Now that the dust is beginning to settle on PSD2, attention in the global banking industry is turning to what comes next.
Somewhat unusually for a piece of banking industry regulation, the issues raised by PSD2 have galvanized financial institutions around the world to radically rethink how they approach delivering services to customers. While there remain many banks that have taken a compliance-only approach to PSD2 and open banking regulations in other territories, the number of banks that now view open banking as a core plank of their future strategy is large and growing.
In Europe particularly, but also in the US and across Asia, attention is now turning to how the APIs that underpin open banking and the services they enable can be made available on a commercial basis and form the core of entirely new business models and revenue streams.
While an important element of the spirit (and the text) of most regulatory initiatives is about free access to data, there remains considerable opportunity to offer services and access over and above many of the basic regulatory requirements. This might even precipitate something of an arms race in the industry, as banks look to offer a growing array of services to enable third parties to use their APIs as inputs into new service experiences.
This is a view supported by Ovum’s latest survey of retail bank IT decision-makers (ICT Enterprise Insights 2018/19), in which 79% of institutions report that their open banking strategies will go beyond the minimum regulatory requirements. The appetite for change is greatest in Asia, where 85% of institutions plan to exceed the baseline expectations of oversight bodies.
This activity is multilayered. On the retail side of the industry, there are opportunities to provide services in areas as diverse as digital identity and supporting loan origination through to specific payment-related services such as restructuring recurring payments.
While most of these added-value services will generate revenue for banks, it is perhaps on the B2B side of the industry where there is the greatest potential to directly monetize open banking. Providing corporates and SMEs with enhanced account information and payment services (potentially pre-integrated into ERP, treasury management, and accounting systems) is something that is gaining traction in the industry. There are many more examples than can be shared here, highlighting the scope of these initiatives to drive meaningful change in the value chain and economic model of large parts of the industry.
Underpinning all of this is the recognition that banks must now serve a whole new customer segment: developers.
A successful open banking strategy cannot rest on the notion of building a series of interfaces and expecting third parties to come running. The winners in this area will be the banks that invest in a whole new series of developer-focused support services, from aiding API discovery to supporting ideation, testing, and deployment, not to mention having a clear and appropriate model for creating commercial frameworks and resolving disputes.
In other words, if you look after third-party developers, they will look after you.
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