Europe and the Open Banking phenomenon

19 Nov 2019

The single biggest lever for achieving success in Open Banking will be in finding the use cases and experiences that add value for customers and drive adoption. That was the strong message during discussions at the Open Banking Expo Europe, on 4 October in Amsterdam. However, players face regulatory and collaboration challenges…

How can the industry accelerate consumer adoption of Open Banking products? That was one of the many questions posed at Open Banking Expo’s inaugural Europe event last month. Headlined by Open Banking platform provider Token Inc, the event welcomed around 200 delegates from the worlds of financial services, fintechs and regulators.

Lana Abdullayeva, Group CIO at Lloyds, said the crucial success factor for the sector is offering consumers real benefit. “When we started building our platform, we learned that adoption began to increase when we started to offer something valuable and sensible to consumers.”

Abdullayeva saidconsumers won’t take up new services or means of account access without good reason. “So, as a customer, yes, I’ve got the app and I can connect my accounts, but so what? Maybe out of curiosity or as an experiment I would do that, but then so what?” She said that for both business and individual customers to use new Open Banking capabilities in a sustained way, there needs to be compelling value as part of that service – one example of that being the provision of cash management or accounting functionalities.

Oliver Dlugosch, CEO of API platform provider NDGIT, added: “Over time, we will see stronger use cases that support better funds management, faster, better loans etc and this will help drive adoption – if consumers really get something back out of it”.

In an event poll, delegates were asked how much impact Open Banking would have on the industry. 67 per cent of attendees felt that it would pose considerable change with unpredictable impact and 25 per cent said it would change everything. Only 9 per cent of respondents said it would have no or little change.

Driving adoption

Panellists in a debate chaired by EY’s Associate Partner Jeroen van der Kroft were unanimous in their opinion that finding the right use cases was vital for driving adoption.

“Open Banking will dramatically change the way consumers interact with their service providers” said Piet Mallekoot, CEO of the Dutch Payments Association. “It will also address the need for customers to get faster and more flexible access to services. It will take time but there are big chances for providers in all areas to unlock value in the supply chain. At the moment, there isn’t much traction in the consumer market, it is about building the killer app for the consumer”.

Philippe Rousseau, Head of Commercial at payments firm Klarna, said customer experience is being stymied by technical capabilities. “The quality of available APIs definitely isn’t helping adoption. Consumers want a great customer experience – if they enjoy it, they adopt it quickly. They want everything at their fingertips and for services to be quick and easy. Removing the friction is where we need to put our focus.”

The fintech impact

The panellists discussed the rise of fintechs and other new players. Søren Rode Andreasen, Chief Digital Officer for Danske Bank, felt that the competition from fintechs was not as strong a threat for banks as some might expect.

“Firstly, banks know how hard it is to acquire customers, but fintechs have underestimated this. Secondly, trust is a very important factor – consumers are very careful about money and people don’t just trust a brand they don’t know.Some of the business models from fintechs and challengers don’t make sense, haven’t been qualified or checked to see if there is sufficient need there,” he said.

“You have to work really hard to be one of the (on average) nine apps that people use daily. You have to have a unique value proposition.”.

When questioned on the impact that BigTechs may have on the banking space, Andreasen said their impact on the banking industry will take longer than most people expect. “They are intruding on banks’ territory but I don’t think they wish to be banks and to be regulated. They are more into partnerships. Banking is a very different industry, data is a much bigger concern for instance and lending – where the money is – is very different to where they are now. This is something the BigTechs will find out.”

Both Dlugosch and Mallekoot agreed that partnerships between fintechs and banks were the perfect answer for all parties going forwards. “It’s a good combination because fintechs have the best technology and know about customer journeys, whereas banks are good with compliance and they have the distribution channels and customer trust” said Mallekoot, who warned against the further fragmentation and resource challenges that would be caused by banks ‘going it alone’.

PSD2 predictions

The Expo took place shortly after the PSD2 directive rolled out across the European financial services landscape. However, the panel agreed that they don’t expect to see huge impact from PSD2 in the next five years. “I don’t’ think there will be that big of a change by 2025 – it will take longer than we all thought it would,” said Rousseau.

“We have to remember that PSD1 took a good 10 years to embed and have an impact – and PSD2 is more complex” added Abdullayeva.

With more than 20 countries around the world now trying to define their own Open Banking standards, in some regards the sector is on a positive road. However, speakers said the industry needs to be focused on finding the right balance between customer usability and security, as well as making sure it feeds back to the relevant authorities about what is and is not working in terms of the regulatory standards. These factors will be key in ensuring the positive trajectory continues.

The lack of a standardised approach to APIs has also presented a major challenge in the implementation of Open Banking. For the first time, the event brought together regulators from the UK, France and Germany to discuss if Open Banking can ever realise its potential with more than one standard.

Hervé Robache, PSD2 API Coordinator, at STET, told delegates that multiple standards were not necessarily a problem. “Having several APIs isn’t the worst thing – it’s a good chance to get some ideas and to find the best track to move towards a single solution, if any, in the future,” he said.

“Market fragmentation is so deep within Europe with different payment instruments in use from one country to another. Having more than one standard offers the chance to have different solutions to suit different markets.”

Wijnand Machielse, European Markets Director at the Berlin Group, agreed that the number of standards in Europe is not unmanageable. “There are only a handful, which is not too much of a problem. If TPPs are working on these few standards then they are able to cover the whole market. Plus, it keeps everyone awake and creates more innovation in the end. Having these few would, in my view, certainly not be something that stops the success of Open Banking.”

Machielse added: “We have 62 organisations participating in our standard, across 30 countries in Europe – and 3,000 banks have already implemented it. They are acknowledging the power of the API economy, no longer seeing it as just a compliance effort, and they are focusing on premium services.”

However, this view was not shared by all. “While I do like the idea of diversity and learning from each other, I actually think it’s important to have one standard and it would be great for Europe to have one,” said Imran Gulamhuseinwala, Trustee at the UK Open Banking Implementation Entity.

“It’s important to only have one standard in each country, but the truth is that banking markets are quite different from country to country despite the efforts of regulators. The ecosystem has to get to some kind of critical mass – standards only work if you get to a critical mass. At least if we’ve got a single country on one standard, you give it the best chance of working.”

He added: “In the UK about 99% of consumer and business bank accounts are using one standard. The standards aren’t working but that there is an opportunity for them to converge. However, I don’t know how or when that would happen.”

Working with multiple standards

Representing the viewpoint of TPPs, Paul Meadowcroft, Chief Product Officer at ID and regulatory checking service Konsentus, added: “The good thing about standards is there are so many out there to choose from. However, the way that financial institutions are implementing them also varies. This makes it very difficult for TPPs to develop and maintain their codes.”

“It takes time and investment to develop across all these API standards. The regulation was put into place to open up the European market so that people could do cross border in a consistent way and I don’t think we’re very near that right now. There is some strength in variety, but we do need to look to the future and work towards a more common standard across Europe, to make sure we realise the aspirations of PSD2.”

Machielse agreed that the diversity in standards is not as much of a problem as the diversity in implementations. “This is due to the regulation itself – RTS requires the banks to mirror their online banking environment. There has never been a harmonisation of banking environments – with thousands of banks come thousands of systems and infrastructures. This is a big part of the reason why we see so much fragmentation.”

Despite this, the possibility of a PSD3, or a mandated single standard for Open Banking APIs, was not seen by speakers as a necessary step – unless PSD2 fails to deliver what the regulators set out to achieve. Even then, there was a strong view that the industry needs to focus on making sure that Open Banking works by improving the performance of APIs, growing the ecosystem and driving customer adoption. Beyond that, changes should be market-driven, based on feedback from PSD2, not prescribed by regulators. In the meantime, the market needs to be left to breathe.

For more information on the event, or to register your interest for the next European event, please contact