August 14, 2020
0 min read

Can banks win with Open Banking?

Can banks win with Open Banking?.jpeg

The Open Banking framework/PSD2 directive has got everyone in the banking industry pretty excited. Finally banks must open a limited set of APIs (Application Programming Interfaces) to third party organisations, providing fintechs with the opportunity to offer value added services for banking customers. It is also advocated by the consulting industry as a massive opportunity for banks who can leverage partnerships to create new revenue streams. This might all sound fantastic. But it is important to remember one key element. The customer. Customers have rightly been notoriously careful with their banking data in light of numerous security issues and phishing attacks etc. Even though PSD2 demands strong and secure authentication as well as common and secure communications, any fintech presuming that customers will happily provide access to their banking data is likely to be disappointed unless it has a compelling business incentive. 

A core set of services in the directive centre around transactional data. So called Account Information Service Providers (AISPs) can demand access to banks' transactional data to provide enhanced services for customers. Perhaps you might allow access to your transactions for the AISP to help you find the best mortgage or consumer loan or to provide you with a credit score or robo-advisory services. The categorisation of transactions has been key to the success of many PFM (Personal Finance Management) applications and there is no doubt that some fintechs (AISPs) can do this better than many of the existing banks. Some offer budget planning applications which can aggregate multiple accounts or financial education platforms that may support you by providing a better visual overview of your transactional data. There are certainly cases whereby customers will be happy to provide this access, especially if they require loan finance or need a credit rating. But these benefits do not fall to the banks themselves unless they use the directive to provide services such as account aggregation with a view to cross-selling as is already the case with some pioneering incumbent banks. It is also likely that some customers using secondary financial platforms such as Revolut will provide access to their primary bank's transactional data as the secondary platform may provide improved PFM services.   

A second set of services fall around payments. We know that the interface massively influences consumer behaviour so providing the consumer with a faster more frictionless experience when shopping or using retail services online will be extremely compelling. Initiating payments for the customer by acting as a Payment Initiation Service Provider (PISP) is likely to be hugely successful for online retailers like Amazon as it will lead to a more frictionless retail experience threatening the traditional players (e.g. FirstData, WorldPay, Visa, Mastercard) in the payments' ecosystem. It is difficult for banks, known as the Account Servicing Payment Service Provider (ASPSP) in PSD2 jargon to monetise this process unless they were to act as the PISP in their own right, which would prove challenging. One can also imagine that currency exchange services such as TransferWise will have a strong enough product offering to persuade customers to provide access to their payments to allow for less friction in the currency exchange processes. And here the banks may be forced to collaborate with TransferWise or similar businesses or to offer mid-market rates themselves. This would be in the spirit of the directive in that it provides for the level of competition that the legislation envisioned. 

Of course, the core benefits here do not pertain to the banks themselves despite the consultancy overtures unless they act as PISP or AISP. Some new kids on the block such as Starling Bank are taking no chances and will take the role of AISP and PISP in addition to their core role of ASPSP (Bank). However, many incumbent banks would struggle to move that fast. Of course, banks can invest and partner with fintech, as for example with HSBC's recent investment in Bud and we will surely see more acquisitions and partnerships. Where PSD2 may have a transformational impact is by driving competition in forcing banks to remain relevant business partners that truly deliver on an engaging experience for the customer, in some cases negating the need for the customer to look for additional services from third parties. And in the cases where value is outside the banks competence, being brave enough to partner with new players. This will require bravery from legacy banks to concern themselves first and foremost with the financial health of their customers, even if that means giving up on some traditional revenue streams to avoid losing further ground to more innovative fintech competition. Exciting times indeed and fortune favours the brave.

Learn more from our insights

April 14, 2024

Enhancing ERP Systems with AI Chatbots

Explore how AI chatbots can transform ERP systems, enhancing efficiency, decision-making, and user interaction.

best large language models for ERP systems.png
March 31, 2024

Language Models Best Suited for Integration into ERPs

Four prominent large language models stand out for their compatibility and effectiveness in ERP system processes and automation. See what they are.

hybrid ERPs.png
March 21, 2024

Hybrid ERP: An Innovative Approach to Enterprise Resource Planning

Hybrid ERP is a blend of cloud and on-premise solutions. With expertise in both, Blocshop is uniquely positioned to help you with hybrid ERP development and implementation.

0-4 cover.png
October 03, 2023

IT Staffing: Individual Hiring vs. Specialized Developer Teams

Should you hire individual developers or go for a specialized, custom-built developer team?

July 17, 2023

ChatGPT-3.5: An Overview and Limitations

In this article, we'll take a closer look at the capabilities and limitations of ChatGPT-3.5, providing you with a comprehensive overview of what it can do and what its boundaries are. So, let's delve into the inner workings of this large language model.

gpt4 vs gpt3-5 and the key differnces.png
June 15, 2023

A Deep Dive into GPT-4 vs GPT-3.5 Differences and Ability to Revolutionize Software Development

There are key differences between ChatGPT-3.5 and ChatGPT-4 that software developers and companies procuring software solutions alike should be aware of. Let's see how these differences affect the output generated by these models on specific examples.

May 09, 2023

AI-powered software development: What CTOs need to know in 2023

As technology continues to evolve at a rapid pace in 2023 and beyond, CTOs must stay ahead of the curve by utilizing predictive analytics, automated testing processes, and deployment solutions.

May 05, 2023

How Artificial Intelligence is changing web development

AI technology is now being used in many different industries, including web development. It’s important to understand the impact that AI can have on web development as it can help companies to create more efficient and user-friendly websites.

May 05, 2023

How AI-powered software development is changing the role of the CTO

As AI-powered software development becomes increasingly commonplace, CTOs must prepare themselves to take on a new set of responsibilities that require more than just technical know-how.

April 17, 2023

How to build a minimum viable product (MVP)

The MVP is the version of a new product that allows Blocshop and your team to collect the maximum amount of validated learning about customers with the least amount of effort. The essence of your core idea is delivered as a barebones solution. The solutions is, however, sufficient for usage by early adopters. As a product, it has tangible qulities that express a look and feel.

March 21, 2023

10 AI tools for developers you should know about in 2023

For developers, programmers, and data scientists, AI coding solutions can free up thinking time, allowing such professionals to focus on the fundamentals of their projects, and complete such projects much faster.

February 14, 2023

17 Ideas for Web Apps in 2023

Gazillions of web apps and ideas for web apps are floating around the metaverse - so creating one that properly represents a unique brand is a huge challenge. Our list provides a number of areas of simple app ideas to help businesses transform their online presence through a web app.

Top 15 micro-SaaS ideas for your startup in 2023.png
December 06, 2021

Top 15 micro-SaaS ideas for your startup in 2022

What exactly do we mean by micro SaaS? Micro Saas solutions use a web browser or mobile app interface. Micro SaaS solutions usually come about through the effort of an individual or very small team. It aims to solve precise problems. Micro SaaS projects have small budgets and overhead. Customers use Micro SaaS solutions on a monthly or yearly subscription basis. Micro SaaS projects target a small niche of the consumer market.

Software engineer hourly rates in 2021 (based on experience and location).png
November 22, 2021

Software engineer hourly rates in 2022 (based on experience and location)

Region influences salary more than any other factor. Taxes rates, cost of living, and government benefit programs affect the rates software developers charge. Software developers in the USA  and Canada earn more than software developers in other countries.

The best programming languages for app development in 2022.png
November 15, 2021

The best programming languages for app development in 2022

Software developers usually have three main ways to create an app. They can choose to code a native app, a hybrid app or a progressive web app. Developers create native apps to function on one specific platform, usually either iOS or Android. They create these apps using Swift or Objective C for iOS. For Android they use C++, Kotlin or several other languages. 

Cross-platform mobile app development: Tools & frameworks for 2022.png
November 09, 2021

Cross-platform mobile app development: Tools & frameworks for 2022

The cross-platform development project aims to create apps compatible with several operating systems. Cross-platform apps work on iOS, Android, and Windows. Cross-platform apps look and feel like apps developed specifically for the operating system.

App development cost breakdown in 2022.png
November 08, 2021

App development cost breakdown in 2022

Your business needs an app, but you aren’t sure about the cost of creating an app. Without some figures, you can’t even begin to estimate the potential budget, so let’s get you sorted with the information you need to make your app a reality.

November 04, 2021

Web app development: a detailed guide

The best web apps give a responsive and engaging user experience through a browser instead of a single application. Think of web app development as a super-charged website. Web apps have many features of mobile apps coded for iOS or Android without the need to code for specific platforms. Developers create web apps using HTML, javascript, Python and CSS.

15 useful web app development tools for 2021.png
October 29, 2021

15 useful web app development tools for 2022

Web development vs app development: Choose the best for your business.png
October 19, 2021

Web development vs app development: Choose the best for your business