Going Dutch – Can Banks Get a Fair Share in the Age of Open Banking?

Nigel Reavley, Head of Financial Services

Open banking. In the last year or so, this concept has given Europe’s financial world a lot to grapple with. The implementation of some pretty historic legislation (did someone say PSD2?), and the entry of a number of agile new players, have seen banking and FS in Europe turn a corner into a new, customer-centric age.

Key takeaways from Amsterdam’s Money 20/20 Europe.

Money 20/20 Europe’s annual Fintech event, which took place last week in the picturesque city of Amsterdam, took the pulse of this brave new world. As PSD2 is now a reality, conversations notably evolved at this year’s event, with many talking about how banks can avoid falling behind.

Compliance may be mandatory, but monetizing investment in new services and delivering better solutions to consumers is key. So, what are the considerations banks need to manage to avoid tripping up?

Fintechs – Friend or Foe?

At its core, the revised Payments Services Directive, or PSD2, is Europe’s regulatory response to encourage fintechs offering new services, insights and analysis into our banking and transactional lives. Innovative new services are rife – from helpful financial management apps to stress-free P2P payments – and so are the new players and business models that come with them.

This wave of newer, slicker services is bringing huge consumer benefits. For banks to keep up, innovation is crucial. But this doesn’t necessarily need to all come from in-house investment.

With a number of small, agile fintechs pushing boundaries and proposing new services at the event, banks can see this as an opportunity for collaboration, or even acquisition, to boost its own offering. We saw this trend in presentations on day one from both ING and HSBC.

A bit of clever thinking is also imperative. While PSD2 requires opening up access to some account data, banks still retain masses of valuable data that can be analyzed, repackaged and monetized to offset compliance investments. Security and compliance with GDPR is also a key constraint on opening up data.

The race to real-time

The question of ‘real-time’ payments was a key talking point both on the keynote stage with Visa and Worldpay, and on the event floor. The world of physical transactions is increasingly being replaced by online, in-app and mobile payments. With the point of interaction becoming increasingly virtual, even transparent (see AmazonGo as one example), banks face the prospect of being squeezed out by the big techs and retailers.

In an increasingly frictionless world, transaction speeds need to keep pace. European regulations demand sub-ten second transaction settlement times, so transactions now are commonly clearing and settling in just two seconds!

System automation is central to banks meeting these demands, but so is a tougher monitoring system. With a reduced transaction processing window, bank’s need new ways to detect and thwart fraud quicker than ever before and AI and tokenization were among the many topics discussed.

Balancing compliance and innovation

What became evident from the regulation stream at the event was that business and strategic challenges need to be tackled in tandem with the technical ones.

With PSD2 now in place, solutions need to be open and compliant, but equally well-managed to protect the data and monetize. In-depth knowledge from industry experts can ensure a strong testing framework is in place from the start and quality is prioritized throughout development. From a more strategic perspective, such guidance can help craft decisions on which new services are best packaged and delivered to customers to help supercharge bank offerings.

Looking long term, ensuring the continued compliance, operational soundness and security of solutions requires regular risk assessments and strong monitoring processes to be implemented.

From our perspective, we’re working with a number of banks to define new testing strategies, roadmaps and long-term strategies in relation to PSD2. It’s interesting to see the wide range of challenges facing banks right now – across standards including PSD2, EMV, nexo, ISO20022 and the payment systems – but the key is to navigate.

The challenge of PSD2, of course, is here and the clock is ticking. But we feel that we are only at the start of something very exciting. The coming months and years are going to see an explosion of ideas and services, but thinking that this is the end of the banks is to underestimate their ability to adapt. Collaboration is the key to successful consumer services and fintechs can be a stepping stone for the banks to achieve success.

Nigel Reavley, Head of Financial Services

Open banking. In the last year or so, this concept has given Europe’s financial world a lot to grapple with. The implementation of some pretty historic legislation (did someone say PSD2?), and the entry of a number of agile new players, have seen banking and FS in Europe turn a corner into a new, customer-centric age.

Key takeaways from Amsterdam’s Money 20/20 Europe.

Money 20/20 Europe’s annual Fintech event, which took place last week in the picturesque city of Amsterdam, took the pulse of this brave new world. As PSD2 is now a reality, conversations notably evolved at this year’s event, with many talking about how banks can avoid falling behind.

Compliance may be mandatory, but monetizing investment in new services and delivering better solutions to consumers is key. So, what are the considerations banks need to manage to avoid tripping up?

Fintechs – Friend or Foe?

At its core, the revised Payments Services Directive, or PSD2, is Europe’s regulatory response to encourage fintechs offering new services, insights and analysis into our banking and transactional lives. Innovative new services are rife – from helpful financial management apps to stress-free P2P payments – and so are the new players and business models that come with them.

This wave of newer, slicker services is bringing huge consumer benefits. For banks to keep up, innovation is crucial. But this doesn’t necessarily need to all come from in-house investment.

With a number of small, agile fintechs pushing boundaries and proposing new services at the event, banks can see this as an opportunity for collaboration, or even acquisition, to boost its own offering. We saw this trend in presentations on day one from both ING and HSBC.

A bit of clever thinking is also imperative. While PSD2 requires opening up access to some account data, banks still retain masses of valuable data that can be analyzed, repackaged and monetized to offset compliance investments. Security and compliance with GDPR is also a key constraint on opening up data.

The race to real-time

The question of ‘real-time’ payments was a key talking point both on the keynote stage with Visa and Worldpay, and on the event floor. The world of physical transactions is increasingly being replaced by online, in-app and mobile payments. With the point of interaction becoming increasingly virtual, even transparent (see AmazonGo as one example), banks face the prospect of being squeezed out by the big techs and retailers.

In an increasingly frictionless world, transaction speeds need to keep pace. European regulations demand sub-ten second transaction settlement times, so transactions now are commonly clearing and settling in just two seconds!

System automation is central to banks meeting these demands, but so is a tougher monitoring system. With a reduced transaction processing window, bank’s need new ways to detect and thwart fraud quicker than ever before and AI and tokenization were among the many topics discussed.

Balancing compliance and innovation

What became evident from the regulation stream at the event was that business and strategic challenges need to be tackled in tandem with the technical ones.

With PSD2 now in place, solutions need to be open and compliant, but equally well-managed to protect the data and monetize. In-depth knowledge from industry experts can ensure a strong testing framework is in place from the start and quality is prioritized throughout development. From a more strategic perspective, such guidance can help craft decisions on which new services are best packaged and delivered to customers to help supercharge bank offerings.

Looking long term, ensuring the continued compliance, operational soundness and security of solutions requires regular risk assessments and strong monitoring processes to be implemented.

From our perspective, we’re working with a number of banks to define new testing strategies, roadmaps and long-term strategies in relation to PSD2. It’s interesting to see the wide range of challenges facing banks right now – across standards including PSD2, EMV, nexo, ISO20022 and the payment systems – but the key is to navigate.

The challenge of PSD2, of course, is here and the clock is ticking. But we feel that we are only at the start of something very exciting. The coming months and years are going to see an explosion of ideas and services, but thinking that this is the end of the banks is to underestimate their ability to adapt. Collaboration is the key to successful consumer services and fintechs can be a stepping stone for the banks to achieve success.