Key takeaways from our Industry Meetup: Open Banking
On April 24, 2019, Payments & Cards Network held a very successful new edition of its Industry Meetup in Spaces Herengracht near its Amsterdam HQ. Centered on the topic of Open Banking, we are honoured to have Volt, an Open Banking payments platform as the event sponsor and Free a Girl as our charity partner.
The event gathered some of the brightest minds and thought leaders in the fintech and payments space across the globe. We have Daniel Xian, CEO and Founder of SwiftPass, the first listed payments company in China as a keynote speaker to talk about Open Banking in China.
Next to that, we had a very fruitful and in-depth panel discussion on Open Banking moderated by Rogier Rouppe van der Voort, COO at Payments & Cards Network, with speakers from the Executive Board of Volt, including Robert Kraal, former COO of Adyen, Tom Greenwood, Founder of IFX Payments and Steffen Vollert, Independent Fintech Consultant.
Open Banking, which is part of the Payment Service Directive 2 (PSD2), is the most transformative piece of financial regulatory change in this generation. The whole mission behind PSD2 is to create a level playing field and drive innovation and customer choice. It is mandated by law to be in effect by September 14, 2019, composing of two main components:
Account Information Service Providers (AISPs): Businesses that are AISPs are mandated to provide an API and make it public so that any other institutions can have access to the account information of users under their explicit consent
Payment Initiation Service Providers (PISPs): Businesses that are PISPs are authorized to make payments on behalf of a customer. PISPs do this by initiating transfers directly to or from the payer’s bank account using the bank’s own tools
Apart from shedding light on the Open Banking payment service provided by Volt, our panel speakers also discussed key issues revolving around Open Banking, including the pros and cons, potential opportunities and challenges brought by this revolutionary regulation. With a highly interactive discussion between the audience and speakers, below are some key takeaways:
Open Banking is not only happening in Europe, similar regulations are deploying across the globe in countries such as the US, Canada, Japan, Australia, etc. For example, China has its own National Payment Gateway (NPG), a framework similar to Open Banking initiated by Jack Ma, Founder of Alipay.
For those Third-party Providers (TPPs) which create an intermediate layer to connect all the banks, there may be a difference in the ease of execution on the regulation due to various market structures. For instance, it may be easier to carry out in the Netherlands due to a limited number of banks, compared to Germany which is a very fragmented market and Poland which is a fairly lock up market with its historically own grown solutions.
- With Open Banking, it opens up a plethora of opportunities for startups and existing companies to think of new business models built around AISP and PISP. It also allows them to expand quite rapidly into Europe because essentially the regulation is the same for the whole European Union.
- Some companies are focusing on making the payment experience better with AISP and PISP to create a new payment method with its own rules with a country/region to make the payment process easier, cheaper and more consumer friendly
- Some companies are focusing on aggregating account information from different bank accounts to provide a range of different services:
- Giving a single overview of all the account balance, and use these information to suggest better offers e.g. on recurring payments of customers
- Focusing on the management of finance e.g. managing users’ expenses, costs, savings by allocating reservations and prioritizing funds to avoid overspending of budget
- New companies could be advantageous because they are not bonded by old infrastructure and they can be flexible with the demands of customers. There are many young companies focusing on developing a new tool and at some point these companies may merge to offer products that cover various functions initiated by the regulation. On the other side, existing payments companies should look into how their current businesses could benefit from the regulation, either by offering more services to their customers/retailers, or reducing internal/external cost
There are also potential hurdles brought by Open Banking, especially regulatory aspects in monitoring the operation and functioning of the system and making sure that companies get access to it at an adequate service level, e.g. How banks should live up to the standards they should achieve? How do banks approve TPPs? On the consumer side, since more companies would have access to their data, consumers have the right to know a number of aspects, e.g. Who is actually monitoring these information? What is the quality of these monitorings? What are the security standards of those, etc.
There may also be a huge shift of risk towards banks, as they are being put in charge of a huge infrastructure project on investment and security monitoring facilitating payment initiation, which partially doing Know Your Customer (KYC) and Anti-money Laundering (AML). The responsibilities between banks and TPPs need to be explored and at some point would require regulatory adjustments.
With TPPs as an intermediary, banks are further removed away from the customers who will take care of the direct customer relationship, meaning that banks need to rethink on questions such as: How to cross-sell their products to make a profit? How to better understand customers? How to run risk models on transactions when they do not have all the data or the data goes through the intermediary? Banks therefore need to reassess or revamp the whole moderation of risk process, including the need to deal with Strong Customer Authentication (SCA) under PSD2.
It is undoubtedly difficult to change payment behaviour as consumers are used to their existing payment methods. The impact of consumer behaviour brought by Open Banking varies by country as payment behaviour differs across markets. For example, some markets would be relatively easy simply because there is less competition when it comes to smart payments. Whereas other markets that already have products which work reasonably well, it might be more complex to get full traction and companies may have to offer something extra to their consumers. Hence, one of the challenges for retailers is how they can convince consumers to use a cheaper payment method built on Open Banking rather than their existing methods.
If you would like to hear the panel discussion, we've also prepared a podcast for you here! With an overwhelming success and very positive feedback from our audience, we will be organizing another round of Industry Meetup at a larger scale very soon. Stay updated with our events by joining our Meetup group here!