By Alex Bray, assistant. vice president – Consumer Banking, Genpact
On 13th January 2018, all European Union (EU) member states introduced the Payment Services Directive 2 (PSD2), which through the access to accounts rule (XS2A) paved the way for open banking. PSD2 and XS2A will ensure banks make their customers’ data freely available to other financial services companies and payment providers through application programming interfaces (APIs).
This will be a seismic shift which will come with several opportunities and risks. For example, there are high-level opportunities that the aggregation of financial data in one place will offer for customers, banks, and service providers. However, there are security implications banks face when exposing their API, as well as the competitive challenge provided by start-ups and challenger banksthat, are waiting to get their hands on this data. The full consequences of these changes remain to be seen as it is still too early, but we are starting to see some early examples of how this data will be used.
When will we see changes from the roll out of PSD2?
Since the introduction of PSD2, it has become apparent that several large banks were unprepared – and required deadline extensions. PSD2 creates huge opportunities, but will banks make the most of them?Research by PwC, published in December 2017, found that only 9 percent of banks are ready to implement PSD2. Yet, this is a significant figure considering two-thirds of European banking executives believe that PSD2 will impact their entire core banking operations. This does not bode well for the preparedness to exploit the opportunities of PSD2 – and deliver a better service to customers.
PSD2 isnot going to transform the financial services industry overnight; there will be a transition period and customers will probably see very little immediate change. On 13th January, only AIB, Danske, Lloyds, and Nationwide went live.
However, we have started to see some early examples of innovation start to take form. HSBC along with its subsidiary First Direct partnered with Bud, a London-based fintech-start-up. Together they are trialling an open banking app. This app will allow a mix of HSBC customers and non-customers to view all their account information and receive transaction notices, money management tips, and product suggestions based on individual needs (even from third parties). For example, the app will trawl databases for the best broadband and energy deals, personalised for each customer.
Meanwhile, theEmma app, developed by another fintech, that aims to build the banking app for millennials, has just been given Financial Conduct Authority approval. The app will help consumers avoid overdrafts, find and cancel subscriptions, track debt, and save money. The fintech already has announced Emma’s integration with digital challenger Monzo.
What are the benefits to customers?
Right now customers are not particularly aware of the new regulations. A study by Equifax found that 90 percent of Brits have not heard of open banking. Still, they will see benefits including more options, better prices, and easier processes. There is a possibility that open banking will only lead to the growth of more account switching services unless disrupters start to shake up the banks.
A key reason that customers should care about open banking is that there are some significant benefits to having financial data aggregated in one place. Analysis tools can provide meaningful insights by incorporating data from other financial institutions; for example, companies can integrate credit card statement data alongside current account statements to present coherent financial picture for customers. This aggregated data will be easier to monitor, offering new insights into personal income and expenditure. Comparing financial positions and experiences among similar customers will also be easier, which will help when evaluating and selecting products from other banks.
The regulations also will transform the way customers apply for loans, improving the experience. For example, customers will no longer need to provide information on earnings or outgoings. Instead, financial intuitions will use APIs, providing data directly. This will cut the average time it takes for a customer to complete a new loan application to the speed at which the data can be transferred between banks – it could seem close to instantaneous from the consumer’s perspective. This will radically reduce dropout rates.
”Request to Pay” is another aspect of open banking, It allows customer payments to become more flexible and automated. Naturally, these are just the initial benefits. As start-ups begin to have access to increasing amounts of banking data, it is reasonable to expect greater innovation across the board. This will have a strong impact on customers’ lives as banks and other companies create new financial products.
Are banks in a position to take advantage of PSD2?
It often appears as if PSD2 is helping fintech start-ups compete with the big players. Yet traditional banks also can reap rewards. Some banks have made investments to prepare themselves by developing innovation labs, partnering with tech start-ups and incubators, or creating communities of developers around their banking platform.However, there are still many banks that are not yet forward-thinking, and more content with just satisfying PSD2 compliance requirements so they do not fall foul of any fines.
It is also worth noting that fintechs may not be the main competitor to banks in an open banking world. Perhaps this is the opportunity for other brands? Could it be the price aggregators, such as MoneySupermarket, that are the biggest threat given their established customer bases and strong branding?Acquisitive banks are also more likely to purchase successful start-ups,which is a reoccurring trend.
PSD2 will allow banks to seek out new opportunities and meet customer needs more effectively, through access to customer information held by competitors. It will give banks the ability to make more accurate marketing and credit decisions, therefore offering improved customer service and pricing. With a wider range of customer data, they could become the relationship hub for customers.
It is no surprise then, that PwC found that half of all banks aspire to become aggregation platforms. Acting as intermediaries and developing platforms that allow partners to integrate their products and services into banks’offerings could enable banks to remain at the heart of their customers’ financial lives.To realise this potential, financial institutions will need to improve their analytics so they and their customers can understand – and use – the huge amounts of new data that will be available.
We have yet to see PDS2 transform the banking industry as we know it; however, there is momentum building. Banks are starting to experiment with new services and partners to deliver a truly open banking experience for customers. Once customers understand open banking and how it can improve their experience, they will reward banks that focus on building next-generation services. The best open banking apps and services are still at least several months away, yet those companies that are first to market are in a good position to reap the rewards of this new world.
Alex Bray is an assistant vice president in the Consumer Banking practice at Genpact, a global professional services firm focused on delivering digital transformation.
Bank of Ireland limits 2020 loss with strong second half, shares rise
By Padraic Halpin
DUBLIN (Reuters) – Bank of Ireland limited its underlying 2020 loss to 374 million euros ($452 million) after a return to profitability in the second half, the bank said on Monday, sending its shares more than 5% higher.
Ireland’s largest bank by assets also announced the closure of one-third of its branches in Ireland, 10 days after NatWest said it would wind down its Irish arm Ulster Bank.
The bank set aside 1.1 billion euros to cover possible loan defaults due to COVID-19 disruption, the bottom of its forecast range and which it expects to capture the majority of credit impairment risk associated with the pandemic.
An underlying 295 million euros second half profit limited the damage as lending and business income improved, trends Chief Financial Officer Myles O’Grady said continued into 2021, even though Ireland was in a long lockdown again.
“It’s clear that there is some impact from this lockdown but the signals overall are encouraging. We do think (the second half) will be a return to a more normalised level of activity,” O’Grady told Reuters.
Shares in the bank were 5.1% higher at 3.6 euros by 0910 GMT.
The bank cut it costs by 4% year on year in 2020, meaning it achieved its 1.7 billion euro annual cost target one year early. It set a new goal of cutting costs further to 1.5 billion euros by 2023.
That will partly be achieved by branch closures, with its Irish network cut to 169 from 257 from September and Northern Irish presence more than halved to 13. It struck a deal with the Irish post office to offer customers access to banking services at An Post locations.
The head of Ireland’s Finance Services Union described the announcement of closures in the middle of a pandemic as a “shameful act” that needed to be reversed.
Bank of Ireland’s core Tier 1 capital ratio, a key measure of financial strength, stood at 13.4% versus 13.5% at the end of September. The bank said it expected capital to remain broadly in line with those levels in 2021.
The bank’s guidance for this year should support the restart of distributions to shareholders in relation to full-year 2021 results, Chief Executive Francesca McDonagh said, adding that future distributions will likely include share buybacks.
($1 = 0.8272 euros)
(Reporting by Padraic Halpin; Editing by Edmund Blair)
Functions and Features of Offshore Banks to Know About
By Luigi Wewege, Senior Vice President, and Head of Private Banking of Belize based Caye International Bank
Have you been mulling over the idea of establishing an offshore checking or savings account? Maybe the idea of having an investment account with an offshore bank has been on your mind. If so, now is the time to explore these options more fully.
You’ll find that the features and functions of offshore banks have quite a bit to offer. Here are just a few examples to keep in mind.
Account Types That Are Familiar Plus More
One of the first things you’ll notice is that all of the domestic account types you’re familiar with are also available internationally. Along with those, you’ll find accounts that have some features that aren’t found at home. Some of them will help you grow your accounts or save money faster.
From time deposit accounts to special retirement funds, there’s something for just about everyone. Bank officials are happy to explain how each account type works and what it can do for you.
Competitive Interest Rates
Depending on how much you can deposit into an account, the interest rate that applies can be higher than what you receive at home. This is especially true if you opt for accounts that come with tiered interest rates. As you exceed and maintain certain balance levels, it’s possible to lock in higher interest rates.
Think of what this could mean if the plan is to save money for your retirement years. As you add to the balances and let them remain in the account, more interest is earned. Start that when you still have at least a couple of decades left to work full time, and the result could be a significant nest egg to use during those retirement years.
Easy Online Management
The days when managing offshore accounts required the post or some other slower method are gone. The best offshore banks provide online management to their clients. That means you can transfer funds between accounts with ease.
Think of how nice it would be to initiate a funds transfer that moves money from a domestic account to an international one. This can be done any time of the day or night. You will know when it posts to the account, often on the next business day. How much simpler could it be to get money in those accounts?
With the Best in Security Measures
Security is a priority with offshore banks. Data is encrypted correctly, account access is monitored, and there are plenty of safeguards in place. Other than authorized bank personnel and yourself, no one is getting into your accounts.
Top offshore banks evaluate and update security measures regularly. This makes it possible to remain ahead of the most recently launched threats and prevent hackers from accessing your funds.
Protection From Political and Market Upheavals
It’s no secret that political shifts and marketing changes impact the financial world. One way you can minimize the effect on your wealth is to house part of it in offshore accounts. Whatever is happening at home will not impact the funds you have placed in offshore accounts.
No matter what happens to your domestic assets, your offshore funds and holdings remain intact. Regardless of the losses you might incur at home, you’ll still have your offshore balances to help you get back on your feet.
Safeguard Against Legal Troubles at Home
No one is immune from being the defendant in a lawsuit. It could be a personal injury suit or a civil action against you. It could even be problems with a tax agency that leads to seizing your bank accounts or garnishing your wages. While it would be impossible to protect your domestic assets from these types of issues, your offshore assets are different.
In most instances, a judgment in a civil suit or a tax garnishment will not result in the seizure of any of your offshore accounts. They remain outside the jurisdiction of a domestic court.
A Wider Range of Investment Opportunities
Setting up accounts in the right offshore location allows you to take advantage of many investment opportunities that aren’t available at home. It’s not just the possibility of greater returns that captures your interest. The options themselves are broader than what you can access using any domestic banking or investment firm.
From real estate to currency trading, some options are likely to be of interest. Many of them can be managed through one or more arms of your international bank. Since many offshore banks have personnel who can provide information about investment opportunities, it’s easy to access factual data to help you decide if a particular investment fits in with your overall financial goals.
Possibly Superior Rates of Exchange When You Travel
Here’s something to consider if you tend to travel abroad regularly. When it comes to the exchange rate between different currencies, using your offshore checking account balance rather than a domestic one may be a better choice. That’s because there may be a more favorable exchange rate between your offshore account and the nation where you’re visiting.
A better exchange rate increases your buying power and lessens the overall cost of your trip. You’ll spend less on big-ticket items like hotels, air or rail travel, and meals.
Benefit from Opening an Offshore Bank Account
You don’t have to be rich to establish and grow offshore bank accounts. You’ll find banks that allow you to open an account with relatively modest balances and add to them with ease.
Over time, these balances help you achieve greater financial stability and ensure a more secure future.
This is a Sponsored Feature
Luigi Wewege is the Senior Vice President, and Head of Private Banking of Belize based Caye International Bank, a FinTech School Instructor and the published author of The Digital Banking Revolution – now in its third edition.
You can follow his posts on trends shaping the banking and financial services industry on Twitter: @luigiwewege
Banks in EU to publish world’s first ‘green’ yardstick from next year
By Huw Jones
LONDON (Reuters) – Banks in the European Union would have to publish a groundbreaking “green asset ratio” (GAR) as a core measure of their climate-friendly business activities from next year, the EU’s banking watchdog proposed on Monday.
As the trend in sustainable investing gathers pace, regulators want investors to get more reliable information on a bank’s exposures to climate change as storms and other weather events affect the value of their assets and liabilities.
The European Banking Authority (EBA) said the ratio, put out to formal public consultation on Monday, will measure the amount of climate-friendly loans, advances and debt securities compared to total assets on a lender’s balance sheet to reach a percent figure.
“I believe it’s the first time regulators are asking for a green asset ratio,” said Piers Haben, EBA’s director of banking, markets, innovation and consumers.
“The numbers may well be single digit for banks at first and that’s why context will be important. When a bank talks about where it wants to be in 2030, that is going to be really interesting on the green asset ratio.”
The new EU “taxonomy” would be used to define which assetsare environmentally sustainable.
EBA said that many stakeholders have a legitimate interest in the physical and transition risks that banks are exposed to from climate change.
Banks are likely to face pressure from investors to show what steps they are taking to increase their GAR over time, though few lenders are expected to reach 100%.
The watchdog was responding to a request from the EU’sexecutive European Commission on how to implement upcomingrequirements on climate-related disclosures by banks.
The GAR would published in a bank’s annual report, starting from 2022 based on data up to Dec. 31, 2021.
Banks will also have to publish three other indicators showing the extent to which fees from advisory services, major trading operations and off-balance sheet exposures are derived from climate-friendly activities.
(Reporting by Huw Jones; Editing by Ana Nicolaci da Costa)
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