The open banking revolution has apparently begun. While markets such as the UK figure out how it will affect the financial sector, the Nordics have been working on this for years. Patrick Brusnahan speaks to experts from the region to see how the marketplace is evolving
Open banking, as well as related regulation such as PSD2, is the biggest talking point of 2018 so far for banks. However, many institutions in the Nordics have been talking about it for years. This was a crucial topic at Retail Banking Nordics 2018.
Sweden-headquartered Nordea expanded its open banking team specifically to deal with open banking.
According to Nordea’s head of open banking Gunnar Berger, the bank “wanted to scale up [its] open banking efforts. For us, open banking is quite a big topic”.
While the Nordics seem advanced, Berger explains that other regions have been thinking about it for much longer.
He says: “One and a half years ago, I talked to an Australia bank and they started this journey four years ago. There are banks across the world where this technology and mindset shift happened a lot earlier. They are still forward looking while we are catching up.”
Henrik Bergman, deputy director of financial infrastructure at the Swedish Bankers’ Association, believes that Scandinavia is well placed to take advantage of recent changes.
He says: “We have highly digitised banking in the Nordics, a strong fintech sector and valued customers. We also have good experience with API solutions.
“Why has this happened in the Nordic market? Because we have the infrastructure. We were early out and people are very interested in new technology.
“We’re already one step closer to open banking and we have the ambitions. The first step will be finding the right level between collaboration and competition.”
Emma Stromfelt, head of digital innovation at Swedbank, states that collaboration is the best way forward.
She says: “We really see open banking as an infrastructure for innovation. Swedbank is an old company, it has existed for 200 years, but innovation has changed through the times.
“We used to be able to develop everything ourselves and that was fine. We have also innovated together with other banks. For a few years now, we have worked very closely with fintechs. Outside of the Nordic region, people were surprised at this. What we see is that we want to do even more of that. This is where open banking comes into it.”
Berger adds: “I’ve come to realise that even if third parties have better technology or product or developers, the bank still has millions of customers and they might only have 3,000. So how do you get out much wider? That’s why we see a lot of third parties turning to banks for collaboration opportunities.”
“One of the things we have on the agenda right now is not only technology and digitisation, but to include everyone,” Bergman explains.
Strömfelt adds: “Collaboration is key. There are many drivers behind it and it is not just regulatory. It’s new competition, new technology, and new customer expectations.”
“Consumers will get many more options,” Berger purports. “This is a regulation that wants to push competition, but I claim it will lead to less as it creates more options. It doesn’t matter if banks come together because the third parties will compete with each other. There will be much more fragmentation.”
Fear of losing the customer relationship is something that holds back full acceptance of open banking.
As you open up the market and let your customers see products from competitors, or even your own products on a competitor’s platform, you run the risk of forgoing a relationship.
“The relationship between the bank and the customer will change forever,” Berger states.
“I’ve been in banking for a long time and I know the relationship between banks and customers is about confidentiality and privacy. Now, a regulation comes in and says you can let third parties in if the consumers want.
There is an assumption that the only way we can provide third party access is through open APIs. You could do it in other ways, but that is a big assumption.”
Strömfelt says: “PSD2 drives a separation between product and channel. This is quite important. I think everyone in banking needs to consider where they are. Do we have a channel that is really attractive when we know that, after PSD2, you can be a customer of one bank and consume its products through a different channel?
“We come from a history of banks building their own products on their own infrastructure and selling them in the wrong channel. You can see these are LEGO blocks that someone has thrown around in a room and we can reassemble them. We need to make sure our products are strong and stand alone against other products in other channels.
“At the same time we want to be in customer relationships, which means we need to focus on getting a really good channel. We won’t win in a channel competition unless we open up.”
Bergman recommends caution when offering new products or channels as institutions have been burned by this before.
He says: “We have to think twice before launching something, especially considering we have a lot of new things coming in. Are they fit for purpose? Do we give the right user experience?
“20 years ago, we knew where we were heading, but the timing was not right and it was not a good user experience. There is an expectation now that services will work well. You cannot sell anything that does not bring ease to the customer. You have to think about the conditions and it’s not always about technology.”
Berger adds: “If we look at the benefits for third parties and consumers from open banking, it all started with a change of customer preference. It wasn’t the smartphone, but the app store. That was the day the user got control of the interface.
“Before that, it was a monologue of the provider telling the user what to do. After that, the user decided what is on the screen and what is available and all providers have had to change in accordance to that. It creates a simple user experience. It’s not about nice looking apps, it’s all about ease.”
He continues: “Today, every bank is a transaction bank and a relationship bank. Tomorrow, there will be many more niche players and a lot more specialisation. The monopoly we had on the customer relationship is going away thanks to PSD2.”
Innovation in the Nordics
Many commentators like to highlight the “cashless” revolution in Sweden and the Nordic region. It is set to be the first cashless society.
According to the Swedish central bank, the proportion of cash transactions in the retail sector dropped to 15% in 2018 compared to 40% in 2010. In addition, 85% of Swedes between the ages of 16 and 74 years old bank online. This is much higher than the EU average of 51% and the 68% in the UK.
“It’s pretty obvious that over the last ten years, the cash in circulation in Sweden has been halved and that is dramatic,” Bergman says.
“There’s nothing wrong with that, but we need to help customers that are not used to a digital world. That is something we need to address, but the trend is pretty clear. However, it doesn’t mean that cash is gone.”
Strömfelt concludes: “We are more than happy to share customer data, with the customer’s consent, to third parties that want to innovate on that data and provide value for the customer. We don’t call it an app store, not yet at least, but we are looking at embedding third party solutions into our systems and present them to our customers. We have already started and we are going to do it a lot more. We deliver the trust that the third party might need.
“We talk a lot about APIs and PSD2, but do we think our customers care? Not much. What we’ve seen in other countries is that they ask if it will be a Big Bang and change banking forever. That isn’t always the case.
“The reason for that is the customers. You need to find out why they would want to give you their data and they are in control. We want to be able to help the best solutions to get this consent.”