Open Banking is the latest innovative trend taking the banking sector by storm. While the idea of open APIs is nothing new, the incoming Payment Services Directive (PSD2) is bringing the technology to the forefront. However, Nordea has been planning for this for years. Patrick Brusnahan writes
Customer data is set to become a highly contested field.
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With Open Banking opening customer information up to third-party providers, it is generally predicted that these operators will now benefit from a more level playing field. One prediction that many are trying to justify is that Open Banking will be to the benefit of the consumer. This new move should give the customer more choice and better, customised options.
Nordic bank Nordea has had Open Banking as a target for a long time, and has been overhauling its back-end systems for the best part of five years with this development partially in mind.
At the end of 2017, Nordea announced that, after working with over 1,000 developers, it had announced an Open Banking pilot.
Gunnar Berger, head of Open Banking at Nordea, explains: “We started before the PSD2 discussion arrived.
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By GlobalData“You could say that banks are doomed to be outdated. Therefore, we made a strategy starting in 2015 across all of the transaction-orientated units. We came together and decided that we needed to build a new platform on which we can do more than banking.
“That was the open API platform. That’s what we thought pretty early; it was about survival and an opportunity to do business in a new way – a way to defend existing business but also to create new revenue streams in the future by teaming up with other players in the market.”
While Berger hopes that “consumers gain the most”, he is not so certain that Open Banking will help non-banks to challenge the incumbents.
He explains: “Regulators are wrong in thinking that this will increase competition by helping the non-banks out. This is not how it will play out; banks and non-banks are teaming up and collaborating. The original plan is not coming to be, at least not in my area of the world.
“It might increase competition between banks, but not between banks and non-banks. There are a lot of fintechs collaborating now because they want to do business with us.
“However, so many third parties have come to banks and performed under their label. This helps them gain credibility, and that’s how they can reach other to a bigger, broader client base.”
While Berger believes “right now, it is too early to start informing customers” about Open Banking and PSD2, it may not make a huge difference to Nordic consumers’ financial lives. “It depends which country you are in,” he notes. “In Sweden, we have screen scrapers that have been active since 2013.
“You have players like Klarna and iZettle who are all there and don’t need PSD2. They are already well known and working with banks. Customers in Sweden are used to non-bank providers, and nothing will really change.
Berger continues: “However, in Finland for example, screen scraping has been forbidden in a way. The effect there will be bigger. I don’t know about Southern Europe, but it depends on how mature their fintech markets are. In Sweden, it is very mature. They started this many years ago.”
Open Banking brings with it security concerns. The more links there are in the chain, the more links can feasibly be broken. With the data aspect added, consumers potentially risk extensive losses if systems break or are hacked.
“I think about this a lot,” Berger says. “If we can get third parties to use our strong authentication, it will actually increase security.
“I’m concerned that we will be forced to let any third party in if they have a licence. That’s down to the licensing institute doing their work. That’s the only thing outside of my control. Hopefully, I have the possibility to report them if they break regulation. The processes are not in place and that is a little bit frustrating.”
Berger concludes: “With the amount of investment we have put into the future and into Open Banking, if we get anything but very high traffic on the platform within the year, I will be gravely disappointed.”
