Banks have two questions to ask themselves as they move into an open banking environment: Where are they sourcing their products and services and how are they distributing them?
Previously, a bank would produce and develop its own products and services and distribute these to its own customers. Now, they can bring in another providers’ offerings and there are also third party platforms as well, providing interplay between products and services.
During the Payment Strategies for the Future panel at Sibos, Geneva, the EBA Group outlined some very real prospects for banks with regard to evolving in the emerging ‘open banking’ and PSD2 landscape.
During EBA Group discussions, the panel revealed that blockchain was deemed not to represent a use case for interbank transactions, rather intrabank transactions.
Daniel Szmukler, MD, EBA Group, said of implementing blockchain type services: “There is a huge mountain to climb; how do you make it interoperable? The view [from the group] was that blockchain/DLT will not replace the entire legacy environment with something new unless you put a whole new environment in, otherwise you are just spending a whole lot of money just to do something in a different way.”
The approach needs to be turned on its head. The technology needs to be exploited to build new value services.
Thomas Egner, board member, EBA Group: “The point is to rethink the process and then seek to digitise rather than give in to the temptation to digitise the process and then rethink them.”
No common view on what banking really means
Things have changed a lot in a short space of time. Firms once considered competitors are now potential partners; KPMG research found that 80% of banks expect to be disintermediated by a 3rd party. And as Daniel Szmukler put it: “Who would’ve thought we’d be sitting here today talking about cryptocurrencies six years ago. Such lingo wouldn’t have even been acceptable in a bank six years ago.”
Indeed, at EBADay in May, Egner recounted: “There was a question put to bankers on PSD2 as to whether it was a strategic or compliance proposition. The majority view was that it was compliance. Ask the same question now and the answer is, ‘strategic’.”
This, between May and September. Something has changed and banks are realising they need to act and react, introduce an element of proactivity in response to regulation, from a strategic point of view, and not just tow the compliance line, defeatedly.
What sort of bank might the evolved bank of the future look like- one that has re-thought the process before attempting to digitise?
Brennan: “There are multiple layers to this answer. Banks need to think out the journey in stages, need to take a view at product level, at channel level, etc. For example, who is going to pay for instant payments- are we going to introduce a flat fee?”
Many banks at Sibos are deliberating similar conundrums and most are in agreement the customer can’t be charged for an improved service, therefore something else has to give.
Speaking to Matt Williamson, global head of payments at Misys, the segment that banks can specialise in, in the future, is data. It seems a given that banks will indeed disintermediate further down the line. And while banks are nowhere close to being expert in data anything right now, this will change. And be profitable.
It’s also about the short, medium and long term. In the short term, banks are preoccupied with meeting payments deadlines, such as PSD2. And it is difficult to think outside the box in a day job when bound by the culture of the organisation, as Szmukler asserted.
And as Brennan summarised: “Banks need to take a view, on all levels. But real change won’t happen between now and 2018.”