PSD2 is coming. Of this much, everyone is in agreement in the financial industry. But what does that mean for individual institutions, for customers, and even for the future of the banking landscape? “Nothing good” is the general feeling, as too much is at stake for banks. They perceive their exclusive role to be endangered, and fear that third-party providers will replace them. If they regard the regulation as being forced upon them, and only reluctantly implement it, that’s certainly how it will be. However, they would be better off seeing PSD2 as an opportunity to work on their own competitive edge for the digital future.
The good news is that banks already offer their customers comprehensive digital and mobile banking. However, every institution has its own individual recipe and is anxious not to let the competition stir it up. Available in different flavours and prepared to be as appetising as possible, it tastes good to their customers. But they cannot see beyond the edge of their own dinner plate. With PSD2 something unheard of is happening: standardised interfaces, so-called APIs, are designed to open up the banks to third-party providers.
Fear of unbundling
Customers can select their individual digital banking menu according to their tastes – they don’t always have to opt for the same dish. As a result, the bank initially loses direct contact with the customer. They are no longer positioned as an exclusive provider for all financial services. Under the keyword ‘unbundling’, this ghost is currently haunting the banking world: users are selectively picking through their banking, helping themselves to this and that, and in the worst case only choosing the less lucrative crumbs at their principal bank, such as account maintenance.
The number of fintechs that have stepped up to make everything better and much cheaper is certainly considerable. A whole host of startups have implemented good ideas in a technically convincing way, and developed approaches that will boost the quality of experience of quick financial transactions. But this brave new world of banking has a catch: it is muddled and reduces the customer benefit if the user has to switch back and forth between different apps for different activities.
Open Bank as the orchestrator
The traditional financial institution can remedy this as an Open Bank. By providing an open platform for their services to third-party providers such as fintechs, large technology companies and other banks, they can position themselves as an orchestrator. It rebundles all previously unbundled services – with the difference that these can now also be provided by third parties. Via PSD2, the banks strengthen their position towards the customer as they provide all the services they need within their secure banking environment and make it easy to access through one single application.
We lay the foundations with our Digital Banking Hub. The technology platform enables companies to digitally orchestrate different offers, to adapt the range of solutions at any time and to expand their own and third-party applications. New business models can be implemented in the same way as migrating existing widgets into an innovative environment. Our public APIs are based on the most up-to-date version of the NextGenPSD2 Framework from the Berlin Group and the OAuth (Open Authorization) 2 security standard.
PSD2 out of the box
Under the motto ‘PSD2 out of the box’, the Digital Banking Hub includes all components needed to implement legal requirements. In addition to the public APIs, connection to the bank backend and API management are key points. The latter includes the following features:
- A registration process ensures that the open banking provider always retains control over their banking environment and knows which third-party providers are providing which services via their platform.
- Adaptive authentication makes it possible to individually adapt rights to third-parties.
- Agreement management manages the customer’s consent to third-party data access.
- Analyses, such as on the use of applications, are also integrated.
With the Digital Banking Hub, financial institutions decide for themselves how much they want to get involved in open banking. Anything is possible, from ‘comply only’ to a fully developed digital platform player. However, it will prove to be a sustainable move for the future to monetise the access of third-party providers to their own ecosystems, or even to assume the role of a service provider within the environment of other players.