Andy Brown from NCR speaks with Global Banking and Finance Review on the challenges and opportunities for traditional banks in the open banking era.
How’s the competitive landscape of the banking sector shaping up in 2018?
It’s no secret that competition in the banking sector is fiercer than ever and legacy banks no longer have it all their own way.
The formation of Fintech firms and so-called challenger banks are disrupting the accepted order and giving consumers more options than ever when it comes to how they manage their money. For example, a recent survey highlighted that a surprising number of Americans would consider putting their money in an Amazon Bank or with Google Financial Services. With nearly 60% of banking customers considering moving their money to accounts offered by familiar online companies or big-box stores – such as Amazon, Google or Walmart – even though they have no experience with financial services.
What is helping drive this shift consumer behaviour?
With digital being the new normal for many consumers, those companies like Google and Amazon who are able to exceed in meeting their digital needs elsewhere, are likely to have consumer confidence they can replicate for financial services. With the implementation of PSD2 banks are now entering a new era of innovation and collaboration. They must embrace this to stay competitive and relevant and avoid being reduced to rigid organisations that are just regulated entities that manage the funds and execute payment requests while others provide the value-added services. Especially now, when the opening up of consumer account and transactional information through PSD2 offers a wealth of opportunities to the Fintech start up sector. The greater technical and cultural agility of Fintech start-ups means that, unlike the traditional banks, they are more likely to be able to tap into the new opportunities made available by the implementation of PSD2 than traditional banks.
What have been the other significant changes that have come into effect since the introduction of PSD2?
In terms of the everyday operation of financial services, two of the most significant changes that have come into effect with PSD2 are the enablement of payment initiation service providers (PISPs) and account information service providers (AISPs). Customers are now able to give third parties permission to initiate payments on their behalf or access their bank account data for purposes such as product comparison.
What this means in practice for banks is that they are required to use publishAPIs (application programming interfaces) – sets of functions and procedures that will allow third-party access to customer data and to request payments on behalf of the customer. This is a big change, but there are solutions available to help banks handle this transition as smoothly as possible.
With all this change, what solutions are available to help banks with thisnew way of working?
Technology obviously is the answer here. An API is essentially a system that transports a message into a bank, and transaction processing solutions like Authentic can give you the tools required to extract the necessary data from that message and determine what steps are required to complete the request.What’s more, the technology can provide connections to the relevant systems within the bank that can provide the information required to fulfil the incoming request or transaction.NCR’s Authentic is designed to enable these connections with the internal andexternal systems and deliver a clear workflow for completing and responding to requests arriving via APIs. Of course, these services are going to grow and develop so another key aspect of NCR’s Authentic product is the ability to easily make changes to respond to business and regulatory demands.
How will this directly impact on the customer and what will they now be looking for in terms of their relationship with their bank?
As the primary custodians of their data customers will be looking for a bank that can, not only offer innovative services that provide value, but also ensure their data is safe and secure whether they choose to share it with third parties or not. Also, for those consumers who are less confident using new and unestablished financial services they will be looking to their bank, or other traditional banking players, to be providing those competitive services they want to benefit from too.
From this, we are likely to see the increase in business models like Uber within the banking industry, in the sense that before Uber there were three sections: finding a taxi, ordering the taxi and then paying for it. Uber brought all of these three items together in one place. Fintechs and banks are likely to utilise this set-up. Currently, there are apps that you can search for a car and organise a test drive; this sort of thing is likely to expand out so the app could tell you what accounts you have and how much money you have available to buy the car, if you don’t have enough it could offer you possible loans to cover the gap etc.
In this ever growing digital era, what are the opportunities for banks?
According to a report from PWC, the real opportunity for banks to add value is “in harvesting and analysing real consumer data to offer innovative products and services.” Although PSD2 requires banks to open up their customers’ account and transactional information to third parties, this does not mean that banks will lose their edge when it comes to using data to provide new products and services. And PSD2 is limited to a focused set of accounts and services; there will be others which could be opened to APIs where a bank could charge for access.
While existing and new start-ups who wish to work with consumer account and transactional data will need to ensure they are registered with the local regulator, banks can benefit from the fact that they already have this certification, access to customer data, and are seen as trusted data custodians by their customers. Banks should build on this foundation and consider how they will get ahead of the competition, offering new and innovative services before their smaller competitors can get out of the starting blocks.