world? There are many examples of companies that have invested in these types of practices in order to integrate them among their capabilities.
For starters Banca Popolare di Sondrio has developed InstaPay, an app that allows instant payments at any time from an easy to use app, created thanks to a collaboration with Epiphany, Italian start-up that operates at a global level and is specialized in digital banking solutions.
The CBI GLOBE (Global Open Banking Ecosystem) platform, developed as a possible solution for compliance, is a pan-European collaborative open banking solution designed by the CBI consortium, promoted by Abi, and Nexi. To date, about ten of the major national banks have joined the platform, among them Poste Pay, the banking “branch” of Poste Italiane and Banca 5, the Intesa Sanpaolo bank which was the first Italian bank to operate as a TPP and Credit Agricole Italia group. The CBI GLOBE platform will soon allow the banking sector to save an estimated total of up to 185 million euros for the entire banking industry, equal to about 40% of the total investment otherwise borne by the sector for the technical adaptation of systems.
Amazon and Intesa Sanpaolo also started a collaboration on open banking. The commercial initiative offers the bank's customers the possibility of converting their savings accumulated in Intesa Sanpaolo's digital bank into an Amazon.it Gift Voucher, with a 3% discount. The logic behind is that of integrating services with digital use in order to benefit customers.
Last but not least YOLT by ING. The customer base of Yolt for Business API expands, a platform that offers companies a single API, capable of integrating both the aggregation of accounts (AIS) and the possibility of arranging payment orders (PIS). Yolt for Business API extends its open banking functionalities to more than one ING Business Unit and involves two new FinTech: Payvision, an international acquirer and payment processing platform based in the Netherlands, and Funding Options, a financing comparison for small businesses.
New phenomena linked to open banking are proliferating such as that of “challenger banks”, which are technological startups created to enter the financial market by breaking the mould and offering direct and transparent ways of managing one's own money. Challenger banks do not hesitate to collaborate with fintechs that offer a valuable service or product for their customer base, such as N26 and Revolut, which are continuing to expand their offering by integrating services and products provided by other fintechs.
As of today, equensWorldline supports more than 25 banks and financial institutions on the PSD2 compliancy topic (in five countries) and also provides a consistent solution for TPPs to ease their connections with European banks as well as solutions for Strong Customer Authentication and Fraud. Our involvement in several standardization groups (workgroup at the European Payment Council, NextGenPSD2 taskforce setup by the Berlin Group, STET, SWIFT…) also demonstrates the care given to promoting this movement with other actors of the market.