As part of Efma’s ‘Open Banking & Neobanks’ webinar series, Efma Senior Advisor and Regional Manager for Australia and New Zealand, George Beatty, interviewed Matthias Kröner, Fintech Entrepreneur and Founder of Fidor Bank on the future of open banking.
What has been the real response to PSD2 in Europe, compared to what established universal banks had anticipated?
PSD2 is considered to be an open door for new competition, a level of competition that previously was not possible. That was the intention of the lawmakers. Clearly, everybody was extremely excited, in particular in the fintech environment. That excitement obviously translates into real numbers. Felix Hufeld, Chairman of German BaFin, recently stated that there is a three-digit number of applications – obviously way more than expected. Sadly, but understandably, he did not share what companies have already applied. Maybe even more important: Felix Hufeld calls PSD2 a true game-changer and currently the most exciting development within financial services. So, there is a truly positive sentiment on the regulator’s side which I regard to be most important.
However, the objective was to create a single industry standard. I am not sure whether we have achieved that. Lobbies have created more hurdles than simplicity. One example: instead of a standardized European approach, we have national dialects. The whole thing is definitely more complex and took longer than needed. I think it was a great intention, a good start – conceptually it was perfect. However, the execution leaves room for improvement.
On the other hand, PSD2 acts as great inspiration for others. I can report positive feedback from outside Europe. Whenever I am travelling, I am extremely proud to see that other regions are taking PSD2 as a role model for their own local initiatives. Looking at the Australian approach, it’s the perfect example to see how a basic initiative happened in Europe, and how the Australian regulators are taking it one step ahead and integrating other industries, which is not the case with PSD2. It’s a good start for international development and everybody is invited to do it better than on the European continent.
Since the intent of PSD2 was established, how has customer behavior towards privacy and data sharing evolved?
The whole data protection and internet trust issue seems to be reaching new peaks, becoming a ‘hot topic’ in society. This discussion is fueled by, for example, many attacks that are actually happening on a daily basis and the way data is being misused by all kinds of players, resulting in discussion regarding data protection and usage. The internet itself definitely has this potentially fatal problem overall and needs to gain back trust.
Comparing this to international standards, I would say that, on the level of distrust, Europe is leading. In Asia, people are way more open to digital services than they are in Europe.
Data, and the trust challenge and responsibility that comes with it, have to be solved within the framework of an overall social effort. I know a lot of initiatives, for instance, emerging from Singapore’s Monetary Authority regulator that take care of the consent, opt-in and opt-out topic, including thoughts regarding bilateral corridors crossing national borders for data exchange. Cloud banking is also related, for example, where is the cloud located – does the cloud store my data nationally on the ground or internationally? All in all, I think we are only beginning to get our hands around the whole topic and its dimension.
Open banking attracts a lot of technology talk around APIs. Is technology driving open banking or facilitating it?
I have seldom experienced a tech department developing an API and taking it to a marketing team to find a problem for their solution. It is the other way round, or, let me say: it should be. In business, all major achievements and developments started as a customer-centric problem. In banking, it is the regulator. That tells us a lot!
Learning from successful companies, we first of all are invited to go back to a customer-centric view and approach. The customer is king/queen. Not the bank. Once bankers accept this philosophy of customer-centricity, open banking becomes a wonderful toolbox for fulfilling all kinds of customer needs and desires. APIs and other technologies might support that, not more, not less. Again, beside the regulator, who acts on behalf of the customer and the stability of a national economy, the customer must serve as the main source for innovation. Nothing new at all.
What are the implications for markets where open banking has not (yet?) been regulated or supported? What are some lessons learned so far from this?
Today, we don’t even see the outcomes of open banking when it is regulated, so I wouldn’t say that we in Europe are in the position to judge its development. I see no disruption as of today, as there is no mass acceptance by consumers. Asking for a judgement is therefore way too early. That might change once all the applicants have received their license.
However, talking about open banking, I am extremely convinced that it will be the superior solution. Why? Because we are confronted with changing customer behavior that is creating new customer-centric problem statements. That will affect banks! At the same time, the technological environment can help us solve these challenges. The banking world has changed from “CRM” (Customer Relationship Management) to “CMR” – Customer Managed Relationship. You cannot respond to this change with traditional recipes.
In a not too distant future world of increasing mobility, IoT, blockchain, AI, etc., banks cannot simply stop servicing their customers just because of their IT-architectural restrictions. If there is a market-sector that is not ready for that overall technological development and the behavioral change coming with it, that market-sector cuts itself out of future development entirely. That means: it is the banks’ obligation to get their heads around that challenge and cope with the future, which is unavoidably, like it or not, coming…
What is a likely successful business model in 10 years’ time for mainstream, retail banking at scale?
As said, we will see a strong change in retail and consumer behavior simply because of technological developments. Retailers have a closer relationship with customers than banks ever had and will have. Given the technological interoperability of various industries, I predict that banks will increasingly disappear. Why? Because banks are definitely not the number one place that customers go when they face a life challenge. It is the service or product partner on the retail side that comes first, and then the payment or value transaction. Those brand owners and customer owners will drive the future of retail banking, also because open banking allows those players to reach out into areas they have never been before.
This means that banks need to reconsider their positioning. Even if ATMs disappear, banks definitely have one remaining advantage – ALM and regulation require banks to know their customers and prove their identity. Today seen as a threat, this obligation might be a USP in the future.
Banks in the open banking future may not only be a storage for value as we know it with money, but will become a storage for digital assets and identity, and this will become an absolutely central point compared to today. However, states like Singapore are already discussing initiatives for creating national/digital ID-agencies, so better hurry up!
Observing the relevant stakeholders today, it is easy to predict that most banks will further lose their primary relationship with retail consumers, unwillingly handing it over to digital retailers and big brands. The only way to survive, for some banks in that segment, will be by entering into new areas, for example via open banking.
The webinar series are exclusively reserved and free of charge for employees of Efma member institutions.