2019 has set the stage for the next round of the match-up between Banks on one side and FinTech [1], BigTech and other challengers on the other. Come September, the requirements for Strong Customer Authentication will come into play and the race is on to get a head start. Some banks are indeed dragging their feet and just trying to do the bare minimum to be compliant. While others are more active and looking to one-up the disruptors while they are ahead.

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This is a conflict being fought on multiple fronts:

Firstly, the focus is on the data front

For example, maybe it can provide them insights on where they ought to invest, help them save up, or access services for cheaper and so on.The regulatory theme for 2018/ 19 definitely seems to revolve around giving customers a lot more control over their data. This data is valuable and billion-dollar companies offer their services for free just to get hold of this data! Customers are now increasingly becoming aware of the value of this data and they have an incentive to better control its usage and use it for their own advantage. This does not necessarily mean selling it but using it in a way that makes their lives easier.

Secondly, the focus is on user experience

The very reason for the existence of AISPs (Account Information Service Providers) and PISPs (Payment Initiation Service Provider) is to enhance the user experience of the end customer. Those who fail to do that, are not likely to make it because UX is going to be their main selling point. This is true for banks as well who will certainly attempt to retain as much of the value chain on their own platforms as possible. The more ambitious among them would also be looking to bring over clients from other banks to their own open banking platforms. 

Finally, the focus is on the cost and security front

Cybersecurity is on everybody’s mind and being a cost leader never really hurt either. For banks, the challenge here is to bring down their cost-to-income ratios substantially without impacting operations. For the new entrants, the challenge is to match the banks in terms of security, cost and scalability because they need to be on a level playing field to take them on.

This is where options like HSM-as-a-Service come into play. The As-a-Service model allows companies to make use of industry-leading solutions cheaply and reliably. It eliminates the need for extensive upfront investments and training while providing the additional benefit of near-infinite and on-demand scaling, flexibility and most importantly – matching the standards of any of their competitors. Such force multiplies are really going to come in handy as the race for market share heats up.

Closing thoughts

This list is obviously not comprehensive, but it captures the main elements of the overall strategy for success in the open banking space.  At the end of the day, it is impossible to predict which side the chips would fall on. But companies which are fast to action and can immediately seize upon any unmistakable trends are likely to increase their chances of success. Either way, one winner is most definitely  assured – the European consumer!

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References and Further Reading

  • [1] It is worth mentioning that FinTech firms don’t necessarily have to be on the other side. Many are collaborating with banks to help them populate their open platforms and banks too are looking to spread some cash around to acquire more innovators.