Kristine Ursfjord, partner manager private market at SpareBank 1, reveals how traditional banks can successfully build ecosystems around their core financial services offerings.

SpareBank 1 enhances the customer experience by embracing open banking

The Ross Republic digital banking interviews showcase the work and ideas of digital banking innovators in Europe. Our aim is to represent a diverse set of interviewees and viewpoints and to provide actionable insights into strategy development, industry foresight and tangible use cases.

For this interview, we were joined by Kristine Ursfjord, partner manager private market at SpareBank 1, the second largest financial group in Norway. We covered how banks can stay competitive in the age of platforms and how SpareBank 1 manages digital product development in a heavily regulated banking environment.

Kristine, thanks for taking part in our interview series. Can you shortly give an introduction to SpareBank 1 and your role as partner manager?

“Sure, thanks for the invitation. I’m partner manager in open banking, which means that I evaluate early-stage partnerships as well as grow and maintain existing partnerships in the open banking segment. Earlier, I was the product owner of the SpareBank 1 API platform that we use for our open banking partnerships. This platform is used by all banks within the SpareBank 1 alliance, which consists of 15 independent banks in Norway. Beyond that, we have a variety of product companies that cover specific banking services, such as credit, crowdfunding, insurance and debt collection, basically everything that covers finance on both the retail side and business side.

After DNB it is the second largest financial institution in Norway. The banks part of the SpareBank 1 alliance are all independent, but take advantage of the scale of the alliance, mostly concerning the IT systems. For example, we have a common platform for the mobile and online banking systems as well as the API platform available for all members.”

Can you tell us about key projects you worked on recently?

“A key project in my area, spanning the whole last year, was the second Payment Services Directive (PSD2). Part of the project was to become compliant and to be able to offer solutions to our customers based on what PSD2 has to offer. Still it is mostly used by banks pulling data from other banks, as in Norway there are very few non-bank Account Information Service Providers or Payment Initiation Service Providers.

Besides that, we initiated a project together with one of Norway’s largest grocery chains, Coop, with the aim to offer mobile payments from accounts at their stores. Customers now don’t need to use their card, but can directly use the mobile pay function, which draws money directly from the account. This service is now in the pilot phase and we will evaluate it based on the feedback we get from customers.

We also launched a collaboration with Minna Technologies, which offers a service for subscription management. Together we implemented a service for subscription cancellation, which uses a transaction monitoring algorithm that detects the subscriptions of a customer. If the customer chooses to cancel a subscription, Minna will conveniently take care of it. That was a really interesting project for us. As Minna has worked with banks before they were well prepared, the implementation was quick and our customers like the feature. Now we are planning to co-innovate together with Minna Technologies to evaluate additional innovative functionalities.”

What role does digital strategy play at SpareBank 1?

“It definitely plays a big role. We were the first one to have the bank online and we introduced mobile banking very early. There are several reasons for digital being important: customer service, cost-saving etc. In some rural areas the physical branch is far away f.i. Nordic countries have a very advanced digital infrastructure that enables banks to build digital solutions.”

What was your initial experience when the second Payment Service Directive came into force?

“Even though PSD2 can be perceived as boring, in some ways it was actually really exciting. It was one of the first projects I worked on where we got a legislative text that was supposed to be computerised on a very detailed level. I don’t think that the people who wrote the law understood the implications and how specific it actually had to be. That was a very interesting project for me, as we had to go from the very first vague legal text and turn it into specific ‘computer language‘.”

How does the platform and ecosystem economy influence banks?

“Platform thinking is really critical. The idea that banks are being commoditised is worrying, as their infrastructure is very expensive. That is why I think most banks will create ecosystems of their own and some might even launch platforms if they have the scale, and try to keep customers within the ecosystem as much as possible.

We need to be able to offer products where the customers actually look for them.

At SpareBank 1 we use a circular framework where the banks are at the centre, the companies within the alliance are on the second layer of the ecosystem, and third-party partners on the outer layer. We try to connect them all within our ecosystem. I think you have to try it both ways: keeping customers within the ecosystem and providing value there, but also offering third-party services or platforms that are a good fit. If we try to do it all ourselves it would be very limiting. We need to be able to offer products where the customers actually look for them.

For example, customers don’t visit their bank just because they like going there. They have some higher need, such as buying a car or renovating the house. That need usually arises somewhere else, so we need to be able to offer our services there, too. You have to be able to distribute, and not only stay within your own ecosystem.

In Norway there is a business banking start-up called Aprila bank, which only offers its services through third-party channels, such as accounting software. This will be interesting to follow.

Of course, banks should always keep an eye on what the big technology companies like Google and Amazon are doing, as their scale is immense and their services are sometimes so easy to use that people tend to forget who these companies really are. Especially in Norway, trust is really important in banking, so the larger platforms have an issue there.”

What can banks do in order to avoid further commoditisation of their services?

“You have to provide a good ecosystem on your own, so that customers are well taken care of. However, you cannot ignore the fact that, for example, when people search for a house, they need to get the banking offer right there. Otherwise, they will just search for a provider online and the bank might have lost the opportunity.

Whenever we offer our services somewhere on third-party platforms, we have to ensure that we bring the customer into our own ecosystem after they have bought the product. It is very important that that even if we offer our services in other ecosystems, we still build a direct relationship with customer.”

Within the context of open banking, how do you now evaluate PSD2? Do banks need to go beyond it?

“For now, PSD2 was a lot of work for very little gain. The key benefit is not the PSD2-enabled functionality itself, but rather in the larger movement that it triggered. Larger banks now have to do something related to open banking, they could not just push it further ahead. Now, banks need to offer APIs with open banking functionalities. PSD2 created the key infrastructure for open banking and made everyone at banks a bit more accustomed to working with APIs. That definitely would not have happened so soon without PSD2.

So far, I have not yet seen a lot of customer use cases that are only built on PSD2. However, there are two interesting areas for PSD2-enabled use cases.

One is credit scoring, but that of course still relies on additional services beyond PSD2. One of the challenges with credit scoring is that it is almost always based on old data. PSD2-based transaction data can actually provide a more relevant score, if it is combined with traditional data sources.

The other one is within the small business segment. For example, accounting companies are now able to get their customer’s bank data, which they could not before – for free. It means that the banks need to figure out who actually owns the customer interface in the future.

Of course, related to PSD2 there are now also many new API aggregator services coming up. I think their rapid growth would not have happened without PSD2. It will be interesting to see how many of the current services survive.”

What is the specific strategy behind your API offering? For example, you offer your APIs also to private developers.

“Private developers actually have been a good source of feedback for our API functionalities. For now, a company gets permission for our APIs based on the partnership with us and the business model depends on what you agree on with the bank. Some partnerships create mutual value, so we offer our APIs to the partner and get something back in return. In other cases, there is a monetary exchange for the API usage, so it is different from case to case. There is not one specific business model that we always apply so far.

The best partnerships are mutually beneficial, where both the bank and the partner gets something out of the data exchange and we create value together. Then both parties drive each other in the right direction. Unfortunately, there are only few of such partnerships. So, having additional business models around the API offering is definitely important.”

How do you find the right partners for your API use cases?

“As the second largest banking group in Norway we usually get a lot of partnership opportunities and some of the banks in the alliance have their own data groups and labs.

More generally, we have a partner council that quickly evaluates opportunities. We usually create hypotheses on what the business and customer value will be and then decide together with the partner if it would be a good fit. We also use the value proposition and business model canvas, so similar tools and processes that start-ups use, too.

The challenge for us as a bank is to figure out: Can we actually do this? Is there actual customer value? There are many startups and potential partners, but you have the find the right ones among them. Especially when serving our specific group of target customers, it is very important that our partners have the same values as we do, so that both brands fit well together. The fit needs to be on both on the business and on the value level.”

Who drives the new product development with partners? How do you navigate the complex regulatory banking environment when cooperating with ecosystem partners?

“Mostly, either the banks in our alliance or the product owners within our organisation are usually the driver of the innovation.

Compliance, of course, is a very important part of it. We have a really good legal and data privacy department that support finding the right solutions. They work really well with us to figure out what we can or cannot do, and how to make it happen.

For instance, when we worked with Minna Technologies at the beginning, sending our customer’s data to Minna would have been a barrier to bring to the service to the market. That meant that for the pilot we chose a slightly less favourable user experience, where users input data. That way we could launch it sooner, as we did not have to send data back and forth between us and Minna Technologies. The product is now already in production and customers are using it. In the meantime, we could solve the data sharing challenge.

It is key for us to have the legal and compliance departments close to the development team.

It is really beneficial to have legal and compliance teams on board that have an understanding for product development processes. Especially, as we deliver our work to all banks part of the alliance we need to ensure compliance and risk is in place. It is really key for us to have the legal and compliance departments close to the development team. For example, for one of our projects we had a data privacy specialist directly sitting next to the development team, which is a quite unique set-up for us. Usually, the legal department are not connected to the development department at most banks, but we see the advantage of having both teams close by.”

How can banks ensure to differentiate themselves in the digital era?

“Banks cannot stand out anymore with baseline digital services, customers simply expect them. Not only the younger target groups expect everything to be digital, most generations do not want to go to the bank anymore for simple daily tasks.

The challenge I see currently is that the time span from offering something new to the market to something that is expected has become really short. The subscription management platform was initially a unique proposition. Now, at least in Norway, it has already become a standard. Almost every bank offers some sort of digital subscription management service. Beyond that, if banks add more and more services to their core apps, they have to figure out at some point what functionalities are actually essential to have accessible all the time.

For SpareBank 1, our expert advisors are a key point of differentiation. When customers interact with the bank, they get the service and advice they need. Many customers might already use two or three banking or fintech services at the same time. It’s important for the advisors to see that, and additionally to use all data that we have available for digital advisory. That is something where SpareBank 1 really stands out, because we have the data for digital advisory in addition to a good advisory service with actual people.

In some use cases customers actually want to talk to people, for example when purchasing a house or even now when a business is in difficulties because of the coronavirus. The interaction with a real person might be what the customers need in these instances. We can in such cases provide better advice, built on the data and models that we have.”

We’d like to thank Kristine Ursfjord for taking the time to discuss the future of banking with us. You can check out the API platform of SpareBank 1 here.

About SpareBank 1

The SpareBank 1 Alliance is collectively one of the largest providers of financial products and services in the Norwegian market. The alliance has established a national market profile and developed a unison brand. The platform forms the basis for common product and business development amongst the Alliance banks.

The purpose of the SpareBank 1 Alliance is for SpareBank 1 banks to develop and supply competitive financial services and products and to achieve economies of scale. The individual alliance banks are long standing independent financial institutions in Norway, most of which can trace their history back to the middle of the 19th century.


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About the author

Adrian Klee, partner at Ross Republic

Adrian Klee

Adrian is an expert in building digital business in the financial services sector. He has a background in Fintech and Consulting, and specialises in market research, digital service development and lean venture building.

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