Open banking in Switzerland: myths, facts, opportunities
At the latest since the introduction of the second EU Payment Services Directive (PSD2), open banking has enjoyed considerable attention in the Swiss financial centre. Open banking offers new options for business model innovations, and challenges banks to actively adopt a standpoint.
The media hype surrounding the topic of open banking has fuelled numerous myths and lead to misunderstandings concerning the ultimate aim and implementation.
Common myths include:
• Open banking is intended for fintechs; traditional financial services providers are losing out and must relinquish the client interface and data access.
• Open banking offers a new user experience in and of itself for financial services.
• Possible business models, as well as roles and forms, are clearly defined.
• Integration in the context of open banking is very simple and intuitive.
• The standardisation of the interfaces required for this is a given.
There is currently no obligation to open up software in Switzerland. The Swiss Bankers Association rejected such a regulation in a position paper and trusts in the self-regulation of the sector. Banks and interest groups are free to decide whether, for whom and under which conditions they would like to open up their systems, i.e. make data available.
In Europe, the business cases for account information and payment initiation services are consistently regulated on the basis of the PSD2 regulation. However, for the time being, the new requirement of two-factor authentication, the cumbersome and differently operationalised process of consent management, and the various API standards are creating more hurdles in the user experience in the European market. The costs for fintechs to adapt their existing offers are also considerable.
In light of the situation, numerous European market participants are following the strategy of implementing the minimum PSD2 requirements and, in parallel, implementing their own APIs and business cases within their ecosystem. Is this a strategy that also lends itself to Swiss banks?
In Switzerland, there is a particular focus on corporate clients with regard to open banking services. Retail clients of Swiss banks are waiting in vain for access to appropriate open banking services, such as the possibility of multi-banking. The necessary standards, a common understanding of ‘helvetisation’ (yes, this exists in spite of standard API definitions), and guidelines for operationalisation are lacking. Various initiatives driven by SIX, SFTI and OpenBankingProject.ch are attempting to close the gap in order to take a first step forward. For this step to succeed, Swiss banks must ideally agree on a standard and implement this at operational level. Standardised interface documentation is worth nothing if it has not been correctly implemented on a platform and cannot be tried and tested.
Despite these inconsistent general requirements, the open banking ‘movement’ offers new options for business model innovations.
If you imagine open banking as a business ecosystem, various forms can be defined. These forms can be represented two-dimensionally (see graph). Financial services providers need to consider in which form they want to be active and how they can reach that goal. These considerations should lead to a comprehensive strategy of opening, which describes and anchors the upcoming changes.
The study ‘Ecosystems 2021 – what will the future bring?’ of Deloitte/BEI St. Gallen clearly* shows that added value and client interaction will increasingly shift towards business ecosystems. APIs are the key to offering products and services in these business ecosystems.
BBVA with Uber in Mexico is a specific example of such an offer**. There, Uber drivers can open a digital account with BBVA directly in the Uber app, which is connected with a ‘Driver Partner Debit Card’. The drivers’ earnings are credited to the account within a few minutes. With this, BBVA is offering a product that ‘lives’ exclusively on the platform of a third-party provider, in other words in a third-party, established ecosystem.
Standardisation of the offered products and services is indispensable for ‘designing’ business ecosystems such as this large enough to be profitable. In the financial services sector, such standardisation efforts are still in their infancy, with the exception of the payment services sector. Standard processes in the retail banking sector such as client onboarding, product opening, financing processes for new transactions and extensions are still individually implemented.
A new culture
The topic of open banking is not a question of ‘either/or’, but rather a journey that favours new strategies. Participating in this journey is associated with opportunities and forms the basis for the implementation of a comprehensive digitalisation strategy. The significance of collaborative business models (business ecosystems) will increase as new, innovative services can be offered and new earning opportunities can be developed as a result.
The journey towards a practised open banking strategy is not an easy one. It demands clear standpoints from banks. Open banking is not only a vision or a new strategy, but rather requires a completely new culture, which actively establishes openness, new partnerships and business ecosystems apart from existing business models. And despite all the myths, the fact remains that open banking is much less a technical challenge than a process of change, which needs to be driven forward with conviction by banks, financial services providers, fintechs and core banking software providers. |
Product Manager Ecosystem
Business ecosystem: Dynamic network structure of interdependent stakeholders that create value together by aligning their individual needs and capabilities with a common purpose.
API (Application Programming Interface): Stands for a programming interface. APIs allow third-party providers to use data of bank clients and functions of the banks in connection with this data.
Multi-banking: Possibility for clients to view and manage all accounts, and make transactions conveniently on just one platform. A one-time login suffices, instead of having to log in for each individual account.