Open for business?
With all the talk about open access, open banking and open APIs, it’s open season on ‘open’ in financial services at the moment. The PSD2 is driving the ‘open’ agenda for banks in Europe, yet the trend is global. Banks worldwide are also plotting their own routes towards a more open ecosystem.
I thought it would be useful to learn from the telecoms industry that has been there and done that with ‘open’. What happened when telcos went from controlling the entire value chain to open platforms? And what are the main strategic options for financial services incumbents on an ‘open’ journey?
From network to platform
In the beginning, the telcos controlled everything from devices to the network. When mobile virtual network operators (MVNOs) got access to operator platforms, they branded their services directly to customers. This was the start of openness and MNO disintermediation from direct customer relationships.
Similarly, banks controlled the entire value chain from issuing plastic cards to the back-end clearing and settlement of payments. PayPal, Sofort, iDEAL et al came, used existing payment rails and branded their online payment services to customers, disintermediating bank, card issuer and scheme brands.
Access became a commodity in telecommunications. It’s heading this way in financial services with regard to bank account information and payment initiation. This creates a platform effect, where innovative, new entrants build services on top of the platform, e.g. mobile app stores, Airbnb and Uber. The world’s largest software, hotel and taxi companies own no programmes, rooms or taxis. They rely on the platform effect via the internet and mobile devices to connect buyers and sellers.
Four main strategic options
So, what is the role of banks in the new open era? There are four main options depending on whether a bank’s strategic focus is monetising data and APIs, expanding the value chain proposition, or both.
- Provide basic access to data and infrastructure services to third party providers (TPPs). This is a first and mandatory step for European banks under PSD2.
- Create premium APIs with enhanced data, insights and categorisation, or better SLAs to further monetise data and APIs.
- Become a TPP to aggregate access to other bank data and be the customer’s first choice to manage payments. Or manage merchant payments as a PSP.
- Establish an open ecosystem by building a network of external partners, which add value to customers by integrating your APIs.
How can Tieto help?
Tieto has everything from advisory services to co-innovation and technology to help you on your ‘open’ journey.
We are helping customers worldwide weigh up their strategic options right now. Our proven co-innovation model is being used to evaluate, fast-track and prototype new ideas with banks and partners. And our technical experts currently have their sleeves rolled up on a number of projects, ranging from assessing API management platforms to building middleware between back-end systems and the outside world.
To find out more, please contact me: patrik.centellini(at)tieto.com