36
BUSINESS AND TRAINING
Open banking set to disrupt
the financial industry
We have already seen huge changes in the world of banking. Digitalisation means
that people are banking from their mobile phones, making payments via barcode
scanning, and even in some cases, transacting using cryptocurrency.
By Gerhard Greyling, Financial Services at Wipro Limited, Africa
Loans can be approved in almost real-time, and a selfie can
be used to open a bank account — all without ever physically
entering a branch.
This is just the tip of the iceberg: the banking world is about to be shaken
up, thanks to a legislation known as the European Union’s Payment
Services Directive 2, or PSD2.
PSD2 AND THE CONCEPT OF ‘OPEN BANKING’
PSD2 is not a new concept, having been adopted by European
parliaments in 2015, with the express purposes of contributing to a
more integrated and efficient payments market, levelling the playing
field for payment service providers, driving competition that lowers
the cost of payments, and protecting people by making payments
more secure. South Africa will not remain unaffected by this
legislation, and local financial institutions, their customers, and the
payment industry stand to benefit as much as those across the seas.
The growing adoption of PSD2 is paving the way for a concept known
as ‘open banking’. Open banking refers to the use of application
programming interfaces (APIs) and open source technology to enable
third-party developers to access data traditionally held by financial
service providers, or banks, and build applications or services around
this data. It also allows users to control the transparency of their data,
equipping them with the power to allow the sharing of their data with
selected third-party providers to offer them services based on their
financial information.
Open banking has been fuelled beyond the borders of Europe as
regulators of more than half of G20 countries being expected to
create open banking API standards by the end of this year.
RISE OF THIRD-PARTY SERVICE PROVIDERS
Essentially, PSD2 means that banks will no longer be the only, or
main, stakeholders in both the control of financial data and initiation of
payments. The legislation gives rise to the inception of two new types
of players that will create a more competitive banking environment by
lowering payment costs and providing more choices for consumers.
Account information service providers (AISPs) are emerging as new
operators in a world traditionally dominated by banks. AISPs are able
March 2019 Volume 25 I Number 1
to access consumer financial information from multiple financial
institutions at the express permission of consumers.
They analyse this data to determine spending habits, financial
behaviour, and financial history. This data is then collated and
consolidated into a single overview on the consumer, which the
consumer can then request to be shared with third parties who can
tailor services around their specific profile.
Payment initiation service providers (PISPs) are providers who initiate
payments on behalf of a consumer. Although we currently have many
payment options, they all still pass through a bank. PISPs will enable
services such as peer-to-peer payments and bill payments without
touching a traditional financial institution.
The rise in competition for both banks and competing PISPs means
that the cost of payments will lower significantly, and consumers will
be able to better control how they make payments.
GOOD FOR BUSINESS, GOOD FOR CONSUMERS
The future looks bright for the creation of new business opportunities,
fuelling competition, and driving the economy. From a banking
perspective, however, it means that banks are going to have to up the
ante to remain relevant and competitive. Banks, up to now the major
custodians of financial data, have the ability to create a new revenue
stream from this data. Banks have access to a huge amount of data
on their customers and monetising this data will lead to significant
revenue streams.
They are going to have to lead with their APIs, adopting platforms that
allow them to structure their data in the right way, so that they, too,
can offer competitive solutions. Banks also have the opportunity to
play a huge role in the standardisation of APIs across the board.
Users will be able to access multiple payment providers, choosing
whomever offers the best rate, promotion, or deal at any given time.
Cost of making payments is likely to reduce, as the payment process
will be more direct with fewer intermediaries and greater efficiencies.
PISPs will create more competition in the payments industry by
collaborating with various retail chains who may be able to offer
www.plumbingafrica.co.za