Thanks to the European PSD2 directive, Open Banking is now taking shape, yet far from being a fully completed and deep-seated process. Not least since, by increasing access to bank data by third-party companies, the regulations – which oblige credit institutions to provide external APIs for access to customer data – actually foster competition in the financial sector. Not only for banks but also for insurance companies.
The Open Banking system and its effects
According to EconomyUp, the open banking is a data sharing among the different players of the banking industry. It was created with the PSD2 (Payment Services Directive 2), the European directive on digital payments, issued in 2018. European banks are required for the first time by this directive to open their APIs (Application Program Interface) to financial companies and other companies involved in financial products and services. This change will allow external companies (the so-called third parties) access to payment data: basically there will be greater competition in areas covered by conventional banking control.
From Open Banking to Open Finance
At the outset, as envisaged by the aims of PSD2, the open banking will result in encouraging the widespread use of ever more competitive and reliable electronic means of payment. According to the Osservatorio Fintech & Insurtech of the School of Management of Politecnico di Milano, in the near future, Open Banking services will widen and evolve into Open Finance & Insurance. A concept according to which “financial and insurance services are dealt with regardless the player offering them. Not only banks and mainstream players then, but also startups, BigTech, car manufacturers, Retailers, Utilities and whoever is in the financial and insurance industry”.
According to the analysts, when the banking system gives third parties access to its customers’ data through Open Banking, the change immediately involves the financial and insurance industry, which draws on and uses such data for its business (not to mention a kind of merger among banking and insurance companies with the many “bankinsurance” companies is already underway).
Open Finance: theory to practice
What exactly is the Open Finance approach? Researchers at the Osservatorio Fintech & Insurtech have interviewed some of their partners. Here are the answers.
According to Alessandra Ceriani (Deloitte) “What both banking and insurance company players should do at the Open Finance level is a massive investment in terms of platforms. Two strategies are feasible: focus on native digital products with the aim of simplifying the back end and focus on innovative and flexible channels to integrate third parties”.
Marco Folcia (PWC) instead highlights the cultural change within companies needed by Open Finance. “The biggest and most difficult challenge facing change is neither technology nor the legacy system nor skills, but rather the necessary cultural path within enterprises. An open market is not enough, an overarching mindset is also needed, and we need to work on it”.
Also for Andrea Metelli (e*Finance Consulting Reply) “Open Finance is today the most complex and expensive fintech field to work on, although the most interesting one. Booking financial services requires huge investments in data and AI, but it could be the one that really changes the way financial services are perceived.”.All rights reserved