The five hottest topics
The following five topics were mentioned often in the presentations as well as panel and informal discussions.
PSD2 is just the beginning
PSD2 and Open banking were seen as a starting point for a more profound transformation, than what PSD2 at its current form obliges banks to open up. The EU Commission recently published a new Data Strategy for the EU Single Market, which includes open finance among other industries. Open banking is a stepping stone to open finance that will open up products such as savings and mortgages. Open finance, in turn, is a stepping stone to the era of open data, in which we will experience a data-driven society where data flows freely for the purpose of deriving value from the accumulated information.
PSD2 accelerates the unbundling of banks
It was a common view that PSD2 will accelerate the unbundling of banks. There will be more customers who look for the best product in each product category and use aggregator services to manage these products. For instance, Pedro Pinto Coelho, the Executive Chairman of Banco BNI Europa, said that their target segment is people who do not find the value propositions of universal banks compelling. The size of the new customer segment remain to be seen.
Define your role in the open world
The speakers widely acknowledged that open banking is a strategic question about the role of a bank in the open ecosystem. Does a bank choose a passive role, doing just that what is stipulated in PSD2? Or does it take a more active role? If it does, what kind of a role it will be?
- At minimum, a bank can choose to open up data and its systems beyond PSD2. Only a few of the participating banks had chosen or considered choosing this role.
- A bank can look for strategic partnerships to enable it to offer new services to its customers as well as reach new customer segments. The majority of participating banks favoured this role.
- At the top end of the spectrum, a bank can choose to become a data-driven organisation, building new value-add services and actively using the data for the benefit of its customers. Only a few of the participating banks linked open banking to a bigger picture; to digital transformation with a focus on data and AI.
Choosing the passive role means that PSD2 will remain a cost that it has so far been. It also means that the bank takes a risk of losing its most valuable asset; the customer relationship.
The elusive use cases and monetisation
The commercial aspect of open banking is a big question mark for banks. “We still need to find out use cases and how to monetise them” was probably the most repeated phrase at the event. Even Carlos López-Moctezuma, the Global Head of Open Banking at BBVA, said that uncovering fit-to-digital products is a constant challenge. Interestingly, he also mentioned that new value-added services are harder to monetise if a bank works with modern companies. Felim O’Donnell, the COO of Starling Bank, said that the next big banking innovation hasn’t happened yet, but when it does, it will be built on Open APIs.
However, there were a few tangible examples of where a bank had monetised either AISP or PISP use cases. For instance, HSBC now analyses the main account of a non-customer borrower, which has lead the bank to writing thousands of loans it would have otherwise missed out on. What was remarkable was that HSBC was able to analyse PSD2 within their existing credit scoring model.
It is a challenge to make open banking a commercial imperative
So far, for the majority of banks PSD2 and open banking have been a compliance-driven topic. For the more advanced banks it has also been a strategic topic. For the most advanced ones it has become a business reality where it either delivers tangible results or invaluable learnings. In the one-on-one discussions, it became clear that one of the biggest challenges is get open banking out of the silo in which it has operated during the technical set-up of APIs. To deliver any tangible business benefits, open banking must become part of the commercial agenda and daily life of a bank’s employees just like digitalisation has become.
More understanding is needed of the potential customer and business benefits, product by product, before open banking becomes an integral part of strategic planning of individual business lines and finally creates tangible benefits both for banking customers as well as banks.