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BEYOND PSD2: BEING PROACTIVE IN THE AGE OF OPEN BANKING

Reza Rahmani Fard, Head of Payments Marketing at FIME

Open banking isn’t just a European pursuit. For those under PSD2 – the European regulation mandating banks to open-up their back-end to third-parties – the urgency to deliver these services is clear. But players further afield shouldn’t avoid joining the trend or championing the real objective of PSD2 in their strategy – facilitating more valuable and engaging consumer experiences.

Consumer demands are only set to get higher, meaningthe need to deliver more valuable services, strong customer authentication (SCA) and open-access APIs will soon become ubiquitous – even if not legally mandated.

From the Middle East to North America, many banks have already begun their open banking and digital transformation projects in a bid to get ahead. But such transformation projects entail significant technical complexities and strategic challenges. Banks need to be smart to remain competitive – so how can they best prepare for success?

Promoting proactivity

Delivering open-access accounts and new digital services will be heavily applauded by consumers. And the rewards are high for moving quickly, engaging new and existing customers. But agility must be balanced with trust.

Defining a comprehensive and effective testing roadmap can ensure trust is built-in to new open API initiatives from the start. Effective planning also minimizes unexpected delays to service launch, ensuring a quality, fully functional and interoperable service is launched on time and on budget.

For those facing regulatory pressures, consultancy can be invaluable in understanding these legal constraints and compliance hurdles without huge internal investment. Not to mention advising how to best monetize these new APIs – balancing initial investment costs with the pressure to generate short-term revenues.

Flying solo or working together?

There are different approaches to open API development. Resource can be invested internally to develop a new tailored API, or a number of API standards and external ‘hubs’ can be reviewed. These initiatives have proved popular in recent years, pooling resources and streamlining the launch of open APIs.

One example in France is STET’s definition of an open banking API standard. Developed with support from FIME, the protocols enable banks and application developers to ensure regulatory compliance, security and seamless interoperability – all at a considerably lower cost and greater efficiency.

FIME has actively engaged in payments industry standardization efforts for over twenty years and is now helping banks and payment stakeholders effectively evaluate the different initiatives across the globe.

Embracing innovation

Driven by Fintech innovation and rising consumer demands – we are in an era of pure digital transformation. From branchless banks to mobile-native services and cross-platform integration, banks need to create more flexible business models to remain competitive.

When evaluating new payment platforms and form factors however, it’s important for banks to consider whether investing to compete is more valuable than collaboration with – or even acquisition of – new players.

With rising demand for stronger customer multi-authentication methods too, issuers also need to review new technologies and protocols such as biometrics, risk-based and EMV® 3D-Secure. Prioritization is key to remaining flexible, responsive and competitive.

Implementing change

Trust, efficiency and agility are needed to compete in this rapidly changing and exciting market. But as with any digital transformation, the benefits of early-mover advantage also come with high complexities, both technically and strategically.

Partnering with leading experts can help take the strain of understanding how best to take advantage of open banking and maximize ROI. Plus, with so many new, sensitive and technical complexities to consider, a testing expert working at the centre of innovation can be considerably more cost-effective and agile than trying to source in-house expertise.

FIME is supporting both banks and third-party providers (TPPs) globally to define, design, deploy and validate their open API strategy and digital transformation projects. Learn more about our open banking services here.

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Banking

HOW IDENTITY IS SECURELY UNLOCKING THE SME BANKING MARKET

By Mike Kiser, senior identity strategist at SailPoint

 

Have an identification card in your wallet? With a selfie and a few short minutes, you could have access to a business bank account.

Small and medium enterprises (SMEs) have long been the fuel that drives the global economy, representing around 90% of businesses and more than 50% of employment worldwide. Over the last few years, a range of financial services and platforms have arisen over the last few years to support the banking needs of these organisations. They are often digital natives and are innovating to meet the needs of their clientele.

This innovation provides great ease-of-use and rapid access to credit but also demands a careful consideration of their assumed security approach. The aforementioned scanning of an identity and a quick photo to establish a bank account demonstrates the rising importance of identity in both the consumer and enterprise arenas.

The blurring of the lines between personal and corporate identities (in this case, an individual acting on behalf of a small business) is still in its infancy. Combined with the ubiquity of mobile devices, individuals will tire of maintaining different accounts, different personas, different lives for each activity. Usability will demand that identity be reusable, portable, and secure.

This has massive implications for enterprises and the financial institutions that serve them if they seek to prevent cyber-attacks; thankfully, the same element that presents the security challenge also offers the solution: identity.

 

A New Vantagepoint 

Just as individuals desire a single identity to unify their interaction with disparate parts of the world, organisations can use identity to grant them a single, holistic view of an individual (attributes, access, and behaviour) rather than seeing only a fragment at a time. This is particularly important for these new financial institutions—much of their technology stack is cloud-based, which often leads to splintered security approaches. An identity-based approach must be cloud-aware, and able to distil these complex environments into simple and easily governed infrastructure.

This collectivisation also allows security to use identities in the aggregate: to see what groups of similar individuals exist, what access these groups have, and what their usage of this access typically is. All of this contributes to the establishment of what normal is, whether it’s attributes, access, or behaviour. Once the “normal” is established, then the outliers—the potential threats—may be quickly triaged.

 

Adaptability: The New Imperative 

The recent wave of change has demonstrated that financial institutions and organisations must be ready to adapt quickly to shifts in the environment. Portions of IT staff and services have been furloughed, and adjustments to new realities are essential. An identity approach that learns from the evolution of changes in the previously established areas of normality can grant enterprises the ability to see what is coming next and invest appropriately. Much like a view from an elevated position grants the ability to see beyond the normal horizon, basing a security strategy on identity makes it inherently adaptable.

 

Identity: Innovation and Security Intertwined 

Identity, then, is a foundational consideration for financial institutions seeking to provide services for the perennially important small and medium enterprise sector. By eradicating barriers to entry that have historically kept financial organisations and enterprises apart, it is driving rapid adoption and a growing market for innovative banking. At the same time, it shows the path forward to securing those new services in a pre-emptive, adaptable way.

Now if you’ll pardon me, I must go open a bank account for my next start-up—from my mobile.

 

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Banking

OPEN BANKING: ARE CONSUMERS KEEPING AN OPEN MIND?

Last September, the European Union’s regulatory requirement for banks to open up their payment accounts via application programming interfaces (APIs) came into effect. Since then, open banking has taken centre stage within European retail banking and payments. In this blog, Elina Mattila, Executive Director at Mobey Forum, shares insight into how emerging consumer attitudes may impact open banking services in the coming months.

It has been over six months since the revised Payment Services Directive (PSD2) came into full effect and with it, required banks to allow third party providers to access payment initiation and account information. While the regulation was designed to facilitate open banking, the market demand was uncertain. Would we, as consumers, choose to embrace the new services enabled by open banking? And if so, under which conditions?

To understand consumer attitudes, Mobey Forum and Aite Group partnered on a pan-European study to determine the appetite for open banking services amongst 1000 consumers in Finland, France, Germany, Spain, and the United Kingdom. The study, launched in November 2019, revealed many important consumer trends and attitudes, including key priorities and potential barriers for adoption.

 

Consumer appetite for change

The consumer benefits of open banking are largely perceived to be compelling, yet this counts for little if the providers of those services are not deemed trustworthy. This is an observation reflected in the study, which highlighted consumer confidence in service providers as critical to open banking adoption. People want clear visibility of who is managing their finances, and the overwhelming majority (88%) would prefer their primary source of open banking services to be their main bank, as opposed to other banks or third-party providers (TPPs).

Consumers also indicated high levels of trust in their current bank of choice, reflected by 77% preferring to use a financial product comparison service offered by their main bank. By enabling customers to compare the pricing and conditions of a range of financial products on the market, they feel more comfortable that banks have their best interests at heart. This is a welcome trend, and one which should be celebrated in the aftermath of the 2008 financial crisis. For the banking industry to have rebuilt trust levels in this way bodes well for consumer adoption of future innovations.

With a trusted provider, one third of consumers were then either ‘very interested’ or ‘extremely interested’ in integrating open banking services into their financial routine. This applied to specific use cases: account information services (32%), pay by bank (33%), purchase financing (25%), product comparison (35%) and identity check services (35%). Unsurprisingly, consumer willingness to adopt these services relies heavily on providers continuing to prove that they can be trustworthy stewards of personal data.

 

Consumer concerns

For those unwilling to adopt open banking, concerns largely focused on reservations around security and privacy. As open banking becomes more sophisticated, it will be interesting to analyse the nuances around how consumers engage with third parties. Established brands are perhaps more likely to be trusted by consumers than lesser-known online retailers. For this reason, consumers may hesitate to engage newer companies than brands they are already familiar with. In an industry as varied as finance, this creates additional intrigue in the ongoing battle for market share between the newer ‘challenger’ banks and the older, more established European banks.

Consumers might, however, be willing to deprioritise trust and, instead, favour convenience and usability. When questioned over their willingness to adopt a new payment method, for example, 91% of respondents indicated that they could be tempted to switch either by financial incentives or the promise of greater convenience.

 

The path forward

While open banking is still in the relatively early stages of development, it has made significant progress in a very short period of time. Not only is it allowing consumers to share financial data with authorised providers as they wish, but it is set to spark more competition and innovation within the market.

From a business perspective, open banking is expected to create lucrative new revenue streams, particularly for companies which are able to innovate quickly and react to consumer demand. It is prompting consumers to reconsider how they manage their finances and – most excitingly – it’s not even close to reaching its full potential. It should bring a whole new era of service partnerships between banks and TPPs, which will enable a new generation of innovative financial services.

For the industry to truly fulfil its potential, it is vital that stakeholders are able to explore new business models, innovations and changing customer expectations for open banking in a commercially neutral environment. Mobey Forum’s open banking expert group provides exactly this, and we look forward to supporting our members as they shape the future of digital financial services.

 

Where to find out more

The opportunity for open banking is explored in more detail in a report by Mobey Forum and Aite Group, entitled Open Banking: Open Minds? Consumer Appetites for New Banking Services. It provides banks and other financial services stakeholders with a market view on consumer appetites toward new open banking services and explores the possible roadblocks to consumer adoption. It is also discussed in a podcast featuring key representatives from Interac, Erste Group Bank and Strands Finance.

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