Open banking will revolutionise the payments value chain by enabling third-parties to build services on top of banks’ data and infrastructure. In the near future, you may be using Facebook or Google to pay your bills and making P2P transfers while your money is still safe in your bank account. The PSD2 regulation does not come without concerns. Today, if your data is misused or shared inappropriately you know where to go to get it sorted, since only your bank has access to it. But in the future, with hundreds of third parties that have access to your customer data, this is going to be a real challenge. All of this is also taking place against a backdrop of better controls of personal data, via the General Data Protection Regulation (GDPR).
Fintegration and Open Banking
These new regulations are another good excuse for banks to co-operate with fintechs, almost as persuasive as the $470bn in profit that startups could potentially take away from them, according to Goldman Sachs research. Unsurprisingly, traditional institutions are engaging with fintechs in the hope of combining the respective strengths of both models - merging fintech agility with the stability and security of traditional banking. Termed ‘fintegration’, the co-operative trend has led to the emergence of a new category of startups acting as a bridge between fintechs and banks. AISPs and PISP platforms offer developers an easy way to access the bank data they need to build new financial apps and services, helping startups and banks alike to drive innovation in financial services. However, consuming the bank's APIs and resources isn't restricted to only AISPs and PISPs, as anyone who wishes to access Arab Bank resources can do so securely through the bank's API layer.
Banks have been around for 600 years and have already faced disruption more than once. Years ago, telephone banking had mistakenly sounded the death knell, pretty much like the advent of internet banking did in 2000. Still, banks survived and adapted to changes. Today, the cycle is repeating itself - banks are facing an onslaught of new technologies, from massive smartphone adoption to blockchain. Some of their services are at risk; P2P payment processing, which currently takes them days, can be handled by any blockchain fintech in a matter of seconds. And some are not; financial advisory services to large corporations and risk management require a degree of expertise that is unlikely to be replaced by a chatbot anytime soon. The relationship between fintech firms and financial institutions may certainly be complicated, but just like any great relationship, leveraging each other’s core capabilities will reap great dividends for all those involved, including the customer.