The Network of Open Banking

FROM THE APPLICATION OF THE PSD2 DIRECTIVE TO CHALLENGES FOR GOVERNANCE. HOW BUSINESS MODELS MUST CHANGE, AVOIDING THE LOGIC OF COMMODITIES

by Anna Omarini, Bocconi Department of Finance
Translated by Jenna Walker


Starting on 14 September, PSD2 (Payment Services Directive 2), issued in January 2018, will require European banks to share certain customer data. These rules, in particular, have been created to guarantee better protection for online customers, promote innovation on the internet and mobile payments through online banking, as well as to improve cross-border payments within the EU.
 
What will happen? Some traditional areas of banking may no longer remain the exclusive prerogative of banks. As is already the case, they will be open to other operators who are developing increasingly user-friendly solutions, which today mainly concern the last mile of an interaction.
 
All this will redesign more than simply the European payment market and landscape. It will also introduce a break with the past, favoring the development of a new way of doing so-called open banking, which will be accessible, easy and initially based on the centrality of the user experience for individuals and businesses. This will lead to a competitive landscape characterized by new rules of the game.
 
The main drivers will be openness and value, which must be read and interpreted beyond a mere regulatory requirement (PSD2 compliant). In fact, we expect that in a first phase, open banking will mainly find banks that will target the requirement in order to progressively seize business opportunities and deal with any threats that may result from it. The latter, in particular, result from the possible marginalization of banks when managing some monetary and financial activities linked to the needs of customers.
 
It is therefore essential that every bank be aware of this. In particular, I am referring to governance, that will be called upon to lead it into the future, as well as to be aware of the trajectories of change that the banking market will target. Today, not all possible scenarios and roles to play in the new market environments that will develop have been fully revealed. Technology will certainly enable the strategic and organizational change of banks, because standardization, security and the introduction of more effective mechanisms for exchanging and transferring information are key elements. However, it would be a mistake to consider all this as predominant, because open banking will evolve and involve all business functions where strategic vision, organization, risk management, marketing and compliance jointly drive change. The real challenge will be strategic and, within this challenge, particular focus should be placed on risk management.
 
Operators and new competitors will therefore characterize the future of banking. Individual banks will increasingly have to consciously choose the role that they intend to play in the different short/medium- and long-term horizons in a context where production is no longer linear but circular and where the focus is on being present or not and on how to be present in one or more integration or exchange platforms. In fact, open banking introduces network logics, where banks are understood as part of a more wide-ranging, dynamic and interconnected ecosystem.
 
I believe that new business models will be born, and a growing integration between operators and different business sectors will characterize new scenarios for the banking market. This hybridization of cultures, however, must not leave room to think that we will find ourselves in a completely new environment. I believe, in fact, that some of the principles of the banking business will continue to play an important role even where there may be an evolution in certain models of supply and cost.
 
The mistake to be avoided will be bringing banking back to the logic of commodities. The change must take place while respecting its roots, with regard to the function of financial intermediation and payment management. Much will depend on who takes the lead in the market, from the role of regulators in monitoring the evolution of the market and where it is necessary to intervene on the continuity of protecting the currency, safeguarding savings and investors.