Open Banking is not (only) about Payments
Open Banking is not about payments… PSD2 is.
PSD2, Payments Services Directive 2, is not equal to Open Banking. PSD2 forces banks to give access to client’s payments data on a standardised, digital way. It is a logical step in the world we live in.
If you think PSD2 is Open Banking, you miss the point of Open Banking. It is of course part of it, but it is only a small part of what Open Banking represents.
PSD2 is about opening the windows of your house
You open the windows for some fresh air, or a cooling breeze in the summer. Would you say your house is open, because of open windows? No, you would not, because the windows does not give access to your house, a door does.
In a best case, a regular window allows you to hand over your purchases for example to the one in the house, or to have a talk with someone outside.
PSD2 is about opening windows: you just get some fresh air in the organisation, and you do not need to be concerned of having strangers inside. A well regulated framework explains the rules of the game, and the game has a very limited impact on the business of your bank, since we only talk about payments.
Of course, starting from 2019 a bank must make sure to renovate to include windows.
Open Banking is about opening the door of your house
Open Banking is a whole other game than just opening windows. You open your doors to others for third parties to enter, and for you to connect with third parties, whatever their business is. This is really about collaboration.
By making Open Banking a synonym of PSD2, you are making Open Banking a retail banking topic. To me, this is undermining the full potential that Open Banking has for the industry.
The Banking Scene 2018 was all about that. Besides speakers on PSD2 there were also a few with a more out-of-the-box session on their interpretation of Open Banking.
Ronny Neckebrouck, CEO of The Studio at Belfius, explained why Belfius decided to set up The Studio. The vision is that good ideas within Belfius, are probably also good ideas for other organisations. They got out of their comfort zone, ‘walked out of the door’ and they are now selling RPA projects, they set up several blockchain initiatives and they rolled out their own payment product, Pengo.
David Suetens, CEO of State Street Bank Luxembourg spoke as well. He talked about their interpretation of Open Banking, which was all about data. State Street Bank is a custody bank, PSD2 is irrelevant for them, but Open Banking is crucial to remain relevant in the future. They have partnerships with third party providers for more data, and for better data processing. This is translated in new products and services for their customers and higher performing risk management. If you like to know more on this: David will also speak at #tbsconf19lux, on January 24 in Luxembourg.
That is Open Banking is all about: opening doors and getting data in and out, with the right transparency and safety measures.
About the front and the back door
OK, so Open Banking is more than just payments.
OK, it is a lot more than just connecting with Third Party Providers that wish access to current (and all other) accounts.
Does this mean banks should connect with anyone to remain relevant in the future? I personally don’t think so. It is up to the bank to decide who they collaborate with, and in what kind of relationship.
Are you welcoming them through the front door, or the back door?
Too many times, Fintechs feel discriminated by banks because they don’t the get the right access to develop their business. The whole debate should perhaps not just about about getting access, also about what the mutual benefits for partnering are, for both fintech AND for banks.
For every bank this can be different. This kind of partnership is within the commercial space of every bank.
Banks own the house is in this case, and they decide for who they open the door. We talk about the front door here, where you still need to ring or knock to get access.
How will you, as a Fintech, be able to improve your relationship from a passing acquaintance to getting into the friendship zone? Once you get in the friendship zone, you can start participating in the game called Open Banking.
Open front doors provide a welcoming atmosphere, but between banks and new entrants there is still a certain distance, we stay in the friendship zone.
Front door collaboration is mostly about connecting with a bank through APIs that can be found in a marketplace. This marketplace has strict rules and guidelines for participants. There is an immediate understanding and a collaboration that goes further then a simple PSD2 hub. Banks set the rules and decide on the API they wish to support. Some banks will be leading players, with a huge set of APIs, other will be slower in these developments, with a more limited API business line.
Some fintechs will also be able to develop the relationship to something even bigger: they can get in the family zone. This opens more doors, the back door in this case, and perhaps even a few doors internally.
By opening the back door, banks also provide access to their core. The partnerships impact the true essence of the bank. Standard APIs are no longer sufficient for the mutual benefits that the partnership intends to realise.
Regtech companies are a good example of back door entrants. Fintechs in this domain are often a lot more silent in the ‘collaboration’ discussion, because for both banks and fintech there is a clear win-win. The resolved the issue of finding the mutual benefit.
‘Back-door-Open-Banking’ requires a lot more trust and understanding.
Open back doors provide constant fresh air, with a lot of wind every once and a while, but in summer, when life is good, this is the best and healthiest way to live. There is no real distance between the bank and the one that may enter through the back door, the 2 become family.