Driven by regulations, customer demand and demographic shifts, open banking is becoming real. The emerging marketplace banking will create opportunities for banks and non-banks alike. However, it also poses fundamental questions on how banks want to position themselves. Urged by PSD2, EU banks are actively working on solutions. Yet, Swiss banks are also starting to identify chances of opening up.People have announced it for several years now: Banks are going to be disrupted, although, it hasn’t happened yet. This might be changing now, as we face the open banking era in the EU and in particular the UK and Germany due to regulatory pushes like the EU Payment Service Directive (PSD2).
“There is a new game in town today, open banking, and it promises a long-awaited revolution”. Not Deloitte’s words but those of Philip Aldrick, Economics Editor at The Times, writing on 20th June. He is completely right.
While Swiss banks don’t feel the same regulatory pressure in this respect, they need to carefully consider their stance towards open banking before others are harvesting the benefits of the emerging ecosystem. Reacting only to regulations is short-sighted in our view.
Indeed, we now have three critical factors for significant structural change in the banking sector: customer demand and demographic change; technological development; and targeted regulation that forces incumbents to open up and share their data.
Open Banking: How to flourish in an uncertain future is our first map of this emerging landscape. It lays out a future of change, opportunity, but also threat. We are entering an era we have christened “marketplace banking” and it is going to look radically different to what has existed before.
Over the next 10 years, the most important question for banking providers will not be “what product do I build”, “what account perks do I offer”, or “into which area can I better cross-sell”. The most important question will be: Do I want a direct customer relationship? And if I do, what should this customer relationship look like? At face value, that may sound absurd. Banking has always been about serving the client directly.
But open banking is going to change this longstanding logic. In the decade ahead, there are four potential business models for incumbent banks to choose from:
- Turn yourself into a supplier: Build the best products you can, but let someone else distribute them to customers via their own platform or network.
- Keep being a full-service provider: Do as you’ve always done, but be sure that you do it better because the competition is going to be even more fierce. And don’t worry too much about lots of third-party integration.
- Function as a utility: Give up entirely on both the ownership and distribution of products. Instead, operate profitably behind the scenes, providing infrastructure and services to customer-facing outfits.
- Become an interface: Do the opposite, ditch the products and become the distributor of choice to the customer for other people’s products.
All of these futures are possible and potentially profitable for incumbents under open banking regulations. A combination of these operating models may well be chosen.
But here’s the twist. Under open banking, these futures are perfectly possible for everyone else as well. Think about it –what if you could start from a blank sheet of paper, design great products but not have to worry about the marketing and distribution costs?
Or what if you don’t have the risk modelling and financial expertise to build lending, insurance and savings vehicles, but have a stellar record selling products direct to customers?
Open Banking is going to be exactly that. Wide open.
Incumbent banks are starting from a position of incredible strength. They have a magnificent opportunity to grow, to refine, or to build a sleek model focused purely on what they do best.
But they are not alone. Technology giants, Fintech start-ups, even price comparison websites - (what was that about holding a stellar record selling to customers?). All of them already hold many of the tools necessary to be successful in the new world and the barriers of entry have just been lowered.
It is just a matter of time that these enter the Swiss market, either because Swiss regulation follows suit to the EU regulation or because progressive Swiss banks are opening up to reap the benefits. And reading the press, we see that the first banks have already embarked onto this journey and a working group is defining Swiss standards for banking API interfaces.