In this article, I will briefly study the business models related to open banking. I am using Deloitte’s two-dimensional model to illustrate possible options.
Open Banking Business Models
Deloitte charts business models with two axis: focus on third-party distribution or focus on third-party products.
Idea is that either banks can concentrate on creating own products utilising open banking APIs and partner services or focus on maximising the distribution of their own basic services to all possible third-party products and channels (white label, even). Depending on degree of distribution vs. products a bank can be placed on above map.
Model is obviously quite rough and there are lots of fine details and variations but this gives quite good overview of how a bank position its strategy against competition. There will be banks who will be basically just wholesale providers of very basic account functionalities via very efficient and versatile APIs. They might not even care much about their brand visibility as long as services are available in as many channels and services as possible.
On the other hand, there will be banks who will focus on creating own branded services that combine third-party service components with their own value-added services. Some banks might even run a marketplace and ecosystem for third-party components and services that work together under one service (brand) umbrella.
What are banks really doing?
Theory above is very simple. But the reality is not that simple, of course. Banks are not necessarily yet even decided how they will position themselves in the future and how they will utilise the PSD2 possibilities.
Here some examples of new open banking related activities by some European banks:
HSBC Beta, joined-up banking in the UK
Danske Bank Open Banking (Nordic)
Royal Bank of Scotland, BankOfAPIs
Banks are also investing on their own startup programs and try to boost their internal development with partnerships. Some banks have invested to banking startups (e.g. ING to Yolt). I would say that it is quite clear that big traditional banks cannot renew without collaborating and empowering new fintech startups and companies.
What about Google and others?
Open banking and PSD2 will also open opportunities for companies who have not been doing anything with traditional banking. Google, Apple, Amazon and other internet companies have customer relationships already with SMEs and consumers. They will move to banking, or at least to ”non-banking” (not legally banks but e.g. payment providers). It means that companies might utilise new APIs to provide user experience and functionalities of a bank but they would not necessarily be actual banks by legislation.
There will also be new type of service providers who provide components of banking as a service to other internet services, even banks themselves. Example of this kind of company is Figo.
Companies who provide banking services like account services and card are e.g. Pocopay, Monzo, Bud, and for entrepreneurs Holvi Business Account.
Internet companies are challenging traditional banks on banking services also with pricing models. Their existing business model might be based on data and advertising. This means that e.g. Google might provide some banking services for discount price compared to traditional players.
Open banking will change business models and there will be new service concepts. At least one thing is certain: there will be more competition and most likely consumers will enjoy lower prices and more options to choose from. This change is not probably yet visible during 2018 but latest 2019 we will see how open banking will impact the market.
Janne Isosävi / Co-Founder, Palkkaus.fi
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