For years, banks and fintechs were portrayed as adversaries in the battle for control of the financial services industry. But with Open Banking being adopted in APAC, does, or is, this rivalry changing? Darryl Proctor reviews the new environment that Open Banking and Instant payments presents and the importance of partnership in profiting from payments.
For years there has been battle between Fintechs and banks across the globe. Many predicted the banks on the losing end. No longer. These former rivals are realizing that they have more to gain from working together. Your average Fintech is young, highly nimble and has little cash and even less access to large customer bases. There are also those that have huge investment dollars, but struggle in producing a good return on investment (ROI). Banks have the customers, but need the agility with which technology is developed by the Fintechs. By joining forces, they can deliver better, cheaper, faster and more innovative payment solutions and if they have a modern core or payments engine, through simple APIs.
In Europe, PSD2 has championed this approach however, in Asia Pacific (APAC) banks are realizing that Open Banking is inevitable and actually can offer real benefit to banks and their customers. Open banking represents a fundamental shift in the concept of banking. It enables customers to offer their data, in a secure manner, to permitted third parties in return for more personalised services. Used effectively, it enables banks to offer new services to improve customer experience, build loyalty and develop new sources of revenue. And the shift to Open Banking across the globe is imminent; according to a recent Accenture survey, by 2020, 99 out of 100 executives interviewed at large banks plan to invest in open banking initiatives. But why are banks outside of Europe considering Open Banking when it isn’t mandatory yet?
With PSD2 in Europe, Open Banking adoption is mandated by regulation (and Australia is set to follow[1]), however, elsewhere within the world, including APAC, banks can currently control the roll out. They can decide if, how and when they will implement Open Banking and therefore the benefits of this new approach can be realized easier. Banks within the region are realizing this; Accenture’s survey highlights that 63% of banks in APAC view Open Banking as more of an opportunity than a threat. And when we look at recent examples like Yolt, we can see why.
Nine of the UK’s biggest banks and building societies have signed up to Yolt’s bank-account aggregation service which is delivered via an API. It allows users to optimize their money management by letting them see the balances of their bank accounts (from multiple banks) individually, or as a total (in a single view). Although Yolt is owned by Dutch bank ING, it is licensed as a third-party provider, and aggregates accounts from different banks. In theory, having a complete view allows consumers to remain in credit by moving money into accounts with a low or negative balance.
They can decide if, how and when they will implement Open Banking and therefore the benefits of this new approach can be realized easier. Banks within the region are realizing this; Accenture’s survey highlights that 63% of banks in APAC view Open Banking as more of an opportunity than a threat. And when we look at recent examples like Yolt, we can see why.
However, to enable real value realization, these Open Banking Apps need payments capabilities. More so, instant payments capabilities regardless of the country infrastructure allowing it through standard rails. Many countries like the USA are already seeing instant payments adoption though not mandated by government. If it takes days, or even hours, to transfer money, retail customers may miss the window to avoid a fee, for example and slip further into debt. And the same applies to corporate customers from a cash management perspective. Efficient liquidity management can now be achieved by having a single view of accounts with multiple banking relationships and reacting immediately by making instant transfers; ensuring all accounts can be balanced, reducing the need for unnecessary corporate loans.
In conclusion
Open Banking is opening up payment services, ushering in a raft of innovations such as peer-to-peer payments and aggregated accounts. If payment apps can prove their security and ease of use, they are likely to replace cash (and cheques) altogether; with banks ultimately benefiting from greater balances and lower associated administration costs. But only if they are instant. Providing instant payments demands a modern, digital core-banking platform. One that seamlessly connects to a modern payments system.
Of course, there’s more to a digital core than providing state-of-the-art payment services. Time and again, successful collaboration between banks and fintechs is predicated on banks being fully digital. Only a digital core can be agile enough to allow banks to add new services delivered via APIs quickly and efficiently. And with the majority of the top 250 banks in Asia Pacific expected to deploy open APIs in the next two years[2], having the right payments platform to support this new environment has never been more important.
Written by Darryl Proctor, Director of Payments at Temenos.
Darryl Proctor,
Product Director, Payments, Temenos
Join Darryl and Temenos on their webinar entitled ‘Payments Modernisation: Creating a Truly Digital Bank (APAC Perspective)‘ on 8th May at 3PM (SGT) / 12:30 (IST)
[1] On 26 November 2017, the development of a national Consumer Data Right (CDR) was announced. The Government has decided that the CDR will be implemented economy-wide on a sector-by-sector basis, initially in the banking, energy, and telecommunications sectors. Open Banking – the CDR for banking data – will be the first sector in which the right will be established. The Treasurer therefore seeks views on the proposed regulatory framework contained in the Report, as a model for the broader CDR. https://treasury.gov.au/consultation/c2018-t247313/
[2] IDC – Moving Toward Open Banking APIs: Opportunities and Threats in Asia/Pacific Banking report,