Globalization and digitalization are leading to major changes within the European banking system, as the EU's revised Directive on Payment Services (PSD2) require banks to open up their customers' account data to newly regulated third party providers. To help Financial Institutions and Fintech communities better understand these key developments, we hosted a webinar with Finextra on Creating Customer Value Through Open API Initiatives. This panel featured three experts that discussed the impact these advances will have on retail banking in Europe. Here is a summary of their discussion: Ron Van Wezel, Senior Analyst, Aite Group; Bhavesh Vaghela, API Platform Owner, Barclaycard; and Jason O’Shaughnessy, Senior Vice President, EMEA and Australia, Envestnet | Yodlee started off by discussing the opportunities being created for providers of ecommerce payments, finance management, and data analytics, as well as some of the threats that Open API and PSD2 present to banks. Ron Van Wezel began with an overview of how technology and digitalization are driving the programmable web, turning the Internet into an unlimited set of resources that can be consumed by people and computer applications. And now digital-only banks are using APIs in a way that allows fintech developers to access a customer's user-permissioned data and disrupt the traditional banking model. They don't need branches or dedicated buildings; everything can be done online or through mobile apps, enabling a different set of customer experiences. It's clear, said Ron, that traditional banks need a strategy to keep up with these new players, otherwise they will become displaced. So while open banking is a global trend, Europe is seeing an acceleration of the trend as a result of PSD2, as the EU and the UK's Competition and Markets Authority (CMA) have mandated banks to implement open banking. The compliance factor will force banks to adopt an open banking strategy and to join this open communication channel. Ron predicted that the influence of PSD2 will be felt outside of Europe as global banks have to comply in Europe, and will ultimately deploy that same strategy in other parts of the world. All of this raises the question of whether banks should follow a wait-and-see approach and just comply, or are there opportunities to embrace open banking and develop new business models? It may make more sense to embrace open banking, as consumers will drive the demand for new opportunities. Bhavesh Vaghela drew the parallels between open banking and the way we as consumers have been spoiled with experiences like Netflix and Uber, where we demand a much more personalized and contextualized service. As we get more used to these experiences, said Bhavesh, it's inevitable that consumers will demand this level of immediate service and personalization from their banks. His view is that PSD2 is the rocket booster that will drive and accelerate that change within the banks. In one way, it's a blessing because it will regulate and standardize the approaches that banks take, which can only help the banking industry, as well as the fintech developers. Bhavesh compared it to the fight between HD DVDs and Blu-Ray DVDs, the two competing players fighting for dominance in the home movie market. This regulation will help set the European standard, and possibly the global standard, for data access. But in this case, traditional banks and digital banks need each other. The traditional banks have hundreds of years of experience keeping data and money safe for their customers. Alternatively, fintech solutions are more agile, more innovative, and have a faster go-to-market proposition. Bringing them both together will bring some exciting and valuable solutions for consumers. Jason O’Shaughnessy shared how Envestnet | Yodlee has been pioneering API initiatives and cooperation for the last 17 years. “We've partnered with financial institutions that want to create innovative products, and with fintech companies that have created outstanding apps to meet consumer demand.” Consumers want their banks to become more web and mobile savvy because consumers want access to their data seamlessly and view a holistic picture of their finances. This desire for seamless access and customized tools that help improve their financial lives will ultimately drive the move toward open banking. Twenty years ago, banks would seed their customers' loyalty early by putting branches near colleges and universities. Students would use that bank while they were still in their early stages of education and financial responsibility, because it was easy. That ultimately led them to become lifetime members of those banks. In the future, said Jason, the banks that make it easy for customers to seamlessly access their data will be the ones that will grow quickly and attract that younger audience much earlier, just like the traditional banks and their approach to attracting university students. Whether it's through mobile or web apps that help consumers split tips, manage bills, monitor daily finances, or apply for a student loan, this convenience and data access is driven by the fundamental usage of APIs, which will only grow, thanks to the EU's new PSD2 regulations. To learn more about the implications, challenges and opportunities that PSD2 and open APIs create for financial institutions and fintech innovators, register for this on-demand webinar.
