Open banking: the path to a robust, sustainable, and inclusive payments ecosystem

Financial services transparency as well as competitive and innovative products for customers are being promoted by regulatory initiatives such as Europe’s Revised Payment Service Directive (PSD2), mandates imposed by the UK’s Competition and Markets Authority (CMA), and various global open-banking plans.

At the same time, application programming interfaces (APIs) are enabling banks to build scalable and flexible platforms that improve offerings, increase profits, and ease compliance functions. Open APIs are fueling industry collaboration, fostering a sustainable open banking environment.

Beyond APIs and regulations, banks must strategically determine their role in the new open banking ecosystem, and consider which new offerings they can develop internally, and which might be better handled by a third-party partner to improve customer stickiness.

NatWest for example, a part of The Royal Bank of Scotland, is piloting an online shopping system that lets customers pay for products and services directly through their bank account – without a debit or credit card. Built on the Request to Pay concept, the solution offers a link on participating retail sites that directs customers to a NatWest app, where they log in and complete the payment.

Launched in mid-2018, the pilot has successfully cut purchase times and ensured that bank balances are real-time accurate. Meanwhile, retailers benefit from lower processing fees and bank-grade security. This NatWest service harnesses the UK’s open banking protocol and may eventually be available to customers of other banks.[1]

As more and more financial institutions recognize the advantages of open banking, transparency is powering innovation strategies. For instance, Erste Bank Hungary (EBH) uses a universal payments solution to provide customers with 24/7 balance data across all banking channels. While delivering convenient customer experience, EBH bolsters customer protection using proactive risk management software that monitors customers’ accounts in real time.[2]

The potential benefits of open banking are significant. Opportunities include improved customer experience, new revenue streams, and sustainable service models that address financial inclusion for traditionally underserved markets.

Open Banking Innovators

Payments disruptors such as Stripe and Braintree, digital banks such as N26 and Fidor, and digital lenders such as Klarna are leading the way when it comes to penetrating public consciousness.

Leveraging account aggregation services via APIs, apps such as Yolt are helping users to keep track of finances held in different accounts for different financial needs. BNP Paribas Fortis launched an aggregation service that allows clients to see all their accounts with different Belgian banks in their Easy Banking app. Hello Bank!, the digital arm of BNP Paribas, is moving to become an ecosystem in which various service providers integrate and connect using APIs.

Open APIs Transform the Financial Landscape of Emerging Markets

The National Payments Council of India (NPCI) allows third-party providers to develop apps through access to APIs from the India Stack.[3] India Stack APIs allow governments, businesses, startups, and developers to use a unique digital infrastructure to deliver presence-less, paperless, and cashless service in India. Built on an open and interoperable API architecture, India Stack leverages the country’s unique digital identity system (Aadhaar), which incorporates biometric and validated personal data.[4]

Meanwhile, the Consultative Group to Assist the Poor (CGAP), an independent think tank dedicated to financial inclusion, is fostering partnerships in Indonesia, Myanmar, Uganda, Zambia, and other countries to use the power of open banking to serve the underserved. CGAP is exploring the idea of opening platforms to third parties through partnerships in Africa and Asia. The organization encourages startups with creative ideas for financial inclusion to realize their goals in a way that benefits developers as well as providers and underserved, often poor, customers.[5]

The proliferation of real-time payments and emerging technologies support these transformational new services and is being validated through broader adoption of Request to Pay technologies as customer confidence grows and consumers accept innovative open banking services.

However, a variety of factors may ultimately determine the success of open banking. Market dynamics, an enabling infrastructure, governance, and customer demographics are likely to play a significant role in defining the industry landscape.[6]

What Drives Open Banking Success?

Source: World Payments Report 2018, Capgemini Financial Services

The market, for example, can encourage open banking adoption through data sharing. Examples include Australia’s New Payments Platform (NPP) an industry-wide platform for fast, flexible, data-rich payments and consortia, as well as the Singapore Quick Response Code (SGQR), which makes QR code-based mobile payments simple for both consumers and merchants.

An enabling infrastructure can be built using standards created by Clearing and Settlement Mechanisms (CSMs), card and IP schemes, and third parties.

Governance will come from regulatory initiatives such as sandboxes or those undertaken by industry associations, like the one in Spain in which nearly 30 banks created Bizum, an instant peer-to-peer (account-to-account) payment solution via cellphone. Bizum allows money to be transferred instantly between individuals at no cost, which is particularly useful for making small payments, like splitting the cost of a meal between several diners.[7]

Finally, digital literacy among demographic groups, smartphone penetration levels, and high levels of per capita non-cash transactions will help to drive consumer acceptance of open banking.

Within a conducive environment, banks might consider technological options such as platformification and componentized software architecture to improve their network reach. Such options can boost the ability to offer tailor-made services and gain permanent traction within a variety of customer segments – a competitive advantage as banks navigate within a developing ecosystem.

For more insights on how the payments industry is evolving, and what this means for you, please download a complimentary copy of the World Payments Report 2018 developed by Capgemini and BNP Paribas, at www.worldpaymentsreport.com.

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Authors:

Christophe Vergne, Cards and Payment Practice Leader at Capgemini;

Jan Dirk van Beusekom, Head of Strategic Marketing, Cash Management and Trade Services at BNP Paribas

[1] Finextra, “NatWest taps Open Banking for cardless online payments,” June 12, 2018, https://www.finextra.com/newsarticle/32241/natwest-taps-open-banking-for-cardless-online-payments

[2] ACI Worldwide press release, “Erste Bank Hungary Readies for Immediate Payments and Open Banking Era with ACI Worldwide,” May 02, 2018, https://www.aciworldwide.com/news-and-events/press-releases/2018/april/erste-bank-hungary-readies-for-immediate-payments-and-open-banking-era-with-aci-worldwide

[3] NPCI is a not-for-profit organization that operates retail payments and settlement systems in India. It is an initiative of the Reserve Bank of India (RBI) and the Indian Banks’ Association (IBA) under provisions of the 2007 Payment and Settlement Systems Act. https://www.npci.org.in/about-us-background

[4] Fintech Futures, “What is the India Stack and why is it no longer the dream it used to be?” Devie Mohan, March 26, 2018, https://www.bankingtech.com/2018/03/what-is-the-india-stack-and-why-is-it-no-longer-the-dream-it-used-to-be/

[5] CGAP press release, “CGAP Partnerships Explore Impact of Open APIs on Financial Inclusion,” January 22, 2018, http://www.cgap.org/news/cgap-partnerships-explore-impact-open-apis-financial-inclusion

[6] Capgemini, World Payments Report 2018, https://worldpaymentsreport.com

[7] BBVA website, “Leading platforms in mobile payments, the currency of the 21^st century,” February 15, 2019

https://bbvaopen4u.com/en/actualidad/leading-platforms-mobile-payments-currency-21st-century