By Ralf Ohlhausen Executive Advisor, at PPRO
Whilst initially seen as simply a regulation exercise, the second Payment Service Directive, also known as PSD2, has been a key driving force behind Open Banking, an initiative that presents a hopeful vision for the future of the financial services sector. Thanks to the advancement of technology, the payments industry is currently seeing disruption to legacy banking systems, and a move towards a world of Open Data. With Open Banking, third-party providers (TPPs) can offer customers a wealth of new and automated services beyond their standard bank offerings, such as what products to buy or even advice on who to bank with.
PSD2 has been created to ensure that banks create mechanisms to enable third-party providers (TPPs) to work securely, reliably and rapidly with the bank’s services and data on behalf of and with the consent of their customers. PSD2 requires EU member banks to give authorised, i.e. licensed TPPs, access to customers’ accounts either via Application Programme Interfaces (APIs) or their user interfaces. It also mandates the use of Strong Customer Authentication (SCA), which requires multiple factors of authentication from a customer to initiate electronic payments and grant access to transaction data.
Despite the progress of PSD2, however, there are still challenges to overcome to achieve widespread adoption and to meet Open Banking objectives. So, what are the current roadblocks that European banks and financial services need to overcome to make Open Banking a beneficial reality for all?
Delays to API development
A crucial factor standing in the way of the acceleration towards Open Banking has been the delay to API development. These APIs are the technology that TPPs rely on to migrate their services and customer base to remain PSD2 compliant.
One of the contributing factors was that the RTS, which apply to PSD2, left room for too many different interpretations. This ambiguity caused banks to slip behind and delay the creation of their APIs. This delay hindered European TPPs in migrating their services without losing their customer base, particularly outside the UK, where there has been no regulatory extension and where the API framework is the least advanced.
A lack of awareness
Levels of awareness of the new regulations and changes to how customers access bank accounts and make online payments are very low among consumers and merchants. This leads to confusion and distrust of the authentication process in advance of the SCA roll-out. Moreover, because the majority of customers don’t know about Open Banking yet, they aren’t aware of the benefits. Without customer awareness and demand it may be very hard for TPPs to generate interest and uptake for their products.
Recently some regulators and banks, such as the Central Bank of Ireland, have made decent efforts to raise awareness of the changes with PSD2 campaigns. But it isn’t reaching the general public. When it does, it’s often because of scaremongering or fear, uncertainty and doubts around data security fuelled by incumbents to protect their business. This also isn’t the right way to approach the issue as it will lead to people being more afraid, rather than aware. Instead, it is the role of payment service providers to educate their customers about Open Banking requests or opportunities, to ensure the public are aware of the changes to payment authentication procedures when SCA comes into play and are empowered to move their data.
TPPs have a real vested interest in getting customers on board with Open Banking. They should build on their customer relationships to grow trust and raise levels of education around the changes. When customers sign up for a new service, TPPs need to tell them explicitly what to expect before they have to do it, plus what explicit consent is required to access their account information in exchange for value-added services.
Outweighing the challenges with opportunities
Although the introduction of the PSD2 regulation hasn’t been seamless for the banking and fintech industry, it is set to offer many benefits and advantages for the end-customer, and the financial industry. In fact, the regulation will create an integrated and frictionless European payments system, that will provide the customer with more choice, control and security over their finances than ever before.
One of PSD2’s primary goals is to provide greater protection against fraud for banking customers, who may have previously been open to risk through weak authentication and unregulated data-sharing practices. The new rules insist on enhanced security requirements, including the use of Strong Customer Authentication (SCA) to protect customers while making electronic payments.
Furthermore, TPPs unencumbered by legacy technology have long been able to innovate faster than traditional banks. Now, this regulation will provide regulated and secure access to customer data, allowing them to develop products even more quickly. The new regulation also promotes technology on a European level and encourages fintechs to do what they do best: innovate.
It’s also important to not forget that PSD2 regulation increases market competition allowing customers to choose a wider range of suppliers for their banking and payment services without having to switch their bank for that. The decoupling of banking services from the underlying account infrastructure will make it easier for customers to opt for the banking services that best fit their needs. It also increases the number of financial providers, services and products which customers will be able to choose from.
The future of Open Banking
The financial services landscape is becoming a firmly consumer-centric environment. Across the UK and Europe, we’ll continue to see the rollout of technologies that put control in the hands of consumers. Open Banking will be pivotal in its role, opening up new avenues and opportunities for both banks and payment service providers (PSPs).
Thanks to Open Banking, the ability to share data securely in the retail banking sector has led to a sophisticated ecosystem where the customer is in charge of their payments and choice of banking services. Over the next decade, we should expect to see the same level of transformation in our digital services and data sharing, leading to a complete rebalance of services where customers will be able to actively own their data and use it the way they like.
Europe is currently leading the Open Banking race, so the successful implementation of PSD2 and SCA is extremely important to maintain the lead and build a future with Open Finance and Open Data as well.
RegTech 2020: The rise of Open Banking
This month on the RegTech 20:20 podcast, host Alex Ford is joined by industry experts Gavin Littlejohn, Chairman of The Financial Data and Technology Association (FDATA) and Jamie Leach, Regional Director of FDATA ANZ and Founder of Open Data Australia, to discuss developments in Open Banking, and the place of RegTech.
Today, the focus is on the digital customer experience and the insight offered indicates that there has been a major shift in the FinTech ecosystem as a source of potential innovation for banks, rather than being a direct competitive challenge.
In the podcast, Alex quizzes Jamie on the concept of sharing data and the impact of the introduction of Open Banking rules under the Consumer Data Right (CDR) in Australia. Jamie shares that it is an exciting time to be involved in the sector:
“…what we really need to consider is that Open Banking in Australia is very different to Open Banking in the UK. Really, what has spurred Open Banking in Australia under the Consumer Data Right is the pursuit of creating greater competition and greater innovation, while allowing consumers to do more with their data.”
Gavin, who has many years of experience in the industry and, as well as his role with FDATA is also a key member of the UK Open Banking Implementation Entity, speaks on the theme of advocating Open Finance in the UK.,’
Delving deeper into Open Banking, he highlights the fact that it has been an interesting journey and states that “the important thing to understand is the difference between the UK’s Open Banking order and the wider payment services directive.”
Not only concentrating on Australia, Jamie also works across the sector in the UK and, also looking at its evolvement here, she suggests that the people creating the rules are now taking notice, adding: “We are just getting started – the UK has been at it for nearly three years and it is still gaining momentum.”
With regards to future predictions, Jamie believes “It’s going to take 12, 18 or 24 months before we see any mainstream major adoption and where the potential of Open Banking can go in this market”
Moving to the differences between Open Finance and Open Banking. Gavin defines the latter as “payment initiation and access to payment data, which enables a third-party provider or fintech with a customer relationship to initiate a payment and get access to the data relating to transactions.”
“…the concept of Open Banking is a bit like electricity – you don’t use it directly; you use an appliance that uses it. This could mean loans, money management apps, or cloud accounting platforms, which all use Open Banking.”
Throughout the episode, both guests provide interesting insights and hint at the significant potential of Open Banking.and the connection to RegTech within this domain.
It is clear that what we see today is only the beginning. Despite the industry still being in the early stages of implementation in almost all cases, there is increasing interest in moving beyond this to include a far broader spread of financial products.
You can listen to the full episode at https://www.encompasscorporation.com/regtech2020-podcast/ or across all major platforms, including Apple Podcasts, Google and Spotify.
New digital first bank – Monument – announces its key technology providers
- Monument selects Mambu, Salesforce, Amazon Web Services, Persistent Systems and Accenture as key providers for its technology build
- Monument is the first challenger bank in the UK to service the unmet demands of more than 3.5 million mass affluent clients: professionals, property investors and entrepreneurs
- It is building a modern, unique, lego-like technology platform which takes best of breed SaaS providers and integrates them in a cloud based microservices architecture
- This will deliver an exceptional client experience and enable Monument to innovate and to introduce new components on a frequent basis
- Monument today announces that Mambu will be the central core banking engine in the platform alongside Salesforce for CRM, and AWS for cloud services
- Monument has also engaged Persistent Systems and Accenture Interactive to support the platform build
Following receipt of its banking licence with restriction on 6 October 2020, Monument has now signed agreements with a number of key technology providers to enable the build of its bespoke technology platform.
Monument wants to deliver exceptional client experiences by using technology solutions that are modern, flexible, easy to integrate and ultimately, if necessary, able to be replaced should the need arise. The design of its lego-like technology platform is Monument’s solution to the huge challenges faced by the legacy systems of established banks. Having assessed the market over many months, Monument concluded that no appropriate single solution existed in the market for the products and services that Monument will launch in 2021.
In addition, Monument only wishes to develop its own technology where it can deliver significant competitive advantage, for example in the mobile and web services to be used by clients. Much of the technology platform is therefore based on best of breed solutions from modern, cloud-based providers.
Mambu has developed the leading cloud banking engine which is an excellent fit for the platform that Monument is building. Similarly, Salesforce provides an industry leading CRM (customer relationship management) solution which can easily be integrated with Mambu and other solutions. AWS, as a leading provider of cloud-based infrastructure, provides a range of components to ensure the platform is reliable, scalable, secure and flexible.
To support Monument in building and integrating a platform with more than 18 different components/providers, Monument has chosen to work with Persistent Systems, a leading global solutions provider specializing in digital with extensive experience in software as a service (SaaS) solutions. To support Monument in rapidly building its mobile app and web-based channels, Monument has chosen to work with Accenture Interactive, which has significant expertise in building innovative digital experiences in both the financial and non-financial sectors.
Steve Britain, Monument’s Chief Operating Officer said:
“We have been working closely with our chosen providers for some months now, to lay the foundations for the build of our platform. We are delighted at how much we have already achieved, particularly as much of the work has been done by a highly distributed team because of COVID-19. We are now focused on completing the work to build a unique configuration of best in class software components that will make us highly flexible for the future and deliver market leading client service.”
More announcements will be made shortly as other key components of the architecture are confirmed.
Sudip Dasgupta, Monument’s Chief Technology Officer added:
“It was essential to me that we selected the strongest providers available. Those that offer us modern technology solutions with the best degree of integration that we need, together with flexibility for the future and proven operational reliability. In Mambu, Salesforce and AWS we have certainly achieved that objective and we are excited about our future engagement with them. Equally, as we rapidly build our platform for launching with clients in early 2021, we wanted support from providers who have been on this journey before and in Persistent and Accenture Interactive, I am delighted to say we have found that.”
Monument will be the only bank to offer its clients an entirely digital journey for buy-to-let and property investment lending of up to £2million. It will offer market leading, top quartile savings rates and its model is designed to reward loyalty. So, if a saver deposits money for a subsequent fixed term, they will get a better rate than a new customer. And a borrower who renews their loan will also be offered a favourable rate.
UKRSIBBANK, part of BNP Paribas Group, announces a strategic partnership with financial wellbeing startup Dreams, to enhance the digital user experience of its 2 million customers in Ukraine
- The technology powering popular consumer app, Dreams – which has helped 460,000 users save over 440M EUR – will be made available to UKRSIBBANK’s users in Ukraine.
- Through the integration of the Dreams platform within UKRSIBBANK’s own digital tools, customers of the bank can set and achieve money-saving goals, track and improve their financial lives.
Dreams (https://www.getdreams.com/en/b2b/), the Stockholm-born fintech empowering millennials to save and feel better about their money, today announces a strategic partnership with Ukrainian commercial bank UKRSIBBANK, a subsidiary of French international bank BNP Paribas Group.
This partnership follows the announcement earlier this year of Dreams’ first enterprise partnership with banking software provider Silverlake Symmetri, and the recent unveiling of a new department in Stockholm dedicated to the development of Dreams’ B2B partnerships. The announcement marks an expansion of the company’s business model as it consolidates its B2B offering and evolves its services as a provider of white label solutions for financial institutions.
Through the integration within UKRSIBBANK’s own digital tools of the Dreams Platform – which is rooted in scientific principles – customers can set and achieve money-saving goals through clever, automated saving features, in addition to nudges and saving hacks.
The Dreams Platform will be included as part of UKRSIBBANK’s digital banking offering for its 2 million+ customers, and is set to grant millions of potential consumers across Ukraine access to products which will help keep their finances on track and improve their financial lives.
The rise in digital self-help tools has long been anticipated by Dreams and forward-thinking financial institutions. The current global economic uncertainty brought about by the COVID-19 pandemic has also placed significant strains on people’s finances, and the demand for better personal finance tools has only accelerated. The partnership with Dreams is welcomed by UKRSIBBANK which is currently striving to equip its customers with the best possible banking solutions whilst helping them achieve a more sustainable lifestyle.
Dreams is firmly established as an authority in its industry, having launched its consumer-facing app in its native Sweden in 2016 and Norway in 2018 – where it has already achieved a 16% market share of all 20-39 year olds.
Henrik Rosvall, CEO and founder of Dreams, comments: “It’s a true honour to be partnering with UKRSIBBANK and BNP Paribas Group, and we’re incredibly excited to be introducing the Dreams solution to UKRSIBBANK’s customers and the wider Ukrainian market.
“Dreams and UKRSIBBANK can now lead the charge, with BNP Paribas Group’s corporate strategy having shifted in recent years to focus on guiding customers towards responsible consumption and sustainable personal finance management. I’m confident that our mission of helping millennials save more and feel better about their money makes us the ideal partners.
“Our financial wellbeing platform – which is built upon behavioural science and personal finance management principles – will provide the perfect tool for UKRSIBBANK to help its customers make better financial choices and become more sustainable in the way they handle their finances. This partnership will also help UKRSIBBANK safeguard the loyalty of its customers and futureproof its digital banking offering against a growing number of challenger banks and fintechs.”
Konstantin Lezhnin, Head of Retail at UKRSIBBANK BNP Paribas Group, comments: “I believe that banks have a role to improve their customers’ lives. Planning and saving for important life events improves our quality of life by reducing stress levels, and we wish to make our customers feel more confident and in-control of their lives.
“UKRSIBBANK has always applied innovative ways to assist our customers in financial planning, so we are very happy to now be working with Dreams, the best European player in behavioural savings. They have an extremely solid track record in Sweden and Norway based on scientific research, so we are confident that this partnership will work positively for our customers in Ukraine. This also demonstrates our strategy to cooperate with startups and innovative companies that seek ways to expand their operations.”
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