The Banking Executive Magazine - Issue 150, June 2021

Open Banking REGULATIONS Regulation is one of the key triggers for open banking in Europe. Payment Services Directive PSD2 is an EU Di- rective that is intended to bring more competition and innovation into the financial services sector. PSD2 re- quires banks to share customers’ fi- nancial data with authorized third parties via dedicated APIs. This ends banks long-standing monopoly on customer data. By ending the data monopoly, banking will become more liberal than ever before. The Open Banking initiative came into effect on 13th January 2018. It is overseen by the Open Banking Im- plementation Entity (OBIE), governed by the Competitions and Market Au- thority (CMA), and is funded by the nine largest banks and building soci- eties in the United Kingdom. IMPACT ON VARIOUS STAKEHOLDERS Open banking impacts various stake- holders in different ways as follows: • Impact on banks: bank customer data is no longer owned by any fi- nancial institution, but by the cus- tomer, and customers are no longer tied to the packages and services offered by a single bank or provider. Competition is higher and bank services and products must be attractive to win market share. • Impact on providers: authorised Third Party Providers TPP offer in- novative new solutions that can deliver competitive advantages, and drive new revenue streams. • Impact on customers: Open Bank- ing is shaping the way customers' bank account information is ac- cessed and managed, and how they make payments. Customers have access to a greater choice of services. EVOLUTION OF OPEN BANKS The financial services industry wit- nessed various changes during the last decade. Banks transactional models evolved rapidly. Banks are now evolving into a new era of digi- tal banking, in which competitors are not traditional financial institutions. Competition is driven by wider choices and technology. This is re- shaping the structure of the financial services industry for years to come with the following trends that are here to stay: • Customers are increasingly de- manding digital solutions. • Financial services providers con- tinue to push the process of digital- ization. • Fintechs continue to innovate in all areas of banking. • Regulatory pressure to open bank- ing to third parties continues. • New technologies continue to emerge. Open Banking is an evolution from todays closed banking model in which the banks have sole control and possession of customer data, into an open model, in which a large number of traditional banks, new providers and Fintechs will have ac- cess to this data. OPEN BANKING STRATEGIES There are three effective winning open banking strategies leading to long-term avenue for growth: First Strategy - Reinforcing the Core: Integrating third-party functionality can significantly strengthen the core bank and acquire market share from less responsive competitors. Many joint solutions of banks and third par- ties require little technical invest- ment and allow banks to offer services faster than they could using traditional in-house developments. Second Strategy - Opening New Distribution Channels: As they mature, the most successful fintechs will become powerful dis- tributors of financial services. They leverage technology to open new distribution channels through various devices. the BANKING EXECUTIVE 10 ISSUE 150 JUNE 2021 Figure2: The Evolution of Banks (Source: Arthur D. Little