Brendan Jones, Chief Commercial Officer at Konsentus, discusses the practical implications of how PSD2 (the Revised Payment Services Directive) and Open Banking will change the way financial services are distributed.
The views and opinions expressed in this text belong to the author and do not necessarily reflect the views of Nordea.
I’m Brendan Jones, Chief Commercial Officer of Konsentus — a SaaS (Software as a Service) company that helps create trust and confidence in the open banking ecosystem by enabling safe and secure transactions to take place. I have spent my career working in the payments industry. I’m passionate about the evolution of open banking — and believe that the next 18 months will be game changing with new innovative financial services customised for specific customer segments.
One stand-out for me is the shift of control we’re starting to see when it comes to accessing personal financial data. Historically, consumers have been happy for banks to be the sole guardians of their data and funds. But, when it comes to open banking, this model is turned on its head.
As long as the customer has given their prior explicit consent, banks are now legally obliged to give regulated third parties (Third Party Providers – TPPs) access to customer data and funds when requested. On one hand this removes friction in the customer journey and enables seamless data exchange to take place but, on the other, it introduces a completely new set of risks — largely for the banks. No contracts exist between these third parties and the banks. So, what happens if something goes wrong and who is liable? What we’re trying to do at Konsentus is help banks minimise these risks, particularly as the market is now gaining momentum.
We’re lucky in the UK as the top nine banks (referred to as the CMA9) report on open banking transaction volumes so we can see the month on month growth. In less than a year, the figure has grown from 138.5m API calls per month to a staggering 534.6m. No other countries in the EEA (European Economic Area) report their open banking transaction volumes, so we’ve undertaken our own analysis (using the UK growth curve), based on country population, percentage of banked population engaged in open banking services and TPP numbers to project what volumes individual countries might be experiencing between now and the end of December 2022.
Of course, we don’t know what the open banking adoption rate is going to be in 2 years’ time, so we’ve modelled four different rates. In the UK, we’re already at 4%, that’s 2m users, so it’s highly likely that in the more mature EEA markets, we will exceed our lowest estimates — which are based on a 5% adoption rate being reached by the end of 2022.
Even though the rest of Europe might be a year or so behind the UK, and open banking API calls are clearly not yet at the same levels, the figures are still eye-watering. In the Nordics, Sweden has the largest number of TPPs, reaching 26 Home regulated TPPs at the end of September 2020. Another 116 can passport in their services which makes the total a staggering 142.
When it comes to transaction volumes, Sweden also leads the way. Sweden is a strong fintech hub where innovation happens. We expect that by December of this year, 53.8m monthly API calls will be being made. For a bank with a 10% market share, that’s more than 179k calls per day! Looking ahead two years from now, to the end of December 2022 and, reaching a conservative 10% adoption rate by the end of the period, that figure is estimated to reach 214m calls per month which equates to 710k calls a day for a bank with a 10% market share.
Taking Denmark as another example and using the same 10% adoption rate, the numbers — although not at the same levels as Sweden — are still high. We estimate API calls to reach 30.5m by the end of this year and 124.4m by the end of December 2022.
It’s easy to see where this growth can come from. Norway has seen a dramatic change in TPP numbers in just a few weeks. Home regulated TPPs grew from two to six between August and September, and TPPs passporting in their services grew from 88 to 105 in the same period.
We see the Nordics as pioneers of open banking. Only the UK and Germany have more Home regulated TPPs than Sweden. Denmark and Finland join Sweden in the top 10, with the Nordics holistically making up 13% of all TPPs across the EEA.
So, let me now shed some light on some of the innovative products and services being offered to the market.
Holvi, a TPP regulated in Finland, helps the self-employed streamline invoicing, enabling them to sort expenses from invoices. Kontolink in Denmark automatically finds the required documentation from e-mail, photo or Dropbox and then attaches it to the corresponding bank transaction. Neonomics in Norway provides both payment initiation and account information services, enabling users to aggregate all their bank accounts via one endpoint which gives them a fuller view of their accounts either from the Neonomics app or the website. Findity in Sweden offers an expense management platform.
What’s evident about all these companies is that the products and services being offered are all about streamlining and simplifying the customer journey. They are all about helping people (consumers and/or businesses) make better decisions about their finances and having improved access to financial data and funds. This is exactly what PSD2 is aiming for and why I am so excited about the future.
This brings me back to where I started which is about trust and security in the open banking ecosystem. Banks must continue to protect their customers as they embrace the open banking journey.
Whilst PSD2 and open banking may not set out all the rules and standards that should be followed, it’s up to the banks to do their part to enable a safe and secure open banking ecosystem.
Brendan Jones is the COO of Konsentus. He has held director roles in the banking industry including MBNA and Bank of America. He has also held senior director roles within the payments industry for companies such as Datacard and Giesecke & Devrient UK.
This article originally appeared on Nordea Open Banking’s Medium blog.
You can read more about Open Banking at Nordea and Konsentus.