On June 8th, the KIN Center for Digital Innovation will organize the Masterclass Open Banking. This Masterclass will offer insights into regulatory changes of PSD2, the emergence of new platform and innovation ecosystems, and the transformational processes that are necessary to successfully capture the potential that Open Banking can offer. But what is it that makes this such a hard process?
Changing times in banking
The role of the banking industry is increasingly challenged in recent times. The increasing digitalization and the popularity of FinTech companies entering the market are forcing banks to search for relevance while facing disruptive innovations. This force of play is strengthened by the introduction of two important regulatory frameworks, the Second Payments Service Directive (PSD2) across the EU and the Open Banking Working Group (OPWG) in the UK. These frameworks are designed to facilitate competition in the banking industry in favor of customers. Through Application Programming Interfaces (APIs), the banks are required to grant Third Party Providers (TPPs) access to a customer’s account if that customer gives his or her consent (Zachariadis et al., 2017). These recent events require banks to adopt the model of Open Banking, where banks are able to offer new products and services with the help of TPPs.
First steps towards Open Banking
The first steps in this direction have already been taken, with the nine largest banks in the UK being mandated to comply with the PSD2 regulations. Three of which have managed to do so in time, which emphasizes the effort it takes for banks to successfully comply. The first FinTech that successfully collaborated with one of these nine banks was Yolt, an ING-owned smart money app. This has been a very successful integration, and functions as a proof of concept for the Open Banking ecosystem, which serves banks, TPPs, and end users. In the Netherlands, ABN AMRO has launched the Developer Portal, which allows TPPs to develop applications that are able to connect with some APIs. The bank claims that through this portal, they are able to accelerate innovation and further improve the services to their customers. Through the Developer Portal, ABN AMRO is prepared for regulatory frameworks while also able to explore the future of banking (ABN AMRO, 2017).
Despite this success, it is a challenging move for most banks, since they are not used to the concept of modularity, and have always valued security over service speed. Therefore, both existing banks and FinTech companies will have to find common ground to work on. Markos Zachariadis, associate professor of Information Systems at Warwick Business School, suggests that banks can take on a leadership role in this process by opening up their business, and establish Banking as a Platform (BaaP). This allows banks to perform a mediating role in the added value for their customers, by offering new products and services.
Generating success in Open Banking
According to Louise Beaumont, co-chair of the OPWG, there are four characteristics that can generate success in Open Banking. First, banks need to be able to accommodate new customers, products and services and display a certain level of agility, or stretchiness. It further needs to adopt a style of communication to the customer that shows understanding and resonation. Also, banks need to be able to design and deliver services that work in an ecosystem, in order to attract talent that can help build better services. Finally, they should develop the ability to collect and interpret data. It is important to be able to use the data to effectively introduce new products and services based on customer demand (The Banker, 2018).
In our Masterclass Open Banking, Markos Zachariadis and Hans Berends, Professor of Innovation & Organization at the KIN Center for Digital Innovation, will discuss in detail how the role of banks is changing, and what the recent regulatory frameworks include. Also, we will look at the strategic implications of open banking, both towards others in the industry, as well as towards the customer. Read more about our full day Masterclass on Open Banking.