Open Banking for corporates
Seven bankers from five major financial institutions tell us about their vision of open banking. Whilst they are all looking to develop their own strategy, they are also all attempting to combine innovation and security. The customer must be the overall winner.
What is open banking?
Bruno Mellado (B. M.): Open banking is a concept allowing third parties (whether financial institutions or not) to provide specific banking services in close collaboration with banks. Currently, the imminent API revolution and profound regulatory changes have made some of these services available to all.
Vincent Liétard (V. L.): Information sharing via platforms will create value. Open banking therefore encourages us to redefine and promote our assets in order to continually improve the customer experience.
Claudia Coppenolle (C. C.) and Benjamin Madjar (B. Ma.): Open banking places the customers at the centre of the solution by offering them a full end-to-end experience, rethink existing systems and finally organise an ecosystem which allows suppliers to exchange and integrate products and services in real time and in a secure and authenticated manner.
Sébastien Guillo (S. G.): Specifically, open banking will help open up banking data and provide access to bank accounts to other players, which can provide additional services. Over time, a large number of players will receive and process bank data, or work with bank accounts.
Jean-Sébastien Goetschy (J.-S. G.): It is a sign of our changing environment, our society, with a growing expectation of real-time connectivity, to improve the service offered to customers. For Société Generale business units, it’s also willingness to open up banking functions to use added value services or distribute these services, whether banking-related or not. Open banking leads to greater agility, reduced time-tomarket and the possibility to personalise services. It is about building and working on a digital process or creating new services on an industrial base.
Are you working on the topic?
S. G.: Of course! Open banking will reshuffle the cards of the competition, new players will emerge in markets which were reserved for banks, but traditional institutions will also be able to offer new services - which are different and help them to stand out - to their customers. Those who ignore open banking run the risk of not being part of the banking ecosystem of the future which is data-centred. In addition, regulatory pressure requires us to open our systems up to the outside: the sense of the history is to offer a value proposition to our customers which is more open and more comprehensive than before. HSBC has been aware of how important this topic is for at least three years.
V. L.: Since 2014, the ING group has invested and taken part in the development of the Payconiq2 initiative. With the Yolt initiative (UK), we rejoined the British retail banking market in 2016 with a free mobile app to help customers to track their budget (including credit cards and savings accounts). The application was developed internally by the ING innovation office in Amsterdam.
C. C.: Deutsche Bank has launched various open banking initiatives to improve its products and services. Innovation is internal within our business lines and our “Innovation laboratories” but we also organise “hackathons” by offering API use cases to provide new ideas to the bank. Because open banking and APIs are essential technical tools to prepare for the banking sector’s next step: to link banks to other ecosystems and improve the customer experience.
J.-S. G.: In 2014, Société Générale published a white paper on the digital transition which shed light on open banking. In 2015, our strategy included principles, interoperability standards and a proactive transformation approach. Since then, each business line has taken on this framework and adapted it, considering its specific situation, whilst making use of the significant overall consistency and possible reuse of services between entities, based around a services catalogue. Over 1,000 APIs are now available internally (50 externally) and over 500 are currently under development. The issue is central as it is about supplementing our offers and developing new uses to benefit our customers.
Do you take part in industry initiatives?
B. Me.: At an interbank level, BNP Paribas is highly involved in several consortiums, such as the Open Bank Project and the Open Bank Committee of the European Banking Authority. We were also one of the first pilot banks in the SWIFTgpi initiative, with a service already operational in several countries for our corporate clients.
J.-S. G.: Société Générale has also worked for 3 years with the Open Bank Project and we work with the Berlin Group, which aims to develop standardised European standards for bank APIs. Furthermore, in mid 2017 during the Société Générale Tech Week, we held a “hackathon” bringing together 150 internal and external participants from different countries on a platform which realistically simulated one of our retail banking systems, adapted to OBP interfaces. In just 2 years, the result was amazing: we had dozens of viable mock-ups!
B. Ma.: We are studying various initiatives and programs with clients, infrastructure suppliers and
FinTechs. For example, our API development portal (dbAPI) connects us with FinTechs and start-ups to allow them to collect Deutsche Bank data, products and services and include them in their own systems, in real-time, in a secure space. We are also members of SWIFTgpi: this API - which allows cross-border payments - is now connected to our Cash Enquiry application and our Autobahn platform.
What are the key factors for the success of open banking?
S. G.: That’s a difficult question... We need first to make the right choices in terms of infrastructures: there are several different standards and types of API; however open banking will be even more efficient if banks have the right communication protocols and formats to exchange with other players.
B. Me.: A key factor for API connectivity success will be the ability to establish security and interoperability standards, to create a new kind of language between the economic communities (companies, banks, FinTechs, market infrastructures). APIs must be considered as a common language rather than a simple technical layer - some of these APIs will become mandatory as part of the PSD 2 directive, but many others will be developed in order to offer added value to corporates and individuals.
S. G.: Regulation allows us to work on standards together but we still need these standards to be
standardised and effective in practice. We need to ensure that opening systems up to new external players does not benefit fraudsters or people with the wrong intentions...
J.-S. G.: Another factor for the success of open banking is security. Our role as a trusted third party for our customers is key and we owe them a responsible approach when safeguarding their data. The security and regulatory aspects are essential for a successful transformation. It is also clear that open banking is a joint approach: we aim to ensure adapted long-term management of partnerships with FinTechs, start-ups and clients using the bank’s APIs.
S. G.: And it is essential that banks and external players cooperate intelligently. It is a two-way process: banks must agree to open up, but FinTechs must agree to follow compliance rules.
J.-S. G.: To succeed, open banking must be part of a proactive and global business strategy. It requires a change of culture, integration of an ecosystem, confidence and internal and external collaboration... At Société Générale, we have just reviewed our organisation at the highest level to simplify matters and give autonomy and responsibility back to business lines.
V. L.: Innovation and sharing must be at the core of banking strategy.
C. C.: And we need to rethink what is already known and focus on the “extra” - the added value for the customer.
The five financial establishments’ API strategy
- Société Générale has generalised an “API First” approach for all its IT developments. All business lines are involved in this proactive transformation at a group level and it is included in the “Transform to Grow” strategic plan. An application portal has been opened for investors and major corporate clients: called “SG Markets”, it gives them direct access to the entire value chain for their transactions and allows them to plan, run and track transactions.
- HSBC is currently changing its “core banking system” to implement technical elements: the “building blocks” which will allow it to communicate more easily, to accelerate product time-tomarket and to integrate new products more easily.
- Deutsche Bank has included its API strategy in a broader vision of digital and cash management, the objective being that its customers can access solutions allowing them to transfer money instantly and securely, anywhere in the world. The bank has built a “plug-and-play” marketplace on its main platform, as well as another more modular system to connect Deutsche Bank with its partners.
- BNP Paribas has launched several programmes in the past two years to accurately identify the type of services which could be offered through APIs, whether for competitive or regulatory reasons, and to start to develop them. The bank has also created a large “sandbox” environment for the FinTech and financial community and hopes to be able to name these API in 2018. The bank thinks that these APIs are drivers of its innovation strategy, allowing it to expand distribution of its products and build innovative solution ecosystems for its clients.
- ING has developed its portal (Inside Business) for several years to meet the need for customer management and information centralisation. The final objective is to offer a web space aggregating all their banking services in Europe. This platform was tested several years ago for cash management: new countries and new functionalities (payments, FX, trade...) are regularly added.
What are the main risks?
B. Me.: Being more open to third party services must not lead to a reduction in security for financial services or customer data protection (in terms of security, confidentiality, etc.). This will all determine the pace of open banking development.
J.-S. G.: Any transformation involves associated operational and technological risks. The balance between openness, user experience and security must be maintained. Our customers’ trust is at the core of our approach to this topic. At Societe Generale, we have recently announced an investment of €650 million in security over the next three years... Beyond compliance with various regulations, it is an issue of credibility and reputation. However, the main risk of open banking is strategic: not getting fully involved in this transformation.
B. Ma.: I don’t want to talk about “risks” but rather “challenges”. Other than technical topics regarding stability, data protection and legal responsibility, one of the main challenges is making our organisations and internal teams aware of the need to connect customer needs with the API concept. There is also a human resources challenge: banks must be considered first-rate employers. We must develop our approach and our culture to retain and attract talents.
Is the approach difficult to implement?
S. G.: Technically it is not easy, but banks can manage easily. At HSBC, we are currently changing our core banking system, which is costly and leads to transformation issues, but in the medium to long-term, it is just about investment and energy... Highlighting technological difficulties or hiding behind the problem of ageing information systems means neglecting the overhaul of the business model which open banking requires. The most difficult thing for banks is accepting that they are no longer the only players on their historic markets: they need to share
benefits, and they don’t know what their future competitive positions will be. However, they must move with the times.
J.-S. G.: We are committed to open banking as part of an in-depth transformation, both organisational, cultural and technological. This requires a clear strategic vision and agile implementation in a rapidly changing sector.
V. L.: This requires significant investment, both financial and human, as offering these solutions creates a new bank exchange channel. But innovation is always at the core of ING’s strategy. The implementation of open banking solutions is therefore exciting for all ING Wholesale Banking teams worldwide.
B. Me.: APIs are only the tip of the iceberg; complex banking information systems and the challenges of opening them are hidden below the surface. This complexity is inherited from various factors. A bank like BNP Paribas is universal and serves all customer segments, in eight domestic markets, and nearly 60 corporate markets. This involves reaching processing capacities unknown to new players like FinTechs, whilst respecting local situations both in terms of regulation and service offered to the customer. That is the challenge.
Are there team training issues?
S. G.: Front offices - and more generally, all employees - must become aware the arrival of a new
ecosystem and understand the strengths and weaknesses of different players in a new competitive field. In addition, commercial teams must be able to alert customers to new changes in progress... This involves training for all employees, digital “acculturation” and an understanding of the new system...
V. L.: We continually train our employees, not just in open banking but also all relevant innovative themes, and we have done this for years.
J.-S. G.: We need to support all teams, from the IT expert to central units to customer advisers. We have dedicated a significant budget to training to acclimatise, support employees and develop their skills. We have developed courses with schools and universities; this has led to vocational training courses and the provision of digital content (MOOCs, etc.).
B. Ma.: We actively support a culture which encourages reasonable risk taking, recognising that innovation requires the capacity to accept failure (quickly) and learn from the experience as quickly as possible. We need to be aware that business models can create value in different ways (not charging for a payment but charging for the confirmation of the identity of a counterpart, KYC or review of sanctions).
How far do you think you have progressed in terms of open banking?
V. L.: We could say that ING is a pioneer in this field. Some of our projects have been in progress for several years as underlined above through the Payconiq initiative. But the markets are changing quickly, we are continuing to invest to remain a leader in this field.
S. G.: Some establishments seem more advanced than others, but the market is not yet mature in terms of open banking commercialisation. The issue is now to test new services and products and to expose them to the realities of the field. We are not finished yet... Banks are aware of the challenges, regulatory difficulties and challenges, but there are uncertainties in terms of regulation and distribution of roles.
J.-S. G.: We remain humble in relation to the task to be accomplished but we know that we have a good overall understanding, our core principles are well founded, and we have a strong commitment to succeed. With our diverse business lines and geographies, this strategy leads to various developments (development of our ecosystems, open architecture tests, “APIsation” in progress), and this diversity benefits the entire Société Générale group.
C. C.: With regards to the work with FinTechs and managing an ecosystem, Deutsche Bank has made good progress. We are always prioritising our customers’ interests and security. But in the spirit of partnership and mutual interest we have had hundreds of interactions and we continue to work on several joint projects with FinTechs in the open banking sector.
B. Me.: Open banking is part of a continual effort to collaborate with FinTechs, which started over 10 years ago. BNP Paribas was the first French bank to offer corporate clients a cash flow management and multibank account aggregation service in partnership with a FinTech company, a service which is currently used by over 4,000 corporate clients.
What is the long-term objective?
J.-S. G.: Open banking is part of Société Générale’s “Transform to grow” strategic plan, with objectives to increase use cases and services and create platforms. All our new IT developments reflect our “API First” strategy and internal interoperability allows us to increase synergies, whilst opening up to the outside will help us to develop new offers and increase customer satisfaction.
B. Ma.: We want to allow our customers to integrate our products in their own products and processes, but also to have a developer/innovator ecosystem to supplement and modernise our service offer. It's that simple! In the medium term, this means that we are focusing on the delivery and use of the most relevant APIs. In the long term, moving to a totally customer-focused business model and being able to integrate our products/solutions in any system chosen by the customer. In this way, the customer will have access to a wide range of adjoining products, from various partners who we trust and who will innovate with us.
S. G.: The final objective is to better serve customers. The main issue for banks is to define their new role, alongside new players in bank disintermediation: how will the relationship with customers change when aggregators or PISP (Payment Initiation Service Providers) enter the value chain? The issue is the same for all banks, but each response will be different.
How do you view the regulator’s position in terms of open banking?
V. L.: New regulations encourage us to reinvent ourselves everyday by finding solutions which meet new European directives. Regulation is therefore a vector of accelerated innovation both for consumer services and corporate services.
B. Me.: The PSD 2 directive was a driver of change in the consumer sector and accelerated developments in the corporate sector. It will open up many possibilities, both for newcomers and banks which will be able to seize the opportunity that it creates.
S. G.: The regulator took a major step forward with PSD 2. It should allow players to rapidly implement developments.
C. C.: The regulator wants to create more choice and encourage greater innovation, but it will not lower its expectations in terms of security and data protection. We therefore have a competitive advantage in relation to newcomers who do not have a lot of experience in this highly regulated environment.
J.-S. G.: PSD 2 has reinforced security by making the arrival of TPPs3 official and giving them a framework. The regulator has shown an interest in securing payments and information exchanges between players with new obligations for banks like TPPs.
Have FinTechs made a big difference?
S. G.: They should be recognised for putting pressure on the banking market. Since 2008, some
establishments have been more focused on their internal problems than their customers, and FinTechs showed that technology could offer a better service to customers. They accelerated banks’ digital transformation, via purchases or offers proposed as white labels...However, outside of payments, few FinTechs have really revolutionised the market and banks are still the trusted
party. It is therefore through collaboration with traditional banking establishments that FinTechs could grow.
B. Ma.: The FinTech wave is only one factor amongst many but these start-ups are a driver of the
transformation process. As a financial institution, we value the agility and flexibility that they provide. Traditionally, banks had an approach focused on products, not their customers. This is changing significantly.
Caroline Kanoute (C. K.): FinTechs rapidly became a part of the banking landscape by positioning themselves in areas with little regulation or none at all, and with high margins. They offered solutions which banking services did not yet offer, notably crowdfunding (Tudigo), account aggregation (Fiducéo), marketplace (Hipay) or money transfer (TransferWise)... However, the majority of FinTechs are still looking for a business model, customers, financial investments and/or a comprehensive understanding of the market, particularly in terms of legal matters and risk. Banks and FinTechs are now working together in a co-construction mode via partnerships or holdings.
B. Me.: FinTechs have pushed banks to completely rethink how they work, how they develop new products and services, the way that they set prices for these products and services, and finally, the way that they distribute them. But FinTechs still need to acquire and retain a large customer base to become viable. This is less true for GAFA players, who have huge quantities of customer data and liquidity and develop widespread innovative solutions via pure acquisition.
What is your FinTech strategy?
C. C.: Deutsche Bank has a “portfolio” approach. We have hundreds of daily interactions with FinTechs, given that a good number of them are customers, partners and sometimes competitors. We created specialised teams to steer these interactions in a more controlled environment where the possibilities of collaborating on development of ideas or solutions can be managed effectively. There are currently over a dozen initiatives with various FinTechs.
S. G.: HSBC has two major types of collaboration with FinTechs: holdings, through our Venture Capital funds (e.g. in Tradeshift, an e-invoicing specialist, or in Customer Matrix, a data analyst specialist), and more classic customer/supplier type relations. In France, for example, we have worked for over 18 months with Linxo, an account aggregator, in order to offer this new service to our customers as a white label. The United Kingdom is an interesting market as it has made more progress in open banking and APIs than Western Europe.
V. L.: ING is currently collaborating with over 115 FinTechs worldwide. As ING understands that FinTechs are essential partners to accelerate bank transformation, a “Head of FinTech” was appointed 3 years ago. Their role is to find the most innovative FinTechs to collaborate with them and jointly create the banking of the future.
B. Me.: BNP Paribas is investing heavily in working with FinTechs as well as actively collaborating with them. BNP Paribas’s start-up kit, recently awarded, is a specific example of this new change in mindset, including simplification of the onboarding process, purchase decisions and legal contracts. This start-up kit and access to a sandbox to test several APIs allows start-ups to test their product more quickly in the BNP Paribas environment.
C.K.: The Société Générale open innovation approach is singular in comparison with its competitors, due to the agile approach of its ecosystem. We are strengthening our contacts with players across the world, who are more partners than competitors, in order to meet the requirements of our business lines. We invest in venture capital funds, in capital for some (TagPay) and through acquisitions (Fiduceo). We also have commercial relations (20 distribution contracts, 250 Proofs of Concept). We have started a new type of partnership with local accelerators and incubators (Germany, Czech Republic, London, Africa, India...) and in France with Le Plateau at Les Dunes in Val-de-Fontenay. We are also a founding partner of The Swave,
the new French and European FinTech incubator at La Défense.
Interviews by Cécile Desjardins.