ndgit CEO Oliver Dlugosch, and Head of Business Development, Franziska Zangl, believe PSD2 revealed a portal through which European banks can enter a new financial era. All they need is the API key
The implementation of the EU’s revised Payment Services Directive (PSD2) heralds a new era of open banking in Europe that is likely to light the touch paper for a revolution in global finance. It will open doors to new customers and new revenue streams, fundamentally changing which business models are profitable.
Failure to capitalise on this could be damaging. But how can a ‘traditional’ bank prepare and build the necessary capabilities to achieve competitive advantages for this future financial landscape? Become a specialised supplier with a unique selling proposition? Or transform itself into an orchestrator that hosts a range of individual services?
According to Oliver Dlugosch, co-founder and CEO of digital banking solution provider ndgit, anyone sticking to non-customer focussed products will have a hard time of it – wherever they are in the world.
“Clients’ behaviour is different now – how they buy things, how they select things. That’s where banks must catch up,” he says.
On one hand, user behaviour is changing. On the other, new technologies are empowering new kinds of service. When it comes to digital transactions, non-bank organisations like Amazon and Netflix have demonstrated how networked platforms can be designed and exploited using application programming interface (API) technology – and they iterate fast.
“Banks must react right now to find a scalable way to bring in three, four, five innovations per year and new complementary products; build ecosystems where banks are the navigator to the financial environment of the client, and plug it together in one frontend,” is Dlugosch’s advice. “Most of the innovation in the frontends of the banks, on mobile and websites, has came from fintechs,” he adds. “Things like ‘can I analyse my accounts?’ and ’can I just make a picture of a money transfer and then send it over with my mobile phone?’.
“When banks connect to fintechs, they get that scalable way to bring innovation to their clients that’s fast and reusable because, if you’re using a platform, you can just plug in a new innovation.
“If banks are not doing this, digital companies will – big players like Amazon and Google, providing strong tools via fintech partners. This is the role that banks should take; they should work with the fintechs, not be afraid of them.”
Dlugosch describes ndgit’s role as providing a ‘middle layer, which enables banks to connect to third parties, doing 360-degree open banking’ – which is precisely what it helped 20 banks achieve last year.
The company’s technology connects banks, insurers and fintechs to digital ecosystems, enabling them to take advantage of open banking APIs and PSD2 solutions provided by a wide variety of digital partners.
Launched in Germany, the business now has significant reach in Switzerland too, where it was instrumental in introducing open banking in advance of PSD2 being implemented in the rest of Europe. It resulted in the client bank white-labelling its services, helping to build out a new financial ecosystem, and won ndgit a tech award for its efforts in 2017.
Switzerland lies outside the catchment of EU regulation, but with the rest of Europe on the path to PSD2, traditional Swiss banks like Hypothekarbank Lenzburg (HBL) realised they had to invest in next-generation platforms and services or risk getting left behind. HBL sought a framework that would grant fintechs authorised access to bank data and included a developer portal for easy marketing of its services. It also wanted to ensure its platform could match the requirements of PSD2, and at the same time comply easily with the obligations of its local payment environment.
The bank selected ndgit to deliver a tech backbone to support the central interface between its new system – Finstar – and its fintech partners. ndgit designed a flexible middleware that enabled it to connect easily with minimal effort through standardised APIs linked to the bank’s platform.
But it’s not just in Europe that the impact of open banking is being felt. After all, the digital economy has turned every business into a global business, points out ndgit’s head of business development, Franziska Zangl.
“PSD2 is a good starting point for European banks to implement open banking strategies,” she says. “But it’s not the full potential that could lie behind the implementation of open APIs.”
Be it Australia, the UK, Europe, Singapore, Switzerland or wherever open banking is currently being implemented, the motivations are similar but the drivers can be different. In many cases it’s being accelerated by legislation (as in Europe) or non-mandatory frameworks (as in Singapore). Elsewhere, it’s bubbling up from a dynamic market.
The end result is the same, though: more competition between providers, the rise of the specialist service and greater cooperation between incumbents and new entrants equals greater choice for consumers through the rise of the API-facilitated marketplace.
The difference between the two approaches (government or market-led) is often only the speed of change.
And speed is of the essence now, according to Dlugosch.
“Banks should find a scalable way to bring in three, four, five innovations per year and new complementary products,” he says. “So, banks should create ecosystems where they are the navigator to the financial environment of the client and bring it all together in one frontend.”
Zangl, says the effects of PSD2 are being felt across the globe.
“It will totally have an impact outside of Europe,” she says. “What we see now is PSD2 swapping over – to Canada, Switzerland, and even South Africa.
“In conservative markets, it’s important for banks to have a regulation pushing them to implement these services, but they should not stop there. This is happening in Europe already: banks see that there are a lot of third-party providers (TPPs) out there that want to use their data, and now I think they are understanding the opportunities.”
Australia’s Open Banking, or Open Data, regime officially began on July 1 this year, with the country’s four major banks mandated to give TPPs access to generic product data for credit and debit cards, deposit accounts, and transaction accounts via APIs. Customer data is expected to be included by February 2020.
Elsewhere, Asia is widely considered by many to be the world’s most innovative region in terms of payments technology, and Singapore by far the most advanced within it in terms of open banking and APIs, despite there being no regulation in place to promote it. In 2016, the Monetary Authority of Singapore (MAS) published API guidelines to encourage banks to open up their systems in an innovative way, and since then has initiated measures designed to further promote the opening of its financial sector. Banks there are regarded as role models when it comes to applying use cases and providing an intuitive and developer-friendly portals.
“But it’s not just opening up your APIs,” stresses Zangl. “It’s also about providing extended data services.
“PSD2, for example, only covers a very small part of the potential that lies behind open APIs. It’s really just a first step in the right direction.”