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.