Open Banking Beyond Banks
Day after insights from the first open banking Bittiq meetup
Bittiq organized its first open banking conference meetup in Utrecht last night. This time they are pushing the conversation towards a systems and ecosystem approach to the impact of the PSD2 (payment services directive version 2) implemented last September 14, 2019 for the EU. While the banking industry is somewhat mature, the PSD2 ecosystem is still undergoing a slow transformation rather than a radical change in the Netherlands. According to Chris Hoogendoorn, EMEA Financial Services Strategy and Innovation Advisor at Oracle, his prediction for the disruption in the insurance industry will even be much slower — and this is where the excitement lies for CXers, entrepreneurs, and start-ups. The market is ripe for a breakaway disruptor. The first one out the gate is a potential winner.
The following is a recap of the important points in the evening. Much of the conversations and discussions refer again to banks and payment features. This is because the user and business case studies in the insurance sector remain in the mock development stages. However, I will conclude with some problems demanding solutions within the insurance industry gained from the cocktail hour.
What is open banking? Open banking refers to the directive that forces financial institutions like banks to share their data through software APIs (application program interface) to third parties such as payment services businesses. Fundamentally, the PSD2 reconceptualizes the ownership of data — consumers, and not banks, now own their data. This shift threatens the existing profit and business models of financial institutions that contribute to the slow transition towards sharing consumer information.
Increasingly, the term “open banking” is also used to simply refer to the sharing of consumer data between and among financial institutions and businesses. According to Darren Harris, CTO of Bittiq, the sharing of data behind open banking facilitates the creation of a future fintech services ecosystem model in which various fintech institutions interact with other industries to deliver relevant and timely services with the consumer at the centre. I use open banking here to refer to the sharing of data more generally and indicate banks, insurance, or payment providers more specifically.
Panel 1: Challenges of the Insurance Industry in the Open Banking Space
Panelists: Paul James, Product Owner, Open Banking at Rabobank; Paul Koetsier, Senior Manager at KPMG; Maarten Bakker, Director and Sector Lead Insurance at ABN-AMRO; Meint Post, COO/Co-Founder at SecuMailer
This panel focused on the structural changes and its impact to the companies and to fintech in general. There were two general concepts that remained key talking points in the panel: data and profit models.
The open banking presents an existential crisis of definition and concept of “data.” In the traditional model, Paul James, Open Banking Product Owner at Rabobank, described insurance data as simply information to create risk models. However, within the PSD2 directive, data now opens new definitions that presents new challenges and questions.
Why would people readily agree and share their data on Facebook but not with banks? Paul James responded to an audience member, “we have to understand that Facebook data is different from (sharing) data with banks.” The outright refusal of users to approve and share data with banks lie with the trust issue of customers with the financial industry in general. People are readily more willing to share data within their social network that greatly benefits the tech platforms behind it. These social media platforms can harvest it for free. In the fintech space, trust is a rare commodity. One of the ways the panelists looked into was changing the conversation by using “closed banking” as a term to assure the customers that their data is in a “closed loop” that is secure end-to-end encrypted with third parties even though these are shared.
The rising challenge then was WIFM (“What’s In It for Me?). If trust is a problem, how can that be mitigated in the fintech space? The answers are still wide open. The conceptual Gordian knot remains, is data for the benefit of the user or for the benefit of the company? This question hits the structural basis of companies in which they are forced to rethink banking data as asset to a newer business profit model of banking as service. One profit threat often cited is that sharing data (e.g. AIS (Account Initiation Service) and PIS (Payment Initiation Service)) now becomes FREE rather than purchased such as the banks’ existing arrangement with iDeal. The mindset is that banks LOSE money in the aftermath of PSD2 since they cannot charge for it. This is one common complaint as traditional sources of revenue are fast drying up.
Other challenges that were mentioned included the problem of harmonizing GDPR (General Data Protection Regulation) with the PSD2 requirements. Meint Post, COO of SecuMailer, raised the issue of the TPP (Third Party Provider) licensing by the financial companies, “we have no idea of who the third party is…because there is no onboarding.” External parties have access to a bank’s information and they must give it as long as these entities are registered in the EU zone.
For now, the Netherlands follows the redirect model of the SCA (Strong Customer Authentication). This means banks typically redirect payment transactions to a third party, iDeal, to authenticate customer transactions and rely on a stable source of income. At this point, the panelists had little to share about a real case scenario as most are in the mock services sandbox with dummy data and no UX input.
Panel 2: CX in the Time of Zero Customer Loyalty
Panelists: Chris Hoogendoorn, EMEA Financial Services Strategy & Innovation Advisor at Oracle; Benjamin Burkner, Director of Digital Banking at TME AG; Erin B. Taylor, Fintech CX Researcher & Co-Founder of Canela Consulting; Menno van Leeuwen, Head of Business & Customer Development at Moneyou
This panel focused on issues of company and user transformation in the fintech PSD2 space. Some of the key talking points revolved around the challenge of shifting towards a customer-centric model of the business as well as when and how does the user/customer enter the conversation in product development.
The issues of the two panels converge because in the process of re-making the a business model for companies, the key question that everyone is struggling to answer is, how will you get humans to use a firm’s services? For instance, the assumptions we make about an individual’s slow evolution to adopt to technology is not necessarily a valid assumption. Erin B. Taylor, consumer finance expert at Canela Consulting, described how we all needed to revisit our preconceptions about who the digital users are. For instance, in her study of payments among the Dutch, she found that “digital” comes in a spectrum— individuals are in various points between analogue and digital. In other words, it is not a linear progression. Some only use the primary website but do not download the bank app and vice versa. Some use the bank website but prefer cash. Some use apps for certain purchases and other strictly cash only. Rather than view the concept of digital as an evolutionary line, the profile of users look more like behavior in a Cartesian plane and plotting coordinating system based on behaviour rather than a simple demographic profile.
The key problem is not that we need to transform people into digital natives but the task ahead of all of us is to find and ask better questions. Perhaps, a better question would be, in which context do consumers become digital and when do they opt for remaining analogue? Menno van Leeuwen of Moneyou, shared that during their interviews and focus groups, they commonly encountered the classic customer lie: when asked, users said they were going to download the app, but in the end, never do. This is the quintessential problem in UX when questions and methods need to be wider and human-driven or behaviour-driven rather than simply product-driven.
This brought the discussion back to when to bring the customer into the development process. The panelists were raising a chicken-egg question, should we start with the user or start with a product first before engaging with the user? Those who are in customer research like I am tend to argue for the former while technologists and business people tend to go for the latter. This was why insurance companies have few use-case scenarios today because they were hesitant to engage with the customer first before developing a product!
For companies, clearly, they wrestle with “customer-centricity” as a revenue or cost model. At which stage in the product development cycle do customers add value? Majority of the companies opt to develop product first before going to the market in contrast to those with CX focus. This revenue-cost dilemma ties in with the issues on new revenue sources in the first panel. If the customer becomes the centre of the ecosystem, what becomes of the identity of the bank or insurance? Menno van Leeuwen argued that, as offering services to consumers become the key focal point of the business model, the distribution node now becomes secondary. In other words, branding and reputation and other factors recede into the background. Are banks now simply as platforms? Indeed, as the market fragments, traditional sources of revenue become untenable. Monetizing revenue from the new ecosystem is yet to materialize.
Darren Harris of Bittiq closed the session by synthesizing the insights from the two panels as well as putting forth some provocative suggestions for the insurance industry.
- We are in the current midst of a mindset transformation — aside from “closed banking,” he is suggesting “open data” as a term to replace “open banking.”
- He advocates for the user first with product secondary. The most important aspect is to understand the habituation of the customer to understand what problem a product is trying to solve.
- Some examples of these include Bittiq’s Vrije Ruimte prototype in which the product demonstrates how much wiggle room is possible in a person’s account to save or invest or spend.
- Other human-oriented solutions include eliminating receipts at Flux, overcoming the nightmare of the London home rental market with FizzyLiving, simplifying buying insurance online like Beyond Insurer, and using Exponential technologies to create ecosystems
- Insurance linked to smart cities: how can this be expanded?
- Challenge: What is the model that the insurance need to remake their business and income services beyond “insurance?”
Darren puts forward some provocative suggestions that are centred on urgent human problems which we discussed extensively during the post-conference borrel (cocktail hour):
- People don’t know if they are overinsured or underinsured. This is intimately tied to instances of travelling or life event changes.
- Travel insurance — pay as you go model
- Our discussion also steered towards “scammy” transactions related to insurance such as the frustrations and cheating going in rental car insurance. No one is clear about the risks and possible claims and coverage you have when you cross which border in the EU!
- Health insurance is another frustrating point because information is always difficult to find even in the websites of the providers.
- Debt collection industry — yes, not necessarily insurance, but there is a great problem looking for more ethical, less intrusive solutions
Overall, Bittiq successfully established the conversation that I hope will fast-track projects to emerge in the space. Increasingly, UX research, particularly ethnography is becoming critical to advocate for customer-centric business and product development strategies. This is an upcoming Dutch/EU industry hungry for new players and solutions!
