We had the pleasure of interviewing the European Commissioner for Competition, Margrethe Vestager, about the Commission’s thoughts and ideas on PSD2. In the interview, the Commissioner sent a clear message: “I think we have to stick to the regulatory track,” she said, and added: “regulation has played a very, very important role. Also to ensure confidence, because one of the triggering factors for the financial crisis was that the banks lost confidence in each other, and the outside world lost confidence in the banks.”
In the interview, Margrethe Vestager gave an equally clear advice to the European banks on how to react to perhaps the most revolutionary piece of regulation ever in finance: “The banks should exploit the opportunities and embrace these developments. The entire payments area is changing drastically. I think that PSD2 is the necessary push that will make banks start moving forward.”
What Margrethe Vestager says is that banks should stop wasting their time dreaming about the good old unregulated days. These will never come back. Therefore, they must start opening up – or get ready to close down for good.
As strategy and communication consultants in financial services with PSD2 and Open Banking as our specialities, we completely agree to these points. There is no way back for the banks, and business as usual is not an option anymore. Technologies are simply developing too fast (with artificial intelligence as an example). Many new and challenging business models see the light of day. Moreover, with PSD2 opening up becomes mandatory for all European banks.
Furthermore, there are many brilliant young minds out there waiting for a chance to eat the old boys’ lunch. VCs around the globe are willing to hook up with the young ones and help them fulfil their mission. In addition, as we have learnt from the Commissioner, the regulators have no intentions whatsoever of protecting big dinosaurs that are not willing to adapt.
Evidently, this is not breaking news for the banks – hopefully! However, knowing is one thing, while acting is another. Even though the most innovative of the incumbent banks are displaying an admirable degree of agility and investing significant sums already in Open Banking, the long tail of average banks still struggle to overcome a kind of ingrained inertia and still have a long way to go.
For many of these banks just complying with the basic requirements of PSD2 is more than enough of a challenge for now, and to fully embrace Open Banking still does not look like a realistic option.
But what are the primary obstacles – or requirements – for successful embracement of Open Banking for banks in general? Based on our ongoing dialogues with banks we have pinpointed three areas that the banks need to control to really start moving forward (as the Commissionernotes):
Technology
A basic requirement is obviously an IT setup that enables the bank to connect with a network of third parties through open APIs. Unfortunately, for many incumbent brick & mortar banks whose IT infrastructure often consists of many different and often-old legacy systems, this is far from always as easy as it sounds. Many good people are already thinking and writing about this point, so no need for further comments here.
Mindset
When unfolding the concept of Open Banking just a little bit, it soon becomes far more complex than just a matter of coding the right APIs. Open Banking is about opening up, reaching out, listening to and engaging in a dialogue with companies, organisations, individuals and communities outside the bank.
The question is whether the typical CEO in the banking sector is really prepared to reach out and engage. Furthermore, a question of whether he or she has the mindset needed to lead a presumably conservative banking organisation through what many has already called a revolution.
Communication
Since Open Banking is about so much more than just technology, a careful communication strategy is crucial for banks to execute their Open Banking strategy successfully. It is a basic prerequisite to involve the organisations and make the employees understand the necessary change of mindset. In addition, it is certainly necessary when reaching out and starting to engage with new groups of third parties like start-ups and fintech communities.
Communication sometimes tends to be forgotten within the strategy processes, but making sure to carefully communicate a bank`s Open Banking strategy is about as important as the strategy itself - as openness does not only apply to the technical infrastructure.
A legitimate question is whether Open Banking is just another fintech buzzword. We do not think so, and PSD2 is the reason why.
Having a trend – Open Banking –, which is propelled by an EU directive, is quite unique. An EU directive is, by definition, mandatory for all EU countries and must be implemented as part of national law all over Europe, and all approx. 4,000 European banks must comply with the directive and open up for Third Party Providers (TPPs).
Open Banking is extremely likely to have a substantial impact on the European banking sector in the coming years. Exciting times ahead, so stay tuned!
About Michael Juul Rugaard
Michael is Partner & Co-founder of Norfico. He has 15+ years of experience as a strategic communications adviser for brands such as IBM, Lenovo, Maersk Line, Nets, Teller, Discovery Channel, Animal Planet and The Danish Technological Institute. Michale also has longstanding experience as an editor and author of books, magazines, white papers, and reports (some recent examples: https://issuu.com/norfico).
About Kristian Thure Sørensen
Kristian is Partner & Co-founder of Norfico. His work within financial services has made him an acknowledged fintech thought leader and a frequent speaker at conferences worldwide.
Kristian has 15+ years of experience with digital financial services and serves as strategic adviser to leading banks and financial technology providers. ?
About Norfico
Founded in 2015, Norfico is the first agency in the Nordic region to deliver strategic advisory and communications services 100% focused on fintech - including ID, payments, connected commerce, regtech, and insurtech. Norfico combines advisory services across technology, strategy and communication focusing on fintech. This unique combination allows us to serve our clients broadly across the value chain and increase the value delivered. Norficos customers range across banks, technology providers, government institutions, public authorities, and start-ups.
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