As dawn breaks on PSD2, the majority are focusing on compliance, API development and bank-to-bank integration. One or two are dipping their toes into data aggregation, with a view to displaying a customer’s complete financial information in one place.
Compared to what’s possible, however, this is a dangerously narrow focus. Zeroing in on just one or two use cases discourages broader exploration of how open APIs can be used to create new services, power new revenues, and deliver the digital customer experience that’s now normal elsewhere.
Two-sided ecosystem
Open banking is creating a two-sided ecosystem. Banks sit on one side. Everyone seeking API access to banks including merchants, developers, other banks, consumers and payment and data TPPs, sit on the other. The middle ground, conventionally inhabited by clearing houses, payment schemes, processors and other authorising service providers, is no longer needed. ‘Bank-direct’ engagement is the order of the day and transactions (in the form of either payments or data) can now occur automatically, instantly and at a fraction of the conventional cost. When viewed like this the true power of open banking becomes apparent.
Figure 1: Open banking has created a new two-sided ecosystem
New use cases
The payments industry is currently alight with talk of ‘embedded commerce’. Well, with the right open banking partner, merchants can integrate an instant bank-direct payment gateway into their ecommerce checkouts and deliver the secure and frictionless embedded commerce experience while axing the cost of their payment acceptance by 50%. This is just one compelling example of many, and one that Token has already delivered for travel money and foreign exchange leader, Caxton.
Personal financial management apps can evolve into genuine multi-banking platforms, giving the customer much more than a consolidated view of all their financial products. They can empower the customer to manage all their affairs from that one place – adjusting transfers, setting up recurring payments, settling bills and credit card debts, and sweeping funds between accounts instantly, regardless of institution, time, and location. Soon, AI services will make better use of this aggregated data by automating some of these activities according to rules defined by the customer.
Elsewhere, the reduction in the cost of payment acceptance could make a previously unfeasible micropayments service for IoT and other connected devices a commercial reality. It could be delivered by a bank, it could be a TPP.
And therein lies ‘the problem’ for banks. Open banking enables services that could once only be delivered by them, to now be delivered by others.
But is that really a problem?
A matter of perspective
Everywhere, customers of banks - be they consumers, merchants, businesses or other banks – are calling for better digital transformation; for faster, cheaper, more convenient and more innovative digital services. PSD2 and open banking is every bank’s chance to deliver. The global successes of Google Play and Apple’s App Store show that an enabled and well supported community of developers can deliver more and better apps than any company can achieve in isolation. In the same way, by supporting TPPs with easy API integration and data availability, banks have a chance to be the architects of their own transformation.
One API to rule them all
The real problem banks face is how to get going. A lack of standardisation is preventing the mass interconnectivity that PSD2 was designed to generate. Of the APIs now available, only a handful of banks in the UK and Ireland are using the same one. They are only doing so because the UK regulator required them to and, even then, each bank has implemented the standard differently. This is bad for everyone: it increases costs and complexity at each bank, opens the door to insecure solutions, which expose banks and their customers to unnecessary risk, and it hinders adoption by software developers who only have bandwidth to write to one or two open APIs. Today, Token is the only FCA registered payment and account information service provider that can offer API access to any bank in Europe. It is also responsible for the first third party-initiated open banking payment in history. In time, billions will follow.
Identity-based commerce
At the heart of the open banking revolution is the business of transaction authorisation. With open banking APIs, a bank’s ‘power to authorise’ could extend beyond payments and into digital authentication and ID. ‘KYC-as-a-Service’ has huge revenue potential for banks that reposition themselves as guardians of customer identity. Banks could authorise customer logins for digital services in the same way they handle payment authorisations.
Today’s ‘Login with Facebook’ or ‘Login with Google’– a lucrative practice known as federated authentication – is still underpinned by the same shared secrets model as old-world bank security. With the right open banking platform, banks could dramatically increase the security of digital services everywhere by performing this service based on their KYC-enrolled customer data. This is another example of how a bank can quickly reposition for new services, generate new revenues and break into new markets. How many other opportunities are out there? In truth, no one knows. But with the cat out of the bag, it’s only a matter of time before we find out.
About Marten Nelson
Marten Nelson is co-founder and CMO at Token, a Silicon Valley based technology company, focused on building a global open banking platform that helps bank generate new revenues. Marten is a widely experienced technology entrepreneur/executive. Token is his third company to found.
About Token
Token’s universal open banking platform, TokenOSTM, allows banks and third parties to interact in a digital global financial services ecosystem. TokenOS provides one API to access all banks in Europe, with the tools to deliver best-in-class data and payments use cases, and better open banking propositions.
This editorial was first published in our Open Banking Report 2018. The Open Banking Report 2018 focuses on topics such as building trust, gaining consent and improving customer experience in Open Banking.
Token is exhibiting at Sibos Sydney from 22 – 25 October. Meet Marten at Discover L4, booth DZ05, to learn more about how APIs improve the payment experience, drive new value added services, and why European legislation is the springboard to enabling businesses across the globe to harness the power of open banking. Marten will also join the panel Open Banking: Australian & International Perspectives on Tuesday 23 October at 11:45 on the Discover stage: http://bit.ly/2CUGMI9
Please contact press@token.io to arrange a briefing.
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