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PSD2, threat or opportunity for banks?

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PSD2, threat or opportunity for banks?

Are PSD2 and Open Banking a threat or an opportunity for banks? It’s the question for which everyone would like to have the right answer.

But before trying to answer that, we must understand what PSD2 and open banking really means. Often associated, sometimes the two get confused, but they are different. The difference is that whereas PSD2 (the European legislation known as the second Payment Services Directive) requires banks to open up their data to third parties, Open Banking means that they do so in a standard format.

For us, in Banco BNI Europa, PSD2 not only means new obligations but also great potential and development opportunities for the future. What many haven´t realize is that like third-party providers (TPPs), banks can also use the data of other banks for innovative product offering – if they have implemented the digital infrastructure.For a Challenger Bank like us, that’s a path that we want to follow in order to reinforce our role as a leader in the Fintech generation.

With PSD2, the European Commission aims to improve innovation, increase consumer protection and improve the security of internet payments and account access. PSD2 introduced two new types of players to the financial landscape: PISP and AISP. AISP (Account Information Service Provider) are the service providers with access to the account information of bank customers. Such services could analyse a consumer’s spending behaviour or aggregate a user’s account information from several banks into one overview. PISP (Payment Initiation Service Provider) are the service providers initiating a payment on behalf of the consumer. P2P transfer and bill payment are PISP services we are likely to see when PSD2 is implemented.

psd2-2

Therefore, when PSD2 becomes implemented, banks’ monopoly on their customer’s account information and payment services will disappear and that will change the traditional banking landscape. Banks will no longer compete against each other’s but with everyone offering financial services.

In fact, with PSD2, bank customers, both consumers and businesses, can use third-party providers to manage their finances, while still having their money safely placed in their current bank account.

At the same time Banks are required to provide these third-party providers access to their customers’ accounts through open APIs (application program interface).

This will enable third-parties to build financial services on top of banks’ data and infrastructure.  They enter in the market with new ideas about how to shape the banking experience but also without the heavy compliance and infrastructure which banks are required to maintain.

To be more precise, one of the most important points covered in PSD2 is XS2A (Access to Account) that allows third parties to access bank accounts to get customer data – only when the customer gives their consent – such as bank account balances or transaction history.

To explain it in a simpler way, at the moment, if you’ve got accounts with two different banks, you have to look at them separately, because the banks’ systems are incompatible. With PSD2 the new players will let you see them at the same time, which should make it easier to manage your money.

On the other hand, when you take out a loan, you have to show details of your finances to prove you’re good for it. PSD2 will let you provide that information online – for instance, by giving an investor one-off access to 12 months income and spending history.

For banks, PSD2 poses substantial economic challenges. They will lose not only revenues obtained for payment services, but also IT costs will increase due to new security requirements and the opening of APIs.

To fight against it, and at the same time going towards customer expectation and increased digitalisation, many banks start collaborating with Fintech, focusing on customer centricity and setting up innovation labs.

In fact, with PSD2 we are moving from banks to banking services.As Bill Gates said back In 1990, Banking is necessary, banks are not.

Banks and start-ups see an opportunity and are already building apps, usually dashboards where you get a view of your ingoing’s and outgoings.

Consumers become more digital and mobile and they are asking for financial service offerings that are faster, less formal, more personalized, easier to access and cheap. So far, non-banks have proven to meet these requirements in a more innovative and human-centric way than many traditional banks and costumers are starting to use them, instead of using traditional banking in day to day transactions. That explains, for instance, the increase use of PayPal.

Competition within the financial sector will increase, with banks find difficult to differentiate themselves in traditional services, due to the introduction of PSD2, technological innovations and changing customer demands.

There are several reasons for this. One is, that new entrants in form of non-banks will get easier access to the market after PSD2. The regulation removes some entry barriers to the financial market, and hence, more competitors are likely to emerge. Furthermore, customers can easily choose new financial service providers with the introduction to PSD2. This means, that customers will be enabled to create their own collection of smaller service providers instead of choosing one specific bank for all financial needs.

To move forward, we need to adapt to PSD2 as soon as we can. Being a small bank and wanting to make a difference in the banking system, we, as a European challenger bank we entered into a strategic partnership with NDGIT the provider of the first API platform for banking and insurance in Europe. With “PSD2 Ready”, NDGIT, the technology leader in the field of API management offers a complete solution that can be used immediately allowing Banco BNI Europa to be ready for the PSD2 challenger in a record time.

NDGIT product “PSD2 Ready” offers ready-made APIs with all functions for PSD2 and regulation are already included, from third-party management to PSD2 reports. The software can be flexibly configured for all requirements of complex banking IT and can also be adapted to the various options of the API standards and authorization options.

As mentioned before,at Banco BNI Europa, we see PSD2 not only as new requirement for Banco BNI Europa, but also as a opportunity for the future as we want to reinforce our role as a leader in the Fintech arena.

Banking

Over 60’s turning to digital banking up by 90% during pandemic

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Over 60’s turning to digital banking up by 90% during pandemic 1

More than 90% of people aged over 60 have used online banking for the first time during the Covid-19 pandemic, according to a poll by iResearch Services, highlighting the importance of banks getting digital right in 2021.

In comparison, 17% of people aged under 30 said they were accessing services via an app or web browser for the first time.

The findings show how banks must adapt to help service the influx of new digital users and gain their trust, accelerated by the Coronavirus pandemic. With 97% of 18–24-year-olds trusting their bank with their data, compared to only 33% of people aged over 66.

Commenting on the findings, Gurpreet Purewal, Associate Vice President, Thought Leadership, at iResearch, said: “Our study demonstrates the lasting impact of Coronavirus on how people will access banking services from now on. Banks will be required to refocus on really understanding customer needs in order to engage with the different requirements of each individual customer.

“More than half (54%) of respondents said they are less likely to attend a physical branch after the pandemic. This demonstrates a seismic shift in the way people will access banking services now and into the future.”

In other findings, 63% of respondents said their bank acted in their best interests during the pandemic, but a third said they would consider switching their bank for better, more personalised communication.

Purewal added: “On the whole, High Street banks have emerged with great credit from the pandemic for the way they have supported their customers. As the economy rebuilds, it will be more important than ever that they communicate in the right way to help consumers through 2021 by leveraging digital platforms and understanding their needs fully.”

Asked how banks can improve their communication with customers, ‘connecting on a personal level’ ranked highest, followed by ‘more honest and open dialogue’, a ‘demonstration of how they are helping customers’, ‘more creative campaigns’, ‘consistent messaging across channels’ and finally ‘responsiveness to major events’.

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Banking

Banking on the cloud to create a crucial advantage in financial services

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Banking on the cloud to create a crucial advantage in financial services 2

By Rahul Singh, President of Financial Services, HCL Technologies

Once considered a revolutionary technology, cloud is now at the heart of agile and innovative businesses. The financial services industry is no exception, and has been a major adopter of cloud-based Software-as-a-Service (SaaS) for its non-core applications. Functions such as customer management, human capital management, and financial accounting have progressively shifted to the cloud. Several banks have also warmed up to using cloud for services such as Know your Customer (KYC) verification. IDC analysts say that public cloud spending will grow from $229 billion in 2019 to almost $500 billion by 2023, and a third of this will be spent across three industries: professional services, discrete manufacturing, and banking. The time is ripe for an increasing number of financial services providers to consider moving more of their core services to cloud.

Adoption is already on the rise

Earlier reluctance to move core activities to the cloud has softened, and many banks have put strategies in place to migrate services, including consumer payments, credit scoring, wealth management, and risk analysis. This significant change is driven by factors such as PSD2 and open banking, which require secure and cost-effective data sharing.

Regulators too were once cautious in their approach to cloud technology, but this is also changing. The Australian Prudential Regulation Authority (APRA), for example, whilst acknowledging the risks associated with cloud, also recognised the risk of sticking to the status quo. ARPA trusted the enhanced security offered by the cloud, and updated its cloud-associated risk advice. Wisely, APRA recommended that banks must develop contingency plans that allow cloud services to be provided through alternate means if required.

Rising pressure from new challengers

The other pressure for incumbent banks is from next generation fintech firms. These are cloud-native organisations, and are able to onboard customers remotely in minutes, roll out new services in days, and meet compliance requirements at lower costs.

As a result, the need for traditional banks to upgrade core systems and integrate the latest technologies is stronger than ever. The COVID-19 pandemic has been an additional driver, highlighting the importance of upgrading and migrating core systems to the cloud. Financial services organisations have been forced to rethink their approach to digital transformation, and pay special attention to a cloud-aligned culture. The industry is recognising how the cloud can address new and ongoing regulatory changes, meet different demands from customers, support the roll-out of emerging technologies, and enable incumbent providers to respond to the relentless competition from fintech firms.

New year, new priorities

As we enter 2021, financial services providers will need to reset their priorities, and go beyond using the cloud for scalability and cost efficiency alone. The new areas to focus on will include:

  • Creating a robust digital foundation: The cloud market is expanding fast, and there is an ever-increasing number of services on offer. Whilst the big three hyper-scalers are the obvious choice, various other players are also gaining traction, such as IBM, Oracle, and Alibaba Cloud. Organisations will need a robust digital foundation to adopt cloud at scale in a secure and compliant way. A well-architected digital foundation, supported by resilient operations, ensures that organisations have continued access to their systems and data, regardless of where employees are located, or what device they are using.
  • Adoption of technology platforms: Enterprises are finding ways to reduce complexity by embracing a platform approach, and increasing the speed of business IT consumption. Physical infrastructure is being abstracted into cloud-based platforms, with data consolidated into data lake platforms. Software products like Apigee are being offered as capability platforms to drive better analytics and intelligence.
  • Enhancing IT security: Cloud offers organisations greater security than on-premises servers, if implemented correctly. Financial services organisations have relied on control and compliance-based security for years, but these practices are increasingly vulnerable to cyber threats. Whilst service integrators create robust cybersecurity solutions for financial services organisations, cloud providers are also looking to provision industry-specific security and regulatory measures like end-to-end data encryption – making it easier for financial services organisations to be compliant whilst migrating to cloud.
  • Driving innovation: Cloud is the fundamental factor behind the ability of fintechs to innovate rapidly. Using cloud, financial services can leverage new technologies and tools like augmented reality (AR), virtual reality (VR), natural language processing (NLP), machine learning (ML) and the Internet of Things (IoT) to unlock new processes that improve customer interaction and experience with portable real-time services. Whilst fintechs have led the way in cloud-based innovation through open banking platforms, some of the leading banks are also adopting cloud to simplify their business processes, including KYC as a Service, to enhance customer experience.
  • Enterprise synchronisation: Effective collaboration, both internally and with external partners, is crucial to success in the ever-expanding financial services ecosystem. Cloud allows businesses to integrate collaboration through shared tools and platforms. This is a critical ability as it leads to faster decisions and improved innovation cycles.

Legacy systems hold banks back from improving revenue generation and restrict their ability to build a responsive and resilient business. Cloud is a key factor in the success of challengers: traditional banks have no time to waste in migrating their core systems to cloud and building a secure future.

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Banking

State of the Industry: optimism high in global financial services, although some key issues cause concern

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State of the Industry: optimism high in global financial services, although some key issues cause concern 3
  1. Exclusive research from Barclays Corporate Banking reveals the views of financial services leaders from across the globe on a range of key issues
  2. Recovery from Covid-19 is a key priority for FinTechs over the year ahead, however their number one aim shows the optimism in the sector: focussing on business growth
  3. Asia-Pacific may be the new focal point for expectations around Open Banking, with interest from Europe dropping year-on-year
  4. Firms confidence in their own cybersecurity fell 5% versus 2019, with less than half of respondents (42%) feeling satisfied with their own approach to the issue

Key players in the financial services industry are optimistic about the year ahead, according to a new ‘State of the Industry’ report from Barclays Corporate Banking, Alive to Opportunity.

Exclusive research from the bank also highlights regional differences in approaches to regulation, expectations for payment innovation and confidence in cybersecurity.

Optimism for 2021

As the official insights partner of last year’s Money 20/20 global conference series, Barclays conducted a survey of over 200 financial services leaders from across EMEA, the Americas and Asia-Pacific. From these senior executives, Barclays Corporate Banking found that optimism in the sector is high as it enters into 2021.

Whilst recovery from Covid-19 might be seen as a likely top priority for the coming year, it came in second place when respondents were asked what they would be focussing most on during 2021 – with 42% of leaders selecting it. Top spot instead went to ensuring business growth, with nearly three in five (57%) respondents picking it as their main area of concentration.

Commenting on this trend, Phil Bowkley, Global Head of Financial Institutions Group, Barclays Corporate Banking, said:

“Given that 2020 was such a tumultuous year, it is encouraging to hear FinTech businesses are confident and focused on future growth. Many firms have grasped the upheaval of the global pandemic as an opportunity. Covid-19 has driven a huge surge in ecommerce and cross-border business. This has significantly increased flows across FinTech payment providers, which have worked hard to enable cross-border trade, payments and ecommerce. At the same time, the industry has been collaborating with banks to ensure much-needed financial support from government flows to the real economy.”

Regions back themselves on innovation

In a continuation of a trend seen in 2019, respondents often rated their own region as the most likely source of future innovation. This ‘home’ bias was particularly strong in Asia-Pacific, where China, India, Japan and Southeast Asia together claimed over 83% of regional votes when considering the key sources of innovation over the next five years.

However, China’s reign as the most likely site of financial services innovation did not continue from 2019, with Barclays’ most recent survey showing that nearly one in four (24%) key industry leaders now view the United States as the most probable location for the rise of payment innovation over the next five years.

A shift eastwards for Open Banking?

Barclays’ research also suggests that Asia-Pacific may be the new focal point for expectations around Open Banking, with interest from Europe dropping year-on-year.

In 2019’s report, the impact of this key regulation was anticipated to be strongest in Europe – however, this time round just 38% of EMEA leaders now expect Open Banking to have a big impact on their business. By contrast, the majority (59%) of senior respondents from Asia-Pacific feel that the regulation will be key for their companies as we move into the remainder of 2021.

Security and resilience in a post-Covid world…

Firms’ confidence in their own cybersecurity dropped by 5% versus 2019, with less than half of respondents (42%) feeling satisfied with their business’ approach to the issue. Businesses in EMEA feel least confident about their security provisions, with one in three (33%) indicating that their own cyber security needs further investment.

The importance of resilience to customers was also a theme that many felt would rise in significance in 2020, given the recent growth in remote working as a response to Covid-19 – however just 5% of respondents viewed this issue as important when considering customer loyalty.

Steve Lappin, Managing Director, Barclaycard Business, said: “From remote working to e-commerce, coronavirus has meant that digital channels play a much greater role in working life. While this has undoubtedly presented new opportunities, it has also put additional pressure on infrastructure and heightened potential vulnerability to attacks. Therefore, it’s not surprising that confidence in cybersecurity has dropped, with many firms feeling that their rapid adoption of these new channels has left governance and control lagging behind. It’s critical that businesses remain vigilant – security may not be a key driver of customer loyalty, but cybersecurity issues are definitely a driver of disloyalty.”

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