TransUnion partnered with Forrester to research the changing financial landscape, particularly the value exchange of open banking. Take a look at this infographic to discover the opportunities that the evolution of open banking presents.
The Payment Services Directive 2 (PSD2) may be one of the most disruptive developments in banking and FinTech this decade. The new legal framework established has forced financial institutions to open their consumer data to third-party providers. Find out more in this short video about PSD2. https://www.youtube.com/watch?v=mSZtzAepKCg
The Open Banking Implementation Entity took a look back at some of the highlights open banking implementation has achieved in the European Union (EU) over this past year.
The Payment Services Directive 2 (PSD2) and other emerging payment initiatives such as Instant Payment are impacting the way payments are completed. They present an opportunity for merchants to upgrade consumer experiences while also improving the speed, convenience and security of payments.
The Payment Services Directive 2 (PSD2) is a European Union (EU) regulation that aims to adapt the regulatory framework of payment services to the challenges posed by the emergence of new, innovative services.
A recent survey gives insights into what financial institutions think of the future of banking in the new open banking era.
With open banking changing the landscape of the banking industry, it is interesting to see how open various financial institutions are as well as what their level of experience in developing such innovative solutions is.
BFC experts took part in E-Commerce and FinTech Hackathon 2019, which was held June 14-16, 2019 in Bishkek, Kyrgyzstan. During the event, participants were given 54 hours to turn their ideas about e-commerce development and cross-border trade into working projects. Evaluation of the projects as well as technical assistance was provided to participating teams by representatives of the Kyrgyz IT community as well as a number of invited foreign experts. Of the 10 participating teams, 7 were able to develop and present their projects:
The National Bank of Kazakhstan has initiated an open API program that will eventually allow consumers in Kazakhstan to use the internet services of any bank in the country. The program comes as Kazakhstani banks are becoming more interested and active in e-commerce, an important move as e-commerce in the country has suffered from a significant number of unsuccessful transactions on the part of banks. In the past, Kazakhstani banks have shown a general willingness to engage with third-party services once they see the benefits they can provide. In this regard, an open API program that pushes them to allow third-party services to access information could lead to a boom of innovation in Kazakhstan’s financial sector.
The National Bank of Kazakhstan, together with the banking community, is implementing a number of new initiatives on the digitization of financial services such as its launch of the interbank Instant Payment System, a system which allows consumers to execute online payments instantly via a mobile number. The regulator is also planning an online insurance scheme that will reduce the cost of insurance services and widen the accessibility of such services to include residents in remote regions of the country. Two of the more interesting initiatives include the launch of a pilot biometrics project that will allow financial service consumers to be identified through biometric parameters. This is expected to increase access to financial services by allowing consumers to conduct financial transactions remotely via smartphones, tablets and computers. The regulator is also working to develop proposals for open API standards. Once established, these standards would create an environment in which FinTech firms would be more easily able to create innovative solutions designed to expand financial services as well as make them easier and more convenient for consumers. It is important to note that the regulator is also developing systematic measures to effectively counter cyber-attacks and fraud in the digital environment, including through the creation of the National Bank of Competence Center, an operational center for ensuring cybersecurity in the financial sector. Work is also being carried out to form a system for exchanging data with banks about information security incidents, including information about violations and failures in information systems.
The Union of Banks of Kyrgyzstan has met with representatives of Kyrgyzstan’s Financial Intelligence Unit about establishing a digital information exchange system with the intelligence agency. The exchange channels are expected to be completed in the near future and will comply with international standards as well as ensure information is sent in a timely manner. Many are concerned that the establishment of this information channel is a violation of current legislation and privacy rights. The Financial Intelligence Unit has stated that it will consider these concerns as it moves forward with establishing the system.
The National Bank of Tajikistan is asking consumers to report the shortcomings they encounter with financial institutions in the country. The regulator believes that this will help eliminate problems arising during banking and protect the rights of consumers. This measure is being taken to promote a new policy of President Rahmon, which aims to increase public access to high-quality financial products and people's confidence in banks.
In January 2018, the United Kingdom (UK) launched open banking to improve the way finances in the UK are managed, borrowed, saved and invested. Now, more than one year on, the UK has set a gold standard for open banking. Despite the fact open banking is still a relatively new concept in the country, its uptake has been spurred on by a change in the attitude of banks, which have begun exploring the potential open banking offers as well as other FinTech solutions. As for the public, open banking products are expected to take off, especially once it is widely-understood that such products are safer than many currently-used methods. Looking forward, open banking in the UK is expected to continue its expansion, moving beyond just current account products and extending into transactional accounts (e.g. credit cards, e-wallets and mortgages). As new solutions launch, curiosity from consumers will continue to increase. In fact, early estimates indicate that 71% of small- and medium-sized enterprises (SMEs) and 64% of adults will use open banking products by 2022. This, in the end, will lead to a new era within the financial sector, one filled with innovative solutions that make life and business easier than ever before.
According to a new study from Accenture, bankers expect that open banking will lead to a growth in revenue of 10-20%. This thought it bolstered by the fact that commercial consumers are, by and large (35-42%) already using or planning to use open banking products in the near future. What remains to be seen in this march forward into open banking is how the landscape will ultimately look (and who will own the real estate). For their part, many banks appear happy to step out of the way and let smaller third-party players own and manage front-end solutions that provide consumers with the “Lego bricks” to build their own, personalized financial solutions.
As open banking continues its path toward offering consumers greater financial products and services, it is interesting to consider what things are necessary for open banking to become the new normal. Perhaps there is no other single thing more important for the long-term success and uptake of open banking than consumer confidence and trust. Overall, consumers appear to be ready for the promise of open banking, although there are still some consumers who are cautious about it. This especially holds true regarding concerns over data privacy and security. For open banking to really take off, banks, regulators, FinTechs and others need to ensure that three key areas are improved going forward:
A recent survey of the Polish banking sector concerning the Second Payment Services Directive (PSD2) of the European Union (EU) was published by KPMG. Specifically, the survey found that Polish banks view their main competition as other banks in the short term; however, the realities of PSD2 shift that perception to technology companies (e.g. Google, Apple, Facebook and Amazon) in the medium and long terms. The other main finding of the survey related to consumer trust. While consumers place some level of trust in banks (41%), Google (38%) and Facebook (22%), they do not tend to trust them with information related to transactional data (banks (32%), Google (3%) and Facebook (2%)). For Poland, this means that there is still much work to do in the short term to ensure that the aim of PSD2 becomes a reality for Polish consumers.
FinTech players and challenger banks are at the forefront of capturing the millennial market as 8 in 10 millennials now state that they are ready to switch from using banks to using the personalized financial services offered by the open banking era. In fact, FinTech players and challenger banks now account for 20% of the banking and payments market in Europe. Interestingly though, the innovations that drive consumers toward a particular FinTech or challenger bank also could represent their ultimate undoing as someone else with an even more innovative solution enters the market. It will be important for their establishment and long-term survival to now work to create a customer-centric approach that leverages advanced technologies.
A survey of 1,000 small- and medium-sized enterprises (SMEs) carried out on behalf of iwoca (a leading British FinTech) found that nearly three quarters (73%) were unable to identify what open banking is, indicating a severe lack of public awareness surrounding open banking and its benefits. iwoca announced that it will continue its work to finalize connections with banks, helping to maximize the impact of open banking. Open banking is an important tool for helping SMEs better manage their finances and provide quality services to consumers. It is important to note that SMEs are, themselves, an important part of the United Kingdom’s economy, employing 16 million and having a combined turnover of more than GBP 2 trillion.
Open Banking is making a significant impact upon the banking industry in Europe and encouraging more players to get involved in the financial services industry. In fact, newcomers have increased their share of revenue in the past year and now represent a third of the financial sector’s total growth. This is important as Europe’s financial sector also battles against increased competition from both the West (via tech giants like Google, Apple, Facebook and Amazon) and the East (via Chinese platforms). For European banks to stake a place for themselves going forward, it will be important that they move to the forefront of open banking and test which model(s) work best for them, be it bank-as-a-platform, bank-as-a-service or a multi-sided marketplace. At the end of the day however, it is important to remember that the bulk of revenue is found in financial products. As such, banks should be careful to manage what is “nice to have” versus is really necessary in the future of banking.
Recently, Accenture surveyed more than 650 businesses as well as 100 global banks to get their take on open banking for the corporate sector. The survey found that 77% of businesses already participate in open banking ecosystem platforms or plan to do so within the year. Similarly, 80% of banks already significantly invest in open banking or plan to do so within the year, and nearly 90% indicated that they are willing to build an ecosystem platform with third-party services for their commercial customers. Despite the move toward open banking on the part of both sides, there is somewhat of a disparity between what businesses want and what banks plan to provide. This has opened up a gap that many digital newcomers are eager to fill. Novel bank competitors (e.g. LendingClub, Kabbage, Xero and Tide) are already using real-time data to offer more customer-centric bundled solutions on seamless platform-based ecosystems that interact with banks where necessary. And FinTechs and ERP software providers (e.g. Stripe for online payments processing and SAP for cash management-ERP integration) are looking to help businesses gain greater efficiencies in payments.
Today’s entrepreneurs are used to taking advantage of new and innovative solutions that automate operations and make doing business easier. As such, banking is an important consideration for them. While large traditional banks cover the needs of a business at all stages of development, newcomers like neo-banks and FinTech banks provide an interesting alternative. Neo-banks, for example, tend to speak the same language as entrepreneurs and understand them much better, while FinTech banks, although new, represent the future of banking with their innovative and fully-customizable approaches to finance. The real consideration for who will be the future banks for entrepreneurs, however, is how each will take advantage of the emergence of open banking concepts to provide enhanced products and services and ultimately increase profitability while reducing expenses.
In the aftermath of the 2008 global financial crisis, European regulators found it important that banks have more competition and consumers have greater choice. This has eventually led to the era of open banking, which allows other organizations like tech companies to enter the financial services industry and provide modern, innovative solutions for an increasingly demanding consumer base. While it may have been conceivable 3 years ago that such tech players would come to dominate the financial services industry, data breaches and data privacy issues have given many consumers reason for caution. Ironically, open banking (something meant to bring greater competition to banks), may end up helping banks grow and become more successful. In the end, consumers want choice, freedom and the flexibility to create personalized services that add value to their lives. The ultimate winners of today’s open banking era will be those organizations (either banks or tech companies) that are on the pulse of what consumers want and that can demonstrate their value and credibility within the market.
Open banking reforms are now over one year old in the United Kingdom (UK). In this relatively short period of time, 67 firms have begun using open banking technology. Moreover, the number of financial services beginning to engage with API integration is growing. For example, HSBC’s Connected Money app lets consumers view their accounts at up to 21 different banks in one place. At the same time, it is important to note that open banking is still in its infancy in the UK, with many banks taking their time to understand the landscape and legal realities. As a result, many established banks are not being proactive in embracing new technologies. As open banking increases the quality of financial products and services on offer in the country however, consumers will have the power to choose which banks and FinTechs will ultimately win in this new era. And those banks wishing to survive and thrive will have to embrace innovations that might make them a little nervous at the moment.
While open banking represents a step forward for financial institutions, data and customer identity must remain the highest priority. In fact, the European Banking Authority (EBA) recently released new guidelines on open banking systems that named data security a top priority as banks begin to share their customers' financial information with other authorized providers. Here are a few questions to consider regarding this moving forward:
Countries across the Asia-Pacific region have been quick to establish open banking frameworks following the rollout of open banking regulations in the United Kingdom and the European Union’s passage of the Second Payment Services Directive (PSD2). Here’s a quick overview of the new world of open banking in 6 of them:
With open banking growing in popularity across the globe and the Second Payment Services Directive (PSD2) coming into full force, many Polish banks are reluctant to embrace open banking. Leaders at many Polish banks believe that open banking is unnecessary for them as the point of open banking is to meet consumer needs and that they are meeting these needs independently. In fact, Polish banks in general have not shied away from digital transformation, with many already developing and implementing new applications, using biometric tools to identify customers and reorganizing their structures to unleash creativity. It is also worth noting that Poland has relatively low margins, fewer loans and fewer deposits than other countries. This makes it more difficult for large-enough scales of operation to be meet for many innovations brought by open banking to become profitable. Nevertheless, the openness of PSD2 will inevitably weaken the digital advantages many Polish banks have obtained on their own, and complacency among today’s digital leaders could eventually mean them turning into a peripheral fortress that will lose tomorrow’s customers.
Two of Africa’s largest mobile operators and mobile money providers (Orange Group and MTN Group) have announced they will use Mojaloop, an open source financial services technology sponsored by the Gates Foundation. The two companies call their joint venture Mowali (mobile wallet interoperability), which will make it possible to send money between mobile money accounts issued by any mobile money provider in real time and at a low cost. It is estimated that Mowali has the potential to eventually reach 338 million users across Africa. Africa has been a world leader in mobile payments, and the introduction of Mawali is expected to increase the usage of mobile money and make it a universal means of payment throughout Africa. This, in turn, will have the result of increasing financial inclusion, an essential element in economic development.
The Australian government has announced that it will begin phasing in recommendations from the Open Banking Review beginning on July 1, 2019. Once fully-implemented, open banking will give Australian consumers more control over their information, leading to more choice and, ultimately, more confidence in the use and value of an important asset – their own data. The open banking concept will also extend to cover energy and telecommunication companies, with more sectors expected to eventually be included. The decision to implement open banking is the culmination of a significant amount of work from banking, FinTech, consumer, regulatory and government communities. It will be important that the members of these communities (as well as others needing to participate in the new data economy) engage in ensuring that open banking and consumer data rights produce the customer choice, convenience and confidence they are designed to.
A number of FinTech companies in the European Union (EU), namely Bankin, Eurobits, Sofort, PPRO and Trustl, have decided to oppose the Second Payment Services Directive (PSD2). These companies contend that PSD2 was written with only the interest of large banks in mind. To fight PSD2, the companies have formed a non-profit organization called the European Third Party Association, which will work to promote the interests of third-party service providers.
Isracard, the largest credit card company in Israel, has selected banking software company Temenos to serve as its open banking platform. Isacard’s selection of Temenos will help the company achieve its strategic goals of simplifying its system architecture and providing enhanced digital experiences. Temenos’s T24 Core Banking platform will provide Isracard with agile technology that ensures that Isracard can quickly adapt to meet the changing needs of its customers as well as the fast-changing regulatory environment.
European payment provider Klarna has announced the launch of its own open banking platform. The platform will provide access to more than 4,300 European banks through a single API in accordance with the Second Payment Services Directive (PSD2). The new platform will also utilize proven and well-developed infrastructure that improves market coverage and connectivity. Once fully-operational, EU banks, FinTechs, startups and other licensed companies will be able to use the platform to provide personalized offers to 99% of consumers in 14 EU markets.
AccountScore, together with The Insolvency Panel, has announced the launch of the first ever open banking service designed to help people get out of debt. The service auto-populates consumer income and expenditure information from current accounts and offers them access to face-to-face and telephone debt advisors. Insolvency practitioners and debt management plan administrators will also be able to benefit from accurate information throughout the life of an arrangement. Currently, customers seeking debt advice are required to go through repeated and lengthy processes over the phone to provide their full income and expenditure information, an often inaccurate process. This new service will allow debt advisors to already have that information and be able to spend more time helping people find solutions to get out of debt.
The Second Payment Services Directive (PSD2) underpins open banking across the European Union (EU); however, open banking in the Netherlands has yet to become a reality as Dutch regulators have been slow to transpose the directive into national legislation. Much of this delay centers around ensuring legal protections for data privacy. This concern over data privacy is being driven from Dutch consumers themselves, who have expressed skepticism over whether the benefits of consumer choice and control are worth the risks associated with opening up so much data. That being said, Dutch consumers have proven to be ready adopters of new technology and are willing to share information if the payoff is perceived to be worth it. As Dutch banks move on from the risk and regulatory projects that have dominated in recent years, innovation will become a bigger priority, including how to best transform for a digital future with open banking. Banks will need to provide innovative products and services that win over consumers or excel in outstanding customer experiences. Others may choose to focus on providing banking operations and technology. However they shape their digital future, Dutch banks will need to embed flexibility into their business model and be prepared to adapt and innovate in response to the evolution of open banking and the new competition it brings.
Huawei and Forms Syntron, a leading Chinese bank solution provider, have jointly released Fincube, a distributed open platform solution for the financial industry. Fincube will help banks at various scales better meet the challenges of the "Bank 4.0" era, reduce innovation costs, optimize technologies and continuously improve service openness capabilities to enhance the experience of consumers. Fincube is built upon Huawei’s high-density integrated distributed technology solution FusionCube and Forms Syntron’s financial PaaS platform. In the end, Fincube is expected to meet diverse user requirements, eliminate bottlenecks and build digital cores that are competitive in the mobile era, ultimately leading to greater products and services for end consumers.
A survey of 442 European Union (EU) banks conducted by the Swedish open banking platform Tink has found that 41% of EU banks have failed to provide a testing environment or sandbox for third-party service providers by the deadline set by the EU’s Second Payment Services Direction (PSD2). It is worth noting that the number of banks fulfilling this requirement exceeded 80% in Belgium, Germany, Finland and Sweden. The number of banks fulfilling this requirement in Denmark, France, Norway and Spain banks was well below 50%. These results have many involved in getting open banking off the ground in the EU concerned that the next deadline in September will also not be met by many banks, meaning increased costs for many third-party service providers, possible fines for banks and increased barriers to providing consumers with the better services they expect and demand.
Changing consumer patterns, the emergence of non-traditional competition (e.g. FinTechs, blockchain and artificial intelligence) and initiatives undertaken by the Reserve Bank of India have provided the ideal timing for Indian banks to embrace open banking or risk losing out to new, innovative players. However, there are still numerous issues that need to be resolved if India is to truly jump into an era of open banking, especially those surrounding data ownership and data privacy. For this, all eyes are waiting on the draft language of India’s forthcoming Data Protection bill. As India awaits clarity regarding data ownership and privacy, it is worth mentioning that open banking represents a potential solution to help increase financial inclusion in the country, especially among the unbanked and underbanked, as open banking generally reduces costs and makes it affordable for financial solutions to reach greater numbers of consumers. It remains to be seen, however, if India will fully-embrace this move or if it will remain somewhat reticent of technological solutions that go well-beyond one-time passwords and ATMs.
Early this year, Sberbank registered 182 domains having “sber” in the address (e.g. sber-medicine.ru, sber-fashion.ru and sbersale.ru). The mass registration of domains is part of Sberbank’s effort to develop an online ecosystem that meets consumer’s financial and non-financial needs. By 2020, Sberbank plans on transforming itself into a universal company like Google, Amazon and Alibaba. In fact, Sberbank’s President and Chairman noted that the company is considering dropping “bank” from its name to complete the transition.
As the Second Payment Services Directive (PSD2) becomes just another part of business in the European Union (EU), it is natural to wonder about the state of open APIs in Russia. In general, Russian banks seem wary about the possibility of using an open API to allow third parties to access data; however, they have been slowly opening up in recent years. This year, for example, Multibank service began working with the largest banks in Russia to offer consumers the opportunity to use one app to view balances, transactions and other data regarding his/her accounts at multiple banks. Open APIs in Russia’s financial system are likely to lead to benefits for both consumers and banks alike. For consumers, it could lead to easier, faster processes and, potentially, more favorable credit conditions. For banks, data will be more readily available and allow them to make better decisions about consumers. Although some are concerned that such an open flow of data could cause problems, the reality is that there are no new problems open APIs really create. For example, private data about people is already well-known by companies like Google, and the same digital security concerns exist with or without open APIs. The fact is that open APIs represent the next step toward transparent, honest banking in the country and will likely lead to consumers having greater control over their data and finances.
Qiwi has launched an open API money transfer service for its customers, giving users the chance to customize their own way of receiving funds. The new service makes it easier and safer for users to accept money transfers by removing the use of personal data from such transactions, instead using a short link. The open API supports billing, cancellations and receipts. Qiwi also plans on exploring a turnkey solution for the self-employed that will allow them to accept payments for their services and send tax deductions automatically.
PrivatBank has launched a new open API platform to allow FinTech companies to create effective, innovative solutions that work with bank data and provide consumers with new digital services. The platform is currently available to FinTech companies in a “sandbox” mode, which provides test data to registered FinTechs. In the near future, the bank plans on opening up an even more powerful platform that will allow for greater functionality and the creation of new features, applications and services for consumers. It should be noted that PrivatBank’s open API platform meets the safety requirements set by the European Bank Authority and requires two-factor authentication as well as a security guarantee for all channels through which user data is transmitted.
With the implementation of the Second Payment Services Directive (PSD2) in the European Union (EU) and Ukraine’s relationship with the EU, it is natural to wonder about the implications of PSD2 in Ukraine. In fact, Ukrainian authorities are currently in discussions regarding the directive and its Ukrainian implications with donors. It should be noted that, in Europe, PSD2 was the result of a natural development of the market and is a natural outcome of the evolution of the financial sector. In Ukraine however, this is a revolutionary concept that will fundamentally change the rules of the game. While the final vision of a PSD2-like initiative for Ukraine is still forthcoming from national authorities, many experts point out that Ukrainian banks are afraid to engage with open APIs as they aren’t sure exactly what impact they will have. Specifically, banks are uncertain how to operate in a market that is more competitive, especially one in which they will likely need to shift strategies and business models in order to keep up. Banks are also uncertain regarding the cost of developing the digital infrastructure necessary to implement such an initiative, which could take several months or even several years. The reality is that PSD2 in Europe has offered tremendous growth to FinTech startups. This will no doubt also be the case in Ukraine once a similar initiative is passed. The sooner Ukrainian banks realize that there is no turning back, the sooner they can prepare themselves to be set up to work with FinTechs and become a market winner.
The Digital Tools for the Development of Insurance Product Partner Sales roundtable was held in Moscow, a first-ever discussion between insurance companies, intermediaries and IT experts in the country. The roundtable was held to discuss how API integration could be leveraged to:
Open APIs are starting to emerge as a trend in the market of IT solutions in Kazakhstan, with private banks actively exploring the potential of open APIs and the National Bank of Kazakhstan (National Bank) discussing how it will regulate open APIs in the financial sector. While awaiting regulations from the National Bank, many private banks are going ahead and opening up their platforms, working under the principle of “what is not prohibited is allowed”. This has helped open up a market for third-party FinTech developers such as Okauto.kz and Klesa.kz., which are already showing the value of open APIs to both consumers and banks. Open APIs are also already proving useful to the government as the e-government payment gateway has become much more productive in sending and receiving payments through the use of open APIs. Open APIs are part of the government of Kazakhstan’s Digital Kazakhstan program, which has the goal of increasing electronic commerce and non-cash payments. The program plans to help the National Bank develop regulations for open APIs within the financial industry by the end of 2020.
The personal data of consumers who requested a loan and/or credit card from the now liquidated Binbank may have been compromised. The compromised data includes names, passport data, phone numbers and addresses. The data was compromised due to a vulnerability in an API mechanism. Moreover, it is possible that a similar vulnerability exists in the APIs of other banks as well. It remains unknown exactly how much personal data is at risk or has been obtained by unauthorized parties. Experts point out that such a leak is not an isolated case. There was a similar instance in 2015, when St. Petersburg Bank was attacked. The attack, which saw customer data exposed, prompted the bank to review its security measures. It will be important for banks moving forward to balance the need to get consumers products and services quickly and easily with the need to ensure their data is secured if consumers are to continue to trust banks with their most vital information.
A new platform called Goodfin now serves as a single access point for consumers looking for financial service providers such as banks and microfinance institutions (MFIs). Goodfin differs from similar platforms by actually using each bank/MFI’s business logic (through an API) with already filled in applications, as opposed to just serving as a lead generator. Banks and MFIs can also use Goodfin to launch new products more quickly and save on the costs associated with distributing products. For consumers, Goodfin offers easier documentation requirements than if they approached the bank/MFI individually. In the near future, Goodfin plans to add even more financial products to its growing list, including insurance products. It also plans on expanding into new markets, including Europe and the United States.
Sberbank now offers three new ways of making payments that are faster and more convenient. The first is called “B2B Corp Checkout”. It allows legal entities to add a button on their website that, once pressed, lets consumers confirm a payment via an SMS code. The payment is then immediately released. The second is incorporates “B2B Corp Checkout” with the Yandex. Cashy payment showcase, allowing Yandex.Cashy users to use the “B2B Corp Checkout” process. The third is called “Business Profile”, which allows any business to easily create an online page for receiving online payments, regardless of whether or not the business has a webpage and online catalogue. Sberbank, although proud of its work in making payment services easier, wants to increase the popularity of new payment services and usher in a world in which payments and money transfers are as simple as possible.
As the Second Payment Services Directive (PSD2) becomes the new reality across Europe, here are the main changes it is driving:
Worldwide trends in the financial sector are creating new conditions that Ukraine should follow, especially if it wishes to create a more transparent and open payment market that is attractive to financial players and consumers alike. In the European Union (EU), the Second Payment Services Directive (PSD2) governs this direction, but how might a similar piece of legislation look in Ukraine and what impact is it likely to have? The National Bank of Ukraine (NBU) is already studying PSD2 in Europe and believes it an important step in both pushing innovation and ensuring consumer protection. At the moment, the main problem is not the introduction of open banking but rather outdated legislation on payment systems. This is due to a little artificial centralization of payment systems in the country. NBU is currently working to update this legislation. Specifically, NBU is working to develop the Ukrainian payment infrastructure based on the ISO 20022 standard. NBU is also working to create a communication platform that allows all interested parties (banks, FinTech firms and the NBU) to communicate their views. For their part, financial institutions in Ukraine appear ready to move forward with a PSD2-like initiative in Ukraine, but only with the full support of qualified specialists and the regulator. FinTech firms also believe that the financial sector in Ukraine is ready for the move but also understand that it will require that financial institutions make changes to support this. Specifically, they need to examine the creation of a separate division that will include technically-savvy IT specialists to support the operation of the new system.
The Bank of Russia is working on the creation of an automated information disclosure control system (ACRI) that will simplify the supervision work of the regulator. Specifically, ACRI will serve as the primary control over lenders’ compliance with disclosure laws. It should be noted that complex cases (specifically those associated with the deliberate manipulation of information) will still be reviewed manually. At first, the system will be used for simple control measures (whether or not information was disclosed, whether or not the disclosure complies with the law, etc.); however, the system will have a built-in logic that will enable the system to gradually conduct more control measures. The system, once fully-operational, will allow the regulator to focus more time on essential control measures that are extremely important for investors, consumers and the economy as a whole. The system is currently being tested and has a tentative launch date in July 2019.
Bank Negara Malaysia has released a proposed guideline for open APIs in Malaysia and is currently seeking feedback from the public. Three areas of focus for the open APIs have been established as: automobile insurance, credit cards and SME financing. The main goals of this initiative are to improve access to finance (especially for SMEs), liberalize automobile insurance and equalize the playing field for FinTech companies to push innovation into the financial sector. The introduction of open APIs would help break banks’ monopoly on consumer data and give more power to consumers to decide what services they find valuable. While some experts are concerned that such a move will severely hinder banks and their ability to effectively work with consumers, others believe this could lead to a new era of innovation in Malaysia’s financial sector.
New Zealand is well on the path to open banking, with Payments NZ releasing the first API standards for payment initiation and account information. A pilot test for open banking and digital payments in the country was held in March 2018 by six partners (ASB, BNZ, Datacom, Paymark, Trade Me and Westpac) representing both banks and third-party servicers. This latest step will make it easier for organizations to partner and will bring financial service innovations to market more simply and quickly.
South Korea’s financial regulator has revealed plans to create an open interbank payment network. The system is expected to help the country foster more successful FinTech firms and rejuvenate the country’s economy. Currently, only banks are granted access to the financial network to make money payments and transfers. Each bank is allowed to handle only its own banking services, and FinTech firms are hindered in their efforts by costs, as transaction fees for them are typically between USD 0.30 and USD 0.45 per transaction. The creation of the new network is expected to be accompanied by amendments to relevant laws that will allow FinTech firms to directly access the payment network and help lower transaction fees. There is no specific timeline for the network’s launch, but South Korea’s regulator plans to bring in the network online in phases in the near future.
Indian-based Federal Bank has unveiled a banking platform that will allow FinTech companies to use its APIs for new products that integrate with its banking services. The creation of the platform is part of the bank’s efforts to improve digitization and automation as well as reduce manual overhead and errors. Current users of its APIs include Airtel, Seynse Technologies and Google Pay. According to Federal Bank, more than 16% of India’s total foreign inward remittances are powered using its API platform.
With open banking pushing digital transformation in financial markets around the globe, financial institutions, in their efforts to maintain revenue streams, now face an important decision: which is the most appropriate open banking model for them moving forward? Here are the 4 most important ones for them to consider:
Open banking and the regulatory environments driving it are forcing financial institutions to become a platform business. However, there are 4 such platforms for financial institutions to consider:
Europe’s Second Payment Services Directive (PSD2) is reshaping the banking sector. At the same time, the introduction of the General Data Protection Regulation (GDPR) has had a huge impact on how companies must protect data. As financial institutions work to comply with both pieces of legislation, how can they balance innovation with protection? There are 5 key action points for financial institutions to consider:
Beyond Banking is a business model in which consumers receive a package of services through an ecosystem of various providers. It works by taking advantage of open APIs to quickly and easily send data between the information systems of various services using standard data exchange protocols. It has arisen as a way to create a competitive advantage in the changing world of financial services. Specifically, it helps financial institutions create an ecosystem (in partnership with non-bank technology companies) that significantly reduces the development process and accelerates the release of new solutions to the market, meaning that consumers get accelerated access to faster, better and more convenient products and services. As Beyond Banking is still a relatively new concept, it remains to be seen what common approaches to it will develop and if (and where) it will take off.
Reservations about data security pose the biggest challenge when it comes to increasing consumer confidence in open banking, with 86% of respondents to a recent Forrester Consulting (on behalf of TransUnion) survey concerned about data being sold and 82% concerned about data breaches. As financial institutions begin their push into the open banking era, it will remain important for them to listen to consumer concerns and communicate a clear and consistent message that lets consumers know exactly how their data will be used, the benefits of sharing it and that it will be protected. In fact, such messaging could potentially be a huge advantage for traditional financial institutions as consumers have indicated far more willingness to trust them than to trust newer entrants into the financial services industry.
It cannot be stated enough that open banking is here, and it’s here to stay. Financial institutions must now embrace open banking if they are to remain relevant in the medium and long terms. To do this, they must start thinking consumer-centrically and realize the value that third-party service providers offer. At the same time, they must also carefully craft a plan for bringing new innovations to market. Ideally, this includes focusing on affluent, young and urban consumers initially (although this focus should grow to be more inclusive over time), creating a compelling vision that stands out in a highly-competitive and transparent environment and focusing on developing a few differentiated propositions and capabilities (as opposed to chasing the whole gamut of open banking opportunities.
It is estimated that 80% of financial institutions will either go out of business or be irrelevant by the year 2030. Here are 8 steps that will ensure your financial institution is one of these:
With open banking beginning to emerge as a new reality across the globe, it is no great surprise that banking consumers are also opening themselves up to participation in open banking ecosystem platforms. Given the thousands of open banking-related processes and applications a financial institution could pursue, what should financial institutions consider when delving into the world of open banking offerings?
The era of open banking is serving to divide financial institutions into groups based on fundamentally different roles. One of the main defining factors for which group a financial institution belongs to is its relation to an open API: backlinked (financial institutions providing financial services “behind the scenes”), frontlinked (aggregator financial institutions serving as a frontend medium to backlinked financial services) or universal (financial institutions that act as both backlinked and frontlinked). Regardless of type of financial institution, there are 4 key things financial institutions need to keep in mind as open banking continues its inevitable march into the future:
In the past, financial institutions prized a well-established brand as the ultimate goal for attracting consumers and maintaining consumer loyalty. In the digital and open banking age, however, consumers are looking for more than just a familiar brand. Here are 3 ways for financial institutions to achieve ubiquity and grow consumer loyalty by shifting their focus from brand value and onto delivering consumer value.