Are Instant Payments and Open Banking a match made in heaven? The resounding answer was yes at an EBAday 2019 session on the current status of real-time payments and open banking initiatives in Europe, according to finextra.com.
Gene Neyer, member of interim board for the US Faster Payments Council, leads the session stating that “open banking is just starting, which is different to the status of Instant Payments. We are at the sandbox stage and are trying it out, although some countries like India are quite far along in the process. Progression has been made in concentrated markets; we’ve proven it can be done in the UK, but to scale it to 10,000 banks or fintechs, is a different proposition.”
Neyer questions the panelists if Instant Payments supported by Open Banking could overtake cards, to which Hakan Eroglu, global open banking expert lead at Accenture, provides a comprehensive summary, detailing that it could be ambitious for financial institutions to cover entire asset classes in different service parameters.
Open Banking leaders and laggards
Despite Open Banking initiatives having only been implemented recently in the UK, Australia is seemingly a step ahead and are moving forward with Open Data, exposing account and product information – but there continues to be a gap to be filled, Eroglu says and explains that although the European market is regulated, it is important to remember that “the most value is created by those who can make the most of data.”
Looking at Latin America and Asia, the focus in these regions is on infrastructure, but more needs to be done in relation to TPP licensing and registration processing, for example. Eroglu adds that banks need a common identity structure so that they are not impacted by Strong Customer Authentication (SCA), a collaborative approach so that traditional lenders can compete with Big Tech.
CEO of equensWorldline Michael Steinbach spoke more on the fragmentation of banks, which has occurred as a result of changing strategies and needs. “The core question must ask how diverse the roadmap is, which leads into big fragmentation again in Europe. Different API services, different API standards and different instant payment solutions is not what Europe needs and will not return payments to the control of the banks.”
Steinbach goes on to highlight how the European market is in a “squeeze” and could soon be dominated by the US and China. He posits that if a European scheme existed, banks would have 300 million people in their pocket, which would trigger acceptance of the scheme across the world.
“This is the last chance to regain control. Don’t stop national schemes, but stop being egoistic and ensure you’re turning to collaboration.”
Collaborating without Big Tech
Sungmahn Seo, head of payments EMEA, JP Morgan suggests that Instant Payments are “evolutionary at best. In the UK, we already have it with Faster Payments. Is it better than ACH? Yes, but is it transformative? No.
“Open Banking is an interesting one because of the incredible fragmentation in API standards, but there is light at the end of the tunnel,” Seo references Open Banking in the UK and the work the CMA9 are doing. Seo continued: “This regulation driven effort to introduce a common set of standards has helped to move the needle, but there is still a long way to go.”
Returning to the topic of wider standards, Seo says that “one global scheme would be neat, but we’re never going to get there. Whether there’s one standard or a few, the European market is strategic, and we will continue to play a role in Open Banking.”
Harry Rymert, product manager domestic and real time payments, SEB adds that the terminology surrounding Open Banking needs to be considered, because it is “not easy for customers to understand because it implies that the bank is open in any channel, which is what customers expect from us. Platform banking is what it’s really all about, but how do you ensure we as banks have our services in different places? The hurdle is standardisation. We are on our way there, but if banks don’t do it, someone else will do it.”
Neyer then asks the compelling question: “JPMorganEats or UberPay, which is more likely?” Seo takes this question on and explores how there is a discussion around Big Tech companies entering the payments space “and they very well may do. Banks can only prepare for it.” He goes on to say that a challenge persists in the banking sector, which he sees as a burden that ecommerce organisations would not want to get into.
“As long as we continue to perform, we won’t see it happen soon, but it could happen in niches like P2P. But in terms of core payments, I don’t see it happening. On us partnering with Deliveroo, I’ll have to ask Jamie.”
In a later session, Esther Groen, partner at Innopay, reveals data from their Open Banking
monitor that shows that according to the developer portal benchmark, most financial institutions are delivering beyond PSD2, beyond a limited API scope.
However, Wim Lettens, strategic product manager at FIS questions what being a leader in Open Banking actually means. “First to market doesn’t mean you’re best in class. Leadership means looking beyond fintech and understanding that Apple has set the scene when it comes to creating a platform that extends end-to-end.”
Lettens expands on this point and says that banks need to expand beyond compliance and take notes from the likes of Starling Bank. However, Groen also reveals that 77% of developer portals are PSD2 only and the majority (75%) use the Berlin Group API, interestingly.
Frederic Barbaix, head of payment services at RedCompass, speaking from the UK perspective, points out that “customer behaviour is also changing. They are picking and choosing and do not have a preferred bank, even though the UK standards are there. In Europe, there are different standards at play at the same time, which makes it difficult. We could all benefit from one standard on a global level.
Speaking from a different viewpoint, Rene Keller, chief data officer and group head of innovation at Deutsche Bank, highlights that “API development is still young and we have a lot of explaining to do still.” He adds that while Deutsche Bank were one of the early adopters, would customers trust a bank that pushed for open APIs? Being nimble and fast is good, but we remaining reliable is also important. Barbaix replies and says that it is difficult for traditional players to decide to rebuild their platform so that it is open for APIs.
Lettens takes a step back and states that more than business case needs to be considered. “Open Banking is so much more than API enablement, it’s about creating a marketplace beyond the traditional services that are offered as a bank. Storage of value must be considered as well as money.” Keller provides a retort and says that while this sounds positive from the perspective of FIS, Deutsche Bank’s priority is to maintain their relationship with their customer. “We could get disintermediated and become a service provider who can be cut off.”
The future of identity
Per Astrom, open banking and innovation specialist at Swedbank returns to the subject of identity and suggests that this is the next stage for banks wanting to create value. He explains that banks are good at knowing customers and this should be leveraged to go beyond working on APIs for credit card transaction history. “From a digital transformation perspective, breaking down enterprise and creating services is an absolute must.”
However, Lettens believes that banks are not so good at KYC, after receiving emails from his own bank with offers that do not apply to him. On the other hand, Facebook provides him with adverts for what he is interested in. “Banks need to filter through the shitload of data and cherry pick, then consolidate the relationship and really know your customer through analytics.”
It would seem that as data is becoming a more regulated space, banks are at an advantage. However, a poll question was put to the audience: who will lead us to the open data economy? A whopping 60% of the audience say tech giants, 20% say fintechs and 9% say banks.
„Though Libra has met with fierce resistance from central banks and supervisory authorities and might never see the light of day, in many other cases tech firms (both start-ups and established big players) have successfully captured bits and pieces of universal banks’ traditional value chain. This trend may only intensify in the coming years. In this environment, European banks remain squeezed.”