Bye bye open banking – welcome open finance

Open banking is dead. PSD2 failed. Sounds harsh, but there is some truth to it.

As I see it, too many markets implemented PSD2 to the maximum and then forced banks to do the same. The open banking effort was on regulations instead of focusing on the customer experience. And thus many banks opened only minimum mandatory APIs.

This boils down to the risks the financial institution sees. Some banks worried that they would lose their market share if the services did not function smoothly while others did not have a clue about the usage patterns of new services. Moreover, some banks did not want to invest in open APIs as they did not see a business case or thought that there is a risk of cannibalizing existing business.

Open finance is here

Despite the difficulties, electronic payment services and credit products and services have taken a leap forward. There are market-driven open finance initiatives highlighting ease of use and simplicity, and real chances for the banking industry.

Just look at Klarna bank that has an open banking platform covering more than 6,000 banks in 20 countries across Europe. The bank offers the platform to e-commerce merchants, whose customers require easy payments. Shopping is also fast as a click is enough to pay for a dress or headphones.

The beauty lies in BNPL, the Buy Now Pay Later payment, a customer can choose. If she wishes, the commitment can become a loan after 30 days. At that point, the merchant pays the same sum as it would for a card payment. Also, the experience is better than with a card and double authentication.

One should not forget General Motors that makes more money by financing the sales of vehicles compared to selling vehicles. It is an example of how market participants such as merchants and producers can earn by financing. The bank can give the merchant a share of its revenue in financing via open finance and open APIs.

So, why would any bank not want to offer private and corporate customers discretely a possibility to buy on credit in an effortless way?

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Banks need to join ecosystems

The new world of electronic payments and financial services requires each bank to take a stance and act accordingly. The banks must study the end customer needs and customer journeys together with customers or in ecosystems of multiple parties.

Co-creation is the way to create faster and more automated customer journeys where banking, payment, and credit products are fed with data from an API aggregation service. The data includes customer profile, market and relevant real time transaction data.

As the APIs are there to be developed, I have a question for you: how does your banking API strategy look?

Wish to share your thoughts? Please, feel free to contact me!

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