The Open Banking Interviews: Karel Van Eetvelt, CEO, Febelfin
For this week we had the honour to ask Karel Van Eetvelt, CEO of Febelfin, a few questions on Open Banking. Febelfin is the federation of the Belgian financial sector.
The reason why we are so glad to have him participate in the Open Banking Interviews is not only because he represents the entire banking industry in Belgium, but maybe more importantly: the day we did the interview he was working for the industry exactly 2 years.
His fresh and open mind will help you better understand the importance of the customer-centricity, the role of banks in financial education to consumers, security education towards new fintech players, the possible geopolitical impact that Open Banking may have for Europe in the long run and so much more.
Part XIV of The Open Banking Interviews (see part XIII, with Jasper Nienhuijs, de Volksbank).
Before looking at the future, maybe two questions on today: PSD2 is now active, besides a few ‘minor details’, like SCA. The ride to September 14 has been a very long one. All players in the market needed time to accept the new regulation. My personal experience is was one of big resistance in the beginning, at the time I still worked at a bank on this matter myself, towards accepting the opportunities for the future. The Open Banking Interviews made me realize that others went through the same process.
Did you see that change in perception as well on PSD2 at your member banks?
Are most Belgian banks ready with the APIs, and did they get the exemption for a fallback solution?
Indeed, it took some time, but today, banks are ready. With evolutions like this, you see that organizations first take a defensive approach. That is true not only for banks, but for any industry that is being asked to change by the market, or where businesses are disrupted.
So in the case of PSD2, banks first showed avoidance and resistance. Most of this happened before I arrived at Febelfin, but when I started here, I still noticed the signals in the lobby and the behaviour of banks. Banks didn’t like the idea behind PSD2, they wanted to stop it.
The result is that the industry lost time. This is perfectly human behaviour. It simply means bankers are also human beings that prefer the avoid disruptive change.
The shift came from the moment banks realised there was no way back. They understood PSD2 was inevitable. From that moment on, they started preparing themselves as fast as possible.
I think when comparing Belgian banks with most of the other European countries we are at the top in terms of preparations for PSD2. Even earlier this year I participated at a European level in discussions at the EBF (European Banking Federation) and still many colleagues of mine spoke in a defensive mode.
It currently looks like the implementation of PSD2 will take some more years, and probably also at different speed because some banks keep moving in a defensive mode. This is a concern to take into account for well-prepared Belgian banks that have to deal with this kind of unprepared foreign banks. These effects are also being discussed at a European level right now.
Bottom line, our members accepted the fact that PSD2 is here to stay and that it will keep developing toward a new reality.
Being a frontrunner in this domain could be an opportunity for the Belgian banking sector: this ‘new’ technology creates opportunities, it triggers a change of behaviour of customers. These customers start asking services that didn’t exist before. PSD2 enables banks to answer to those customer needs.
In short, PSD2 is about trying to give the right answer on this normal customer related questions. We need to look at the opportunities this regulation brings. I see the first steps in that direction already in today’s Belgian banks’ app developments and for the best: some of our banks are best in class in integrating the PSD2 mindset in their offering to their customers.
One of the issues we faced as an industry, and one that we still have, is the lack of customer and human centricity. Thanks to regulatory pushes such as PSD2, we adapt our business decisions towards customers.
On the other hand, there are also a few concerns that require our attention. At European level, one might get the idea their ambition is to go for open banking all the way, with the customer at the centre of everything, meaning that the customer deserves the best possible solution with the best possible service at the lowest price.
I can accept that, but not at all costs.
Our market survey in April showed the not even 3% of the Belgian population knows what PSD2 is exactly. Do you think that is a concern for making PSD2 a success? Or should we rather determine the success of PSD2 for example in terms of lower fraud rates and the number of consumers that start embracing the new business opportunities that PSD2 brings for banks and third-party providers?
For me, consumers do not have to understand PSD2. It is a decision made by the European Commission, it is just an abbreviation. In all honesty, before I came here at Febelfin, I didn’t know about it either, I didn’t understand it in the beginning.
As such, this is not the most important element either.
The success of the PSD2 implementation can probably only be measured after some years.
What is most important is as you said: What will be the effect on providing better services towards customers and will they be fully embraced by these customers? If these new or improved services are fully embraced by your customers, you did well.
If on top of that, we as an industry can create a lower fraud environment, this would be a great result. Mind you, reducing fraud was ultimately one of the pillars of PSD2. I think customer protection is as important as creating an open environment that allows us to provide the best service at the best price. This should go hand in hand.
Do you think consumer protection isn’t sufficiently integrated within the PSD2 framework?
I don’t think we are fully prepared for the security aspects of this open environment. It was striking that even in discussions with the National Bank, for example, 6 months ago, the security risks that result from a change like PSD2 did not seem to be fully understood.
Before moving as an industry to the next phase, from PSD2 to Open Banking beyond payments, we need some time for reflection. Focus is needed on properly managing the risks that come with a more open banking environment.
I reflected on this with several security specialists inside the banks who are all clearly in favour of the new Directive. All of them separately tell me what the possible risks are. Most of it is, of course, related to misuse of credentials.
If PSD2 is this dangerous, we have to solve those concerns first before we go a step further. I embrace PSD2, but the voices I hear today from the European Commission saying they want to go further, beyond payments, and rather sooner than later, I get scared. If you do this before fixing the security concerns, that is a crazy idea I think. We are not ready yet, so we should not speed things up for more change.
Let us first prepare for the next steps and make sure we get the security aspects right, so we can evolve with confidence. Because IF something happens, and this has to be only one client that is being hacked and robbed because of misuse of credentials thanks to PSD2, we lose all the trust in this new way of banking.
It would be a disaster if open banking would become stigmatized due to the irresponsible behaviour of a few newcomers, not only for new players but also for banks.
You have a point there. Trust is a key element in the banking business. It is important to also fulfil that promise under PSD2.
Banks are now doing business in different circumstances, so we have to ensure new stability in the system. That should be the first objective now. A trustworthy environment is critical to the financial sector.
Besides the fact that banks must be able to offer a secure experience, new players have to be aware that a sustainable, long-term business in financial services requires the right security measures to make sure they can fulfil this requirement as well. Customers must feel well protected and safe. It is key to pay attention to these aspects as well. It makes no sense to invest a lot in great user experience if customers don’t trust you.
As a banking industry, it is our role to proactively help new players with that. This is true for the ECB and the European Commission. Their role is to create sufficient awareness.
Coming back to the core of PSD2: what is important to me is that we explain to our customers what the goals are of PSD2, and how it can help them to better manage their money while making them aware of the possible risks of this model.
Just like today, consumers should always ask themselves 3 questions before providing someone with their financial data:
- Who is asking this?
- Why are they asking it?
- For what use?
If you can answer these questions with confidence: no problem, if not: watch out.
Building on financial literacy is key here. In the future, we should invest in this even more. Awareness campaigns are essential in the whole process towards the new circumstances in which we will be banking in the future. This phase of learning will take some time, but it is key to making PSD2 a success.
I see PSD2 as a starting point of a whole new journey, the one of Open Banking, which goes far beyond PSD2 and also beyond payments. I call that ‘the journey to everywhere banking’. How do you look at this?
I don’t think a bank will be integrated, but banking services will. For me, it’s a step by step story that we as an industry build on together. We need to be well aware that people, our customers, are in the driver seat of this movement. They lead the way banking should evolve.
This journey consists of 2 pillars: top-notch services, not only with regards to payments but covering all kinds of financial services with also a good and sustainable use of data. This is not only valid for banks, but for all actors that communicate with the financial sector.
As an outsider, it is strange that the European Commission has the ambition to create more added value through good data use for a customer, but that they limit this to the financial sector. I don’t understand this. Retailers, Bigtech, communication players… they all have relevant data that can contribute to added value and innovation for users if they open up.
So if Europe wants to go for more open data, I think we should do this with these sectors also. Of course, this should happen smartly, by being aware of the risk and by safeguarding the data of your customers, not by owning the data of the customers and by keeping GDPR in mind.
By extending the need for openness to multiple sectors, I can imagine great innovations and new business models. If we limit it to the financial sector, we also limit the possibilities in terms of innovation.
What will be the impact on the banking market? Do you think this could be an answer to the negative interest rate of the ECB for banks to survive?
Open Banking could maybe create opportunities to change a bank’s business model. But it will not be an answer to the negative interest rates.
What I see today is that those players who are most impacted by these low-interest rates are often also the players with insufficient funds to properly invest in the opportunities of Open Banking. They don’t have the means to develop value-added services through smart data usage.
So, they have a double problem: they lose revenues because of the negative interest rates and they are unable to adapt to new realities that are being pushed by regulators and the changed customer behaviour.
This brings me to another issue: the impact of potential consolidation in the market. If in the future being active as a bank is only possible for large, European-level players and foreign tech companies, we forgot where the crisis in 2008 came from.
Fintech players will likely not be the main actors of the industry in the future. They are game-changers, but what they develop will mainly be used by other, more impactful organisations in the market. They will act mainly as subcontractors. The same will happen with some banks as well I’m afraid.
So what you are saying is that Open Banking also risks possibly weakening the European banking sector?
The philosophical questions on a European level that should be answered are “What is our long-term economic vision for Europe? What players should play which role?”. I will be very clear here: I miss a clear vision at the moment. It makes me anxious.
I think we are currently implementing PSD2 without a clear economic long-term vision. If the result of the regulation is that small players can no longer survive and that only big players stay in the market, strangled in international superpowers based outside the EU we as a continent lose our autonomy. Even the big European players will no longer be able to compete with these international superpowers and they will be taken over.
Not only would we lose diversity, but also our sovereignty.
What I am about to state now may sound protectionist, but I believe that in the decades to come we will be in economic warfare. This should also be taken into consideration sometimes when defining new European directives and regulations like PSD2.
If you have to go to Beijing, New York or Washington because you have economic problems in Europe, and you need to beg for money, then you’re lost. I’m afraid that if we have no long-term vision this will become reality.
In terms of next-level Open Banking: what do you consider as key trends in Open Banking in 2020 and beyond for consumers?
Good question! I try to look with a more open view than only banking when it comes to this kind of disruptive trends. To answer these kinds of questions I first look at what the main societal trends and changes are that we can expect in, for example, the next 10 years.
Next step is to look at how this will change customer and human behaviour. This prediction should drive an organisation, any organisation to adapt its services.
This being said, what I see is a big trend toward a circular and a sharing economy. This is a phenomenon that already exists today, and also impacts consumer behaviour. Customers will come to the industry with specific questions related to these trends. It is up to every organisation to make sure they can provide a good answer to these questions.
Openness and a willingness to collaborate with different players from different sectors in the economy will be vital to provide customers with the right experiences and services in the future, and to some extent already today.
PSD2 stimulates this collaboration. Of course, that is not only the case for the banking sector. The fact that the European Commission only looked at banking is really an issue for me in this context. I have the impression that they are still in the mindset of 2008, the idea to punish banks for what happened in the financial crisis. I see no other reason why “open” is only for banking and not for other sectors.
I can only image one other reason, that would be the lobby. I prefer to think otherwise, as this is dangerous: it would mean the push came from some other sectors, maybe on a more international level, that lobbied for the banking system to open up on the condition that there would be no discussion on sharing of data of for example retail. In that case, we would also be talking about Amazon, Alibaba, Google that should start sharing the data of their clients.
Another sector that would be interested in the payments industry to open up is telecom. Here as well the larger telecom companies are not European players. This is my warning: if we don’t have a clear future-forward economic vision for Europe, we are selling out our economic power.
We need to look at 2020–2025 for the bigger Open Economy picture, not just Open Banking and not just 2020. I am convinced that Open Banking will help us to give answers and to build the sustainable agenda for example. The circular economy and the sharing economy will definitely benefit from this.
Today, the financial players are still looking mostly by themselves for the right answers to truly help their customers in a sharing economy. As an industry, we go too slow. If, like right now, you are pushed to go faster, really good things will happen.
For me, key trends are hard to predict. It is all about finding out what the opportunities are and how this evolution, together with technological enhancement, will provide us with the right answers for questions that society and consumers will ask in the future.