Eyal Nachum, Bruc Bond’s fintech guru and board member, features a message to banks: it’s time for it to embrace open banking and the cooperation it might bring. The advantages of cooperating with alternative providers far outweigh the potential risks of loosening control, according to him.
The movement to your more open and interconnected financial world has already begun, with clear steps taken both in the European Union plus Asian markets towards this goal. Europe’s Payment Services Directive (now in its second iteration, the PSD2) served as the kickoff shot on the continent. It opened the banking system towards the entry of so-called non-bank banking institutions (NBFI), who've taken on large chunks from the labour previously created 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 may be taken much further, says Eyal Nachum. If we glance at the Chinese giants Tencent and Alibaba, we see a model banks may wish to imitate to some degree. The two companies operate Super Apps, WeChat and Alipay, respectively, less difficult more than payment services. These are so-called “lifestyle apps”, that allow users to complete anything from ordering taxis, through making interpersonal money transfers, to, in certain Chinese provinces, paying electric bills and more. It’s an easy task 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 look for Singapore, we have seen the likes of DBS, one of the country’s leading banks, launching a unique car marketplace in partnership with sgCarMart and Carro. UOB, another leading Singaporean bank, recently launched its travel marketplace. These imaginative pursuits can be quite a lighthouse to European banks, who should employ whatever way possible to learn from their Asian counterparts, for instance by means of the UK’s fintech bridges, which Mr Nachum recently discussed using the Sunday Times.
Under the PSD2, European banks and banking institutions are mandated to offer application programming interfaces (API), by which other banking institutions (like, as an example, Bruc Bond) can access data and issue authorised instructions on customers’ behalf. Sadly, most of banks in Europe have inked only the minimum to conform to regulatory requirements for open banking, rather than explore how such initiatives could 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 which has a service that could actually get people looking forward to banking. This is to their detriment and endangers their long-term prospects. To be competitive in 2020 and beyond, banks must accept the platformification of economic services. Users will quickly come to expect it, and poorly prepared banks will suffer as a result.
There are lots of paths to a open banking future, each individual financial institution will likely need to decide for itself which path will lead for the greatest prosperity. Some things, however, are clear. Trying to imitate the Chinese samples of Tencent and Alibaba will be foolish. The regulatory infrastructure is placed against it. Instead, we at Bruc Bond believe that close, tight-knit cooperation between finance institutions, service providers, local authorities and business offers the right path to some bright future.
Such integration provides solutions on the many woes gone through medium and small-sized businesses (SMEs) due the upheavals within the European banking industry, which Mr Nachum recently wrote about in the article for the Global Banking & Finance Review.
To reach utopia, however, we've got to build trust. Trust, we mean, between customers and institutions, and between institutions themselves. This can just be achieved by true, sustained openness. Regulators will help, by mandating information sharing, however the onus is about the actors in the markets themselves to produce frameworks that encourage cooperation. These may be limited schemes in the first place, that grow deeper as trust develops. Doubtless, this may require some feats in the imagination, when some in the brightest minds build relationships these issues, they are able to, we are confident, produce some creative solutions for the issues that vex bankers. The next banking revolutions demands it.