For new entrants like Monzo, the question of how their businesses fit into the digital ecosystem does not seem to be a difficult one. Citing initiatives already under way to integrate its banking services with internet of things (IoT) and transport applications, Blomfield positions the proposition as being all around “pulling in much more contextual data”. ““If you make your data available, developers will create prototypes – and a few will turn into businesses,” he says. “APIs present the opportunity to build valuable products for customers who aren’t well-served by banks. Family joint accounts, people struggling with debt, student house-shares. They let developers build really targeted propositions for underserved segments.” There is of course no shortage of new entrants who could partner with each other to enable marketplace banking, if it turns out the incumbent providers are less keen to do so.
Lyon at Fire also sees an upside for banks as well as new entrants. “The music I listen to is the same as it has always been: I am just consuming it in a different way now. David Bowie is still brilliant, and the banks are still relevant,” he says.
However, every player must think about and decide upon the role it does want to play in the new ecosystem. If at the top of the tree are the access providers – handling most of the customer engagement – Lyon says, there are also the access gateway for API authentication and the account provision roles to consider. “Banks and FINTECHs need to be very clear about where they are going to play – or not. Will account providers open their APIs and be happy to integrate the services of others? What can they honestly give to their customers that will make them want to keep their accounts in place? How will they feel if they are disintermediated? There are other opportunities for customer engagement outside the access layer – for example around secure authorisation: there is nothing to stop the source account provider sending out a notification to customers when a transaction initiated by a third party app has occurred.”
The “hidden gem”, he says, “is the data”. “The banks could create a new layer providing API connectivity, via which they could gather more data than they need for the transaction, creating a data set via which they could offer really interesting services around transaction fraud management, for example. If the banks don’t do this, others will.”
Versmessen at Swift also sees the need for a service layer to be developed to facilitate the successful implementation of an open API-driven ecosystem. “There is a technical challenge in setting up an API framework, and even more importantly there is a trust issue,” he says. “There is a role for a trust manager for the ecosystem, clarifying who as a TPP you are and whether you have been accepted.”
It is clear that European banks are working to establish their roles in the digital ecosystem and to align their digital strategies to achieve their goals. “We want to be the digital service provider for our customers,” says Nilsson at Swedbank, “covering not only banking but other services that are relevant for them. Our PSD2 activities are part of our efforts to create a digital relationship with our customers, and to provide relevance in that digital relationship – so you log on to Swedbank and see everything that is vital for you to run your everyday economy. That’s the contextual part of it.”
The plan is not for Swedbank’s IT department to develop everything required to underpin this vision, she adds. “We will have partners, join ventures, a variety of different relationships. This is something that has been a journey for the bank.”
Lloyds’ McMorrow also positions digital as a journey for the bank. “As PSD2 introduces new categories of client our expectation is that the industry will likely see the creation of new online payment models and user experiences,” he says. “The ability to provide a secure online shopping experience using payments direct from bank accounts potentially will provide alternative solutions to cards, improved working capital for retailers and potentially an enhanced user experience for customers. We expect that the market will develop over time as new and existing providers adopt new technology and payment journeys to meet changing customer demands. As a relationship bank we will work closely with our customers to understand their needs and to ensure that our digital solutions meet the changing customer demands of the future.”
A critical aspect of the journey for banks will be partnership with their former rivals, the FINTECHs, suggests Chazot at HSBC. “I would see some co-operation with fintechs – and this is new – rather than competing with them,” he says. “It might be better to partner in order to deliver the best services to our customers.”
Banks outside Europe take a similar view. “I would view our approach as being able to partner with disruptors, to partner to create an ecosystem, in order to help our customers achieve their goals,” says Mahoney at ANZ. “For example, in the retail market we would like to help our customers to have a better home ownership experience. They want a home loan not because they just need a loan but because they wish to buy a house. Within the ecosystem in financial services, the ecosystem of capabilities, we could actually enable additional sales and leverage other opportunities through the front door by integrating with disruptors, powered by our and other providers services to benefit customers. I love the innovation we are harnessing with banking and financial services APIs. It will enable opportunities that perhaps we haven’t even thought of today.”
A shift to true customer centricity BNI Europa foresees that the enforcement of PSD2 and open APIs “will drive a shift from bank-centric interactions to customer-centric interactions”, Simões says. “This change will promote increased competition and new market entrants in the payments industry, ultimately leading to shorter innovation cycles. The adoption of instant payment methods, enabling immediate availability of funds, will outpace traditional non-instant payments methods.”
Reflecting these changes in the payments business, BNI Europa is currently working on specific solutions “that will seamlessly orchestrate a payment as part of an end to end customer experience”, he says.
“We believe that payments are just a means to an end and as such payment services will become more and more commoditised. We live in an age of reliable and secure payments: the major constraint that we face today and that significantly impacts customer experience is the reduced speed in the provision of funds to customers and merchants.”
The drive for banks to establish a role for themselves in the digital ecosystem is enabled by open APIs and is driving successful collaboration between banks and fintechs, agrees Rollin at Standard Chartered. “The banks have been carrying out innovation in labs and sandboxes but there is a challenge in making that innovation scale and bringing it back into the mainstream business. The way to collaborate is with open APIs, and it’s all about interoperability of systems and of solutions. This enables the best of both worlds. You still have the banks acting as overall providers from a legal and compliance perspective and the scale they can bring is still there, and then the fintechs can plug into the banks’ ecosystems via open APIs.”
In this context, PSD2 is the framework that is needed “for players to be able to talk to one another to provide innovation to the entire space”, he suggests. “This is one of the biggest elements required for true innovation to happen. Yes, it has implications for the business model of every player, but there’s an upside for everybody. It’s not a zero sum game. There is an element of the bank as providing the architecture and the fintech handling the relationship – but the landscape will be much richer than that.”
Berger at Nordea agrees. “We have an RFP out now for buying and implementing an API management platform, and we expect to get a lot of good functionality out of the box. We believe that based on that technology we will then be able to create a number of new services for our customers that go beyond PSD2 – so the investment we are forced to make to be compliant will also create a lot of opportunities.
“This is a golden opportunity to become more innovative in our own channels by inviting in the developer community. There are guys out there that are extremely passionate about new technology and they know how to build solutions, but how many customers will they get if they try to grow their solution organically? Maybe a few thousand? We have 11 million customers and we can offer them the opportunity to launch their solutions in our digital channels towards those clients. That will be a great opportunity for the best developers out there – and it will be a great opportunity for us to become more innovative in our development within the bank.”