Open Banking: the payments (r)evolution
The financial world is moving towards an ‘open system’. This transformation is driven by the possibilities offered by new technologies, but will also be a legal requirement for banks in the future when the revised Payment Services Directive (PSD II) comes into effect. This will usher in new rules and new digital business models. The ‘Bank as a platform’ mission pools the strengths of innovative partners and established institutions like ABN AMRO. This will speed up the transition to an attractive Open Banking platform.
Legislation as the driver of innovation
PSD II is a hot topic in the banking world. In brief, from 2018 banks will be legally obliged to allow third parties to access their customers’ current accounts, provided the customer agrees to this, and provided the third party holds a special licence for this. This openness will encourage competition, making the European financial sector more efficient and offering clients more choice. In this way, legislation will drive innovation.
From closed to open business models
Yet PSD II is merely the start of a much bigger movement. ‘Bank as a platform’ is a landscape in which financial and innovative organisations are working in partnership, for example with start-ups, fintechs and other businesses. In this economy, banks are moving from closed systems to open platforms, with a key role for APIs (Application Programming Interface): digital portals giving access to a company’s data and services. The APIs of existing banks will give third-party companies access to the payment details of bank clients, provided they give their consent for this. This will enable us to work together with those companies to offer our clients innovative services and products.
Quest for the perfect platform
ABN AMRO is exploring the possibilities that this new way of banking could offer, including beyond PSD II. Through research and experiments we are attempting to:
- Identify opportunities for Open Banking;
- Apply API techniques for clients and identify API-driven earnings models;
- Familiarise ourselves and understand the ground-breaking nature of platform business models.
A good example of an Open Banking application is Gradefix, our pilot project which makes risk assessments based on payment data. Clients and SMEs submit the data themselves for analysis and receive a complete summary of their financial situation. Sharing data using the Open Banking principles makes banking easier for clients, but also for everyone with whom they want to do business.
Consequences for clients
In exploring our role in this open system, the central focus is on the client. There are lots of different applications that could form part of a new, open system, for example multi-bank applications, payment via social media and automatic improvement of personal finances. There are also lots of possibilities for business clients; for example, intelligent accounting software that can act more autonomously, and simplified cash flow forecasting. What it comes down to is that clients will have more control over their own data, but also more responsibility for it. They will decide themselves whether they are willing to share their payment data with third parties.