Exploring the opportunities presented by PSD2 & Open Banking
The 7th edition of “API Culture”, organized by the Ministry of the Economy (“Ministère de l’Économie, des Finances et de la Relance” in French) in collaboration with the API Thinking Collective, took place on 30 June 2021. The event featured LUXHUB’s own Anne-Sophie Morvan, who shared the digital stage with fellow Open Banking experts, Julie Bichon and Gaëlle Aubrée. They focused on the use of APIs in the financial sector, discussing regulation, use cases, and partnerships between traditional players and Fintechs.
As first explained by Julien Bichon, Open Banking Project Officer, Natixis:
“Open Banking is transforming the financial services industry, and has initiated a profound paradigm shift.”
According to him, there are four main reasons for such a deep transformation:
- technological innovation (with more digital tech, APIs, and data than ever);
- new business opportunities (more Fintechs and therefore new partnerships to broaden the scope of traditional players);
- change in the economy (banks needing new sources of revenue, as interest rates are low); and finally
- regulatory changes, notably through PSD2.
Moving beyond card payments
Anne-Sophie Morvan (Business Development Manager, LUXHUB) then focused on PSD2 regulation and its impact on the entire sector. “It notably introduced what is called Open Banking. As the name indicates, banks now have to provide APIs (Application Programming Interfaces) so that regulated entities can connect and consume those APIs.
“For instance, these third-party providers offer payment initiation or account aggregation services. To do so, TPPs need to have the consent of the final user, which will enable these innovative services to be provided.”
“TPPs need to have the consent of the final user, which will enable these innovative services to be provided.”
Ms Morvan went on to explain how strong authentication rules have also been enforced in the context of PSD2, enabling payment initiation – notably for people who do not use credit cards to purchase items online. She added: “Many companies have therefore emerged and are providing users with added value services.”
Two concrete use cases
Gaëlle Aubrée (CEO, monemprunt.com) took the digital stage to present two concrete use cases, developed in the PSD2 era and leveraging the new Open Banking/API economy.
“APIs are facilitating the daily life of individuals as well as the life of professionals. For instance, Elyxir – a start-up supported by Société Générale – provides financial advice on savings plans.
“It really focuses on the clients’ needs, through the use of data and algorithms, to provide the banking professional or wealth manager with straightforward and concise information.
“It features the overall financial situation, a project simulation, an analysis of feasibility, etc. Advisors can leverage these pieces of information and then make accurate recommendations,” she said.
“It really focuses on the clients’ needs, through the use of data and algorithms.”
The expert then focused on the solution offered by her own company, monemprunt.com. This API, targeted to real estate professionals, can be easily integrated into a financial institution’s legacy software and enable access to real-time information about current budget availability.
The API makes it easier for both the real estate agent and the end-client to identify the scope of projects within rage.
“This data is key for real estate professionals, who now do not have to wait for the clients to get approval from their banks.
“That is where monemprunt.com comes in: through this API – which results in a scoring analysis – the professional can propose the best solution to its clients, perfectly suiting their budget.
“Finally, both parties will be able to follow the acquisition process in real-time,” commented Ms Aubrée.
An enhanced collaboration between banks and Fintechs
Julien Bichon described the different business models that have emerged in the financial sector over the past few years, the first one being “APIzation”, with banks creating APIs internally and for their own purposes.
He added: “this model has actually been around for at least 20 years, with Amazon being one of the companies to leverage it the most.”
He then focused on the “Bank-as-a-Service” model, with the creation of APIs that can be used by partners – enabling the latter to provide new value-added services.
Mr Bichon then highlighted: “the third model is called “Bank-as-a-Platform”, and consists of the banks consuming and distributing APIs produced by third-parties. By doing so, the bank is multiplying entry points and enhancing its service provision.”
Finally, he focused on the “Bank-as-an-Infrastructure” model, where financial institutions make their technical capacities – concerning processes and/or infrastructure – available for partners.
Ms Morvan further explained the various methods of collaboration, bringing together traditional players and innovative companies:
“In the financial sector, we are currently witnessing a strong willingness to evolve and digitize, as more competitors enter the market and provide end-clients with greater flexibility and a more pleasant user experience”.
“For instance, many legacy players have acquired start-ups to help them evolve and better utilize APIs. Joint ventures are also advocated by many financial institutions. Through such collaborations, banking knowledge and tech experience meet to create the future of the financial sector,” underlined the expert.
“Through such collaborations, banking knowledge and tech experience meet to create the future of the financial sector.”
She also discussed other types of partnerships, such as incubators, that enable potential clients and partners to meet innovative actors and eye future business opportunities.
As explained by Ms Aubrée, “it is key for Fintechs to adapt to the rhythm of each partner and to communicate efficiently with operational and digital services.”
“It is key for Fintechs to adapt to the rhythm of each partner.”
The expert shared several examples of such collaborations, highlighting the need to align with IT experts foremost, but also with legal teams and essentially with all the departments involved in the project.
Finally, the webinar ended with Mr Bichon presenting the “API Thinking Collective” whose mission is to bring together experts and catalyze discussions around PSD2, Open Banking and much more. Currently, the association has more than 100 members, exchanging regularly – through plenary sessions and events – around the challenges and pain points faced by the financial sectors and discussing the best ways to solve them.
In 2021, the API Thinking Collective has been focusing on five main topics: digitally sustainable API, governance, business cases, how to market APIs and acculturation. More information is available here: www.collectif-api-thinking.com.