Open Banking — Expectations versus Reality
I’ve been working in the Nordea Open Banking project for little over a year now and have started to notice some patterns and reoccurring events in the industry. I see an apparent disconnect between reality and expectations when it comes to Open Banking and what it entails for the future of transaction banking. Bold statements are being made by banks, with publicity being the primary driver at times. At the same time, fintechs are pushing through feature requests that banks are going to struggle to meet — at least in their current setup.
That said, banks are indeed in a development frenzy, trying to take a leading role in a completely new market — making it exciting to work in one, but at times quite frightening.
A bank’s role: The seasoned, pragmatic player
A banks role in the upcoming year is to actively search for constructive feedback and build up-to-date, highly usable interfaces — founded on a well thought through and scalable architecture. It also means not falling back to their old ways of ‘build it and they will come’. I fear that without ongoing dialogue with the end users, things are bound to fall between chairs and quick workarounds will inevitably become reality.
In my opinion, early user involvement could effectively help in avoiding some of these pitfalls — by building mockups, interviewing targeted potential users and constantly validating. Doing this before writing a single line of code should become standard practice in banking, as it is in startups. This has been utilized in Nordea Open Banking in which interviews were run with fintechs and large corporates alike to understand their wishes and needs. Through these findings, the first value propositions were built for the project and the initial designs were started for the API platform. First development efforts were validated again, after which a pilot programme was started and the project will keep running through the build-measure-learn loop by organizing hackathons, dev to dev talks and similar events at which relevant feedback will be collected in a fast manner.
Another role that banks have to play is conveying a unified message towards regulators, which are trying to keep an unbiased viewpoint while defining the RTS (Regulatory Technical Standards) and towards fintechs, which are trying to push the boundaries of the regulation in their favor. This of course is completely understandable and business as usual, but banks have to be able to keep a clear head in these discussions and always focus on their end customer’s well-being.
Fintechs’ role: The agile, innovative co-creator
From a fintech perspective, their role is to work together with banks and help them create usable interfaces for years to come. Banks aren’t the most experienced in this and are highly regulated, making them somewhat reserved at times. Fintechs have substantially more experience in building interfaces which are easily usable and up to date. The market expectation is that the banking interfaces PSD2 brings will at least meet the standards set in the technology industry, but without direct input from the fintechs this seems like a very tall order.
The second, more apparent role that the fintechs can take is cooperating and building partnerships with the banks. The value of cooperation with large banks seems to be underappreciated — most likely due to the hefty, cumbersome procurement processes that go along with it. Most startups have a burn rate which allows them to work for six months at a time, before needing another injection of funding. Six months in banking terms is potentially enough to sign a letter of intent (a bit over-dramatic, but close enough).
This is being addressed by Open Banking projects across Europe, which are pushing for much more streamlined processes in their respected banks.
Opportunities galore; but only after the fundamentals are in place
On a lighter note, PSD2 brings a world of opportunity to grow and will definitely benefit the end customers. Banks are finally being exposed to a competitive landscape in which thousands of players are scrambling to find the best solutions. This will allow the well prepared banks to grow their customer base at a staggering rate, at least in banking terms, by providing much higher quality services and generally becoming more technology centric. Most probably it will mean substantial changes in ways of working, how IT projects are approached, what kind of skill set is required by a banking employee and ultimately what a bank does. Some smaller banks will scale down their operations even further and become much more specialized, while bigger ones will have to have a more intrapreneurial approach — taking their skunkworks projects much more seriously than before.
To conclude, I want to highlight that fintechs should be flexible and open to talks with their banking counter-parties. The possibility of directly influencing the way they access the account and payment data is a possibility and I’d go as far as to say requirement — at least for the ones which want high quality interfaces.
At the end of the day this is a journey for both the banks and fintechs alike. It would be foolish to miss the opportunity to shape the outcome together.
About the author
Viktor is a Product Owner of the API Platform within Nordea Open Banking. His expertise lies in defining and shaping the external developer experience. Join Viktor and the rest of the Nordea Open Banking team at Junction, where Nordea will be running PSD2 API’s based challenges.
