Eyal Nachum, Bruc Bond’s fintech guru and board member, includes a message to banks: it’s time for you to embrace open banking along with the cooperation it might bring. The advantages of cooperating with alternative providers far outweigh the potential risks of loosening control, he admits that.
The movement to some more open and interconnected financial world has begun, with clear steps taken in the European Union and in Asian markets towards this goal. Europe’s Payment Services Directive (now in its second iteration, the PSD2) served because the kickoff shot around the continent. It exposed the banking system for the entry of so-called non-bank financial institutions (NBFI), who have taken on large chunks with the labour previously produced by banks. Rather than hurting banks, NBFIs have reduced banks’ workload while introducing additional revenue streams, providing a much-needed buoyancy float to some sector fighting downsizing pressures.
However, integration could be taken much further, says Eyal Nachum. If we go through the Chinese giants Tencent and Alibaba, we view a model banks might wish to imitate to your degree. The two companies operate Super Apps, WeChat and Alipay, respectively, are much more than payment services. These are so-called “lifestyle apps”, that allow users to do anything from ordering a taxi cab, through making interpersonal money transfers, to, in some Chinese provinces, paying electric bills and more. It’s all to easy to imagine the convenience that such centralisation brings.
According to Eyal Nachum, there is no need to consolidate everything under one roof, but tighter integration is achievable and desirable. If we turn to Singapore, we see the likes of DBS, one from the country’s leading banks, launching a unique car marketplace in partnership with sgCarMart and Carro. UOB, another leading Singaporean bank, recently launched a unique travel marketplace. These imaginative pursuits is usually a lighthouse to European banks, who should employ whatever possible way to learn from their Asian counterparts, by way of example by means of the UK’s fintech bridges, which Mr Nachum recently discussed with all the Sunday Times.
Under the PSD2, European banks and banking institutions are mandated to provide application programming interfaces (API), where other financial institutions (like, for example, Bruc Bond) can access data and issue authorised instructions on customers’ behalf. Sadly, most of banks in Europe did only the smallest amount to abide by regulatory requirements for open banking, instead of explore how such initiatives might be incorporated into banks’ strategic plans. This is a short-sighted mistake, says Eyal Nachum.
Banks are losing an opportunity to supply their clients and customers using a service that can actually get people pumped up about banking. This is with their detriment and endangers their long-term prospects. To be competitive in 2020 and beyond, banks must accept the platformification of financial services. Users will soon come to expect it, and poorly prepared banks are affected as a result.
There a wide range of paths to a open banking future, and each individual financial institution will have to decide for itself which path will lead towards the greatest prosperity. Some things, however, do understand. Trying to imitate the Chinese examples of Tencent and Alibaba would be foolish. The regulatory infrastructure is set against it. Instead, we at Bruc Bond believe close, tight-knit cooperation between financial institutions, service providers, local authorities and business can provide the right path to some bright future.
Such integration provides solutions for the many woes felt by medium and small-sized businesses (SMEs) due the upheavals within the European banking industry, which Mr Nachum recently wrote about in the article to the Global Banking & Finance Review.
To reach utopia, however, we have to build trust. Trust, we mean, between customers and institutions, and between institutions themselves. This can basically be achieved by true, sustained openness. Regulators may help, by mandating information sharing, nevertheless the onus is about the actors inside the markets themselves to produce frameworks that encourage cooperation. These could be limited schemes to begin with, that grow deeper as trust develops. Doubtless, this may require some feats with the imagination, when some from the brightest minds build relationships with these issues, they are able to, we're confident, come up with some creative solutions on the issues that vex bankers. The next banking revolutions demands it.