The Rise of Open Banking Platforms

With the Payment Services Directive coming into force across the European Union in January, banks are now more motivated than ever to think through what it means to become an open banking platform. Referred to as PSD2, this new directive requires banks to create systems so that they can pre-approve payments and account sharing where the end customer has given their consent. While the regulations don’t say how this should be done, pretty much everyone agrees that APIs will be the most efficient mechanism for banks to use.

As a minimum, banks would then be required to make APIs available so that third party payment and account information providers could automatically access a customer’s account. But where banks value innovation, they can become an open banking platform that fosters a wider ecosystem of fintech and retail partners who are bringing in new customer markets and enhancing loyalty with existing customers by offering them new digital products and services.

In September last year, when APIdays conducted our industry research with 22 banking executives around the globe, there was still a lot of reticence amongst banks to seize a platform play now. As our State of the Market: Banking APIs report showed (sponsored by Axway and CA Technologies), while the leaders within banks did see open banking platforms as an inevitable part of their future, few were willing to expend all their political capital on advocating the case internally. One respondent told us:

One of the main insights especially with the PSD2 regulation is that this could be a huge opportunity to create a new business model, or it could be a big threat (where you become the backend for speedy fintech and Apple: they could take over the client relationship). It is a strategic decision: do you want to be the ultimate backend for all of that or do you want to continue with the customer relationships?

That very question has now come to the fore, with new articles and publications coming out this month aimed at helping banks work through that decision.

Respected fintech site Bobsguide wrote this week that European banks must adapt now or risk becoming infrastructure. The article quotes Daniel Döderlein, CEO of Google Cloud Platform-based payments system Auka, who told Bobsguide:

Banks need to be prepared to use the Access to Accounts (XS2A) provision within the new PSD2 regulations to its full extent. It’s not just about complying with requests to provide their API, but building the kind of sticky, high-frequency use services that they can then plug their rivals’ APIs into, ensuring that they are the brand that customers have facetime with.

Banks need to think through how they will leverage APIs to create platform business models now, lest industries like telecommunications do it for them and become the banks of the future.

Former APIdays keynote and Vice President of Research at Gartner, Kristin Moyer, continues to urge banks to think through what becoming a platform means. In an analysis piece for ProgrammableWeb, Moyer argues that banking platforms are now ready to go mainstream, with CEO business priorities, digital transformation, competitive pressure from fintech startups, and PSD2 regulatory advances all creating the perfect storm to force banks to rethink their industry positioning. Organizational culture remains, Moyer laments, the difficulty in getting banks to change their mindset.