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HOW EMIS CAN EXTEND THEIR LEAD WITH OPEN BANKING

EMIs

Electronic Money Institutions (EMIs) have a window of opportunity to show banks what they’re really made of. Stefano Paoletti, VP Sales, discusses why they should capitalise on it while they still can.

 

EMIs make their living by throwing out the rulebook, moving fast and thinking freely. Innovative services based on eWallets and prepaid cards are commonplace and support a wide variety of use-cases, from state pension and benefit payments, to payroll, gift cards, loyalty, gaming, FX transfers, personal finance management solutions and more.

The advent of open banking gives EMIs a once in a generation opportunity to carry on doing what they do best, but to do it better: faster, cheaper, and with broader horizons. A new market for innovative third-party financial services is evolving and EMIs are perfectly positioned to take early advantage. That said, this market is also open to everyone else, which is why EMIs need to take a close, strategic look at APIs now – today’s opportunities are rich and varied, but won’t last forever. Sooner or later, banks are going to catch up.

EMIs

Stefano Paoletti

Making a business out of staying ahead of banks is a delicate balancing act. Compared to most banks, the majority of EMIs are modestly resourced and must sprint to develop the services that keep them popular and front-of-mind. Consumers want an increasingly frictionless UX and smarter, more personalised in-app and online services. Investors want returns. EMIs also want lower payment acceptance fees and to boost conversions, and everyone wants better security and fraud protection, together with faster payments. For EMIs, time-to-revenue is critical and, in this multi-stakeholder world, the pressure is on to call the right shots first-time.

How can open banking help? While it’s true that over time API connectivity will enable banks to offer EMI-like services, like most things with banks, that’s going to take some time. In the interim, agile EMIs can use open banking to evolve their services and shore up their businesses in parallel. With research from Juniper suggesting that nearly 50% of the world’s population will be using some kind of digital wallet facility by 20241, the near-term market opportunity for EMIs is very real indeed.

A strategic outlook will pay dividends. Particularly now, considering that a high proportion of EMIs remain either unaware of their obligations under PSD2 or focused on integrating basic compliance APIs. EMIs that take longer-term positions and harness the right blend of market connectivity and developer support have a great opportunity to take charge of the sector and the next generation of digital financial services.

How? By looking beyond compliance and leveraging APIs to cut costs, enhance their customer UX and enable the development and introduction of new services quickly and at scale. Account-to-account (A2A) payments, for example, one of the first open banking use-cases to gain popular traction, is a convincing first step. This service alone stands to change the wallet-load game for good, eradicating card scheme, processor and interchange fees and replacing them with one vastly reduced transaction fee. Funds also clear near-instantly, enabling a new last-minute-load experience for users and improving conversion rates for businesses who avoid accepting card payments altogether due to punitive fees.

The real potential for EMIs, however, lies beyond faster and cheaper. By leveraging open banking, EMIs can tap into a new age of hyper-connectivity to third parties. They can also connect to a ready-to-go ecosystem of merchants, banks and other service providers, and work these connections to create new data and payment-based services uninhibited by national borders and old-world networks. Token’s market platform, for example, already has full bank coverage across Europe (defined as 90% of all accounts), via API-based connections to thousands of banks.

Establishing this level of connectivity, however, requires EMIs to do their due diligence. Not all off-the-shelf API providers enable this level of additional functionality and building out to this level internally is a serious ask. Even if an EMI does have the developer resources necessary, they still need to overcome the challenge of integrating with an ocean of proprietary APIs from their customers’ banks, as well as from merchants and other service providers, before they can even think about getting new services off the ground.

Token, in contrast, is getting EMIs up and running with A2A payments in a matter of days, via a single integration to its market platform. Our white label solutions enable EMIs to offer both open payment and data services to customers directly, online or from within their apps and under their own brand, transforming the UX and increasing conversions as a result. Digital wallet loading occurs without the customer leaving the wallet environment, and without the need to upload and maintain their card details. Instead, the user associates and verifies their bank account once, and they’re done.

Across Europe, Token is helping all types of businesses stay ahead of changing market dynamics and evolving customer expectations. Our market platform is already providing EMIs with a new playground for innovation, connecting banks, merchants and third-party providers to enable wallet loading, eCommerce payment, account aggregation and a host of other digital payment and data services.

It wasn’t long ago that banks viewed open banking simply as a PSD2 compliance exercise. Only recently have these tankers started to turn and refocus on developing commercialisation strategies. EMIs are in that same position now, only they have agility and innovation woven into their DNA. With the right start, they can mobilise quickly to deliver tangible value to their customers and set themselves comfortably ahead of the pack for a long time to come. Having already carved out their niche by moving faster than the competition, there is every reason to earmark EMIs as early champions in banking’s new digital age.

1https://www.juniperresearch.com/press/press-releases/half-worlds-population-to-use-digital-wallets-

Banking

SEIZING THE OPEN BANKING OPPORTUNITY

Nick Maynard is a Lead Analyst at Juniper Research

 

Open Banking has made significant progress in 2020, having recently launched across much of Europe and now starting to emerge in other markets too. And there are two primary reasons why Open Banking is disrupting the banking industry so much:

  • Banks have begun to discover the real competitive advantage of a more open approach to banking. Offering a superior Open Banking experience to customers can be a compelling differentiator from other competitors as part of a wider digital app experience. Open Banking also creates a level playing field in markets where regulatory intervention has led to Open Banking deployment. As all banks are required to deploy APIs in this scenario, the situation is the same and does not put any one particular bank at a disadvantage.
  • Legislation – for example, in October 2015, the European Parliament adopted PSD2 (the revised Payment Services Directive). By early 2020, major banks in the EU had adopted Open APIs. There have however been many cases of late deployments of APIs and problems with the availability of APIs.

 

Nick Maynard

The Disruption Factor

Open Banking is a major disruptive factor for banks. The reason for this being that it opens up account data to both AISPs (Account Information Service Providers) and PISPs (Payment Initiation Service Providers), which can attempt to carve out a role in the banking area.

  • AISPs: These new vendors are able to access transaction data and balance information, as well as related information. This has, in particular, led to the rise of vendors such as Emma, Yolt and Connected Money. These vendors combine information from multiple sources, adding value to the user.
  • PISPs: In this case, the vendors are able to leverage Open Banking API connections to initiate payments directly from the bank accounts in question. This means that these players are able to bypass traditional payment methods, such as cards. Vendors such as American Express and PayPal have already launched solutions that have taken full advantage of this action.

 

PSD2 Changes

Generally, the implementation of the new PSD2 European regulation for electronic payment services effectively reduces the entry barriers for new digital players. It also opens up banks to the potential for competition, enabled by their own APIs. This allows these players to compete with existing services in fields currently offered by the banks. In the case of AISPs, it is possible that third-party applications could displace the role of the apps from incumbent players, which would dilute the bank’s relationship with their users.

As with any fundamental change to markets in the banking area, there is the potential to bring a number of both opportunities and challenges to consider with Open Banking.

Open Banking Opportunities & Challenges to Consider

Source: Juniper Research

Banks and other parties that are looking to become involved in the Open Banking ecosystem must weigh these opportunities and challenges carefully. Open Banking certainly needs a more collaborative approach than traditional banking models, which will require significant effort to make them successful.

 

The Forecast for Open Banking

The total number of Open Banking users is set to double between 2019 and 2021, reaching 40 million in 2021 from 18 million in 2019. The ongoing Coronavirus pandemic is increasing the need for consumers to have the clarity of combining their accounts and gaining insight on their financial health, and also boosting momentum in the adoption of Open Banking.

This extraordinary growth is being driven by Europe, where the regulator-led approach to Open Banking has created a standardised market, with low barriers to entry. This contrasts with markets like the US, where a lack of central regulatory intervention is limiting growth potential.

 

Open Banking – Delivering Opportunities and Threats

It is worth noting that Open Banking can be both a threat and an opportunity for traditional banks. While Open Banking exposes user information and access to potential competitors, this threat has the potential to affect all players in the market equally. Consequently, established banks must create innovative Open Banking services that will provide benefits for the user, while also attracting customers from less innovative competitors.

Payments will be critical to the emerging Open Banking ecosystem; accounting for over $9 billion in transaction value in 2024. However, payments in this ecosystem are at a particularly early stage. While eCommerce is dominated by card networks, there is the potential that this role will be eroded over time by ‘direct from account’ payments. Consequently, card networks should look to offer Open Banking-enabled payment services, in order to offset the risk of future disruption.

Open Banking Users in 2021 (m), Split by 8 Key Regions: 40 Million

Source: Juniper Research

 

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Banking

2021: THE NEW-NORMAL LIFECYCLE FOR BANKING

Laura Crozier, Global Director of Industry Solutions, Financial Services at Software AG

 

It would be impossible to talk about predictions for the banking industry in 2021 without mentioning the cataclysmic impact that 2020 and the pandemic has had on people, businesses and countries.

Unlike with the global financial crisis, banks have been able to step up as “good guys” this time around, rebuilding their reputations as well as accelerating digital transformation. One of the main outcomes is increasingly smart, efficient online payments.

In 2020, the banking industry innovated like never before. This is the new normal. Overall, customers and society will be the beneficiaries from the changing industry. Here are my predictions:

 

Reputations are reborn

Banks across the globe pulled out the stops to integrate and adapt systems and processes to help customers during the pandemic. They offered accommodations in loans, assisted governments with the distribution of financial relief, and supported consumers by upping contactless spending limits and virtual deposits.

In 2021, banks will risk losing that rosy glow as economic circumstances drive them to deal with non-performing loans, mortgage foreclosures, layoffs etc. But, beyond their role in society as providers of capital and liquidity, banks will invest to sustain their reputations as trusted and good corporate citizens and use their power to persuade their customers and providers to adopt higher environmental and ethical standards. This will be in the areas of bank carbon-neutrality, sustainable financing, serving the unbanked, diversity and gender equality (as the number of women running a major global bank will double from one (Jane Fraser at Citi) to two). It’s a start.

 

Coming of age in the way of working

Back in Q1, when bank employees cranked up their laptops on their dining room tables, banks that were strategically undertaking business transformation accelerated their efforts. Those that were tactical, or on the fence, now understand with painful clarity that this work must be undertaken strategically.

Cracks in process and the way of working and their resulting risks can be crippling. Especially from a back-office perspective, it is not enough to rely on “organisational memory” and collegial proximity for work to get done right. Advanced banks pushed the boundaries of remote work, and the proof of concept was successful. So, they’re doubling down on developing digital twins and moving to the cloud. They’re adopting the hybrid office/WFH approach to reduce health risks and reduce cost permanently. The watercooler will never be the same.

 

The death of cash

Ok, maybe the rumours of the death of cash are a bit exaggerated since there will always be the need for cash (and, to some extent checks; the USA, for example, cannot seem to live without them). But the pandemic has permanently changed the way that consumers and small businesses bank, and the demotion of cash has been accelerated by a decade by the pandemic. For example, the Norwegian central bank said that cash payments in that country have plummeted to just 4% of transactions since March.

Implications? It will be critical to continue evolving payments to be smart, safe and flexible to compete in new world, in both retail and commercial banking. Also, the permanent change in the mix of channels will see banks’ face-to-face engagement with customers fade. Branches aren’t going to go away entirely, but they will be reserved for high value activities – by appointment only. To compensate, the personal touch has to be delivered digitally and intelligently.

The role of the bank as a “financial wellness partner” is being born. Banks will use customers’ data, not just to personalise and differentiate banking experiences, but to make recommendations for products and services beyond traditional banking from across their ecosystem to serve their customers well. Just as customers own their cash (physical or digital), in the future they will demand that they own their data (and can share it with whom they choose). Then retail and commercial clients will share their data in return for value.

 

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