Eyal Nachum, Bruc Bond’s fintech guru and board member, has a message to banks: it’s time to embrace open banking and the cooperation it can bring. The advantages of working together with alternative providers far outweigh the risks of loosening control, he says.
The movement to a more open and interconnected financial world has already begun, with clear steps taken both in the European Union and in Asian markets towards this goal. Europe’s Payment Services Directive (now in its second iteration, the PSD2) served as the kickoff shot on the continent. It opened up the banking system to the entry of so-called non-bank financial institutions (NBFI), who have taken on large chunks of the labour previously done by banks. Rather than hurting banks, NBFIs have reduced banks’ workload while introducing additional revenue streams, providing a much-needed buoyancy float to a sector struggling with downsizing pressures.
However, integration could be taken much further, says Eyal Nachum. If we look at the Chinese giants Tencent and Alibaba, we see a model banks may wish to imitate to a degree. The two companies operate Super Apps, WeChat and Alipay, respectively, are much more than payment services. These are so-called “lifestyle apps”, which allow users to do anything from ordering a taxi, through making interpersonal money transfers, to, in some Chinese provinces, paying utility bills and more. It’s easy to imagine the convenience that such centralisation brings.
According to Eyal Nachum, there is no need to consolidate everything under one roof, but tighter integration is possible and desirable. If we look to Singapore, we see the likes of DBS, one of the country’s leading banks, launching its own car marketplace in partnership with sgCarMart and Carro. UOB, another leading Singaporean bank, recently launched its own travel marketplace. These imaginative pursuits can be a lighthouse to European banks, who should employ whatever way possible to learn from their Asian counterparts, for example by means of the UK’s fintech bridges, which Mr Nachum recently discussed with the Sunday Times.
Under the PSD2, European banks and financial institutions are mandated to provide application programming interfaces (API), by which other financial institutions (like, for example, Bruc Bond) can access data and issue authorised instructions on customers’ behalf. Sadly, a majority of banks in Europe have done only the bare minimum to comply with regulatory requirements for open banking, rather than explore how such initiatives can be incorporated into banks’ strategic plans. This is a short-sighted mistake, says Eyal Nachum.
Banks are missing out on an opportunity to provide their clients and customers with a service that can actually get people excited about banking. This is to their detriment and endangers their long-term prospects. To be competitive in 2020 and beyond, banks must accept the platformification of financial services. Users will soon come to expect it, and poorly prepared banks will suffer as a result.
There are many paths to an open banking future, and each individual financial institution will need to decide for itself which path will lead to the greatest prosperity. Some things, however, are clear. Trying to imitate the Chinese examples of Tencent and Alibaba would be foolish. The regulatory infrastructure is set against it. Instead, we at Bruc Bond believe that close, tight-knit cooperation between financial institutions, service providers, local authorities and business can provide the right path to a bright future.
Such integration would provide solutions to the many woes felt by medium and small-sized businesses (SMEs) due the upheavals in the European banking industry, which Mr Nachum recently wrote about in an article for the Global Banking & Finance Review.
To reach utopia, however, we must build trust. Trust, we mean, between customers and institutions, and between institutions themselves. This can only be achieved by true, sustained openness. Regulators can help, by mandating information sharing, but the onus is on the actors in the markets themselves to develop frameworks that encourage cooperation. These could be limited schemes to begin with, that grow deeper as trust develops. Doubtless, this would require some feats of the imagination, but when some of the brightest minds engage with these issues, they could, we are confident, come up with some creative solutions to the issues that vex bankers. The next banking revolutions demands it.