The deadline for the Second Payment Services Directive (PSD2) looms in September but, with only weeks to go, many banks and fintech companies are still grappling with the requirements and challenges of a new open banking marketplace.
Rather than tightening the banks’ operational model, PSD2 requires banks and fintechs to open their payments infrastructures and customer data to third parties. Businesses in the sector need to consider the long-term opportunities of opening access to data, a move that creates unprecedented opportunities for new and innovative services across a much wider and more dynamic banking landscape.
At the same time, this shift heralds a new era for innovation in fintech software and solutions.
The competitive face of Europe’s fintech industry
The trend towards open banking redesigns the competitive landscape of the fintech industry across Europe. As the marketplace opens, existing service providers will see increased competition from other fintech companies as well as new entrants such as technology companies, retailers, telecommunications providers and even crowdsourcing platforms.
The introduction and success of Mobile Virtual Network Operators (MVNOs) such as Virgin and Tesco Mobile has softened the customer’s mind towards new service providers breaking into traditional industries. One strength of these companies is their ability to capture and share data across different areas of business for marketing, customer service and operations in order to create a ‘sticky’ experience for customers.
Banks and fintech organisations know that the new competitive landscape requires an agility beyond the reach of their legacy silo-based systems. Furthermore, it opens the door for collaborations with third party providers and opportunities for new services, cross selling and upselling to secure customer loyalty and reduce churn.
The common focus across all service providers – long-standing and new – will be on innovation and customer experience, and the spotlight will be on ISVs to deliver new solutions for the market that take advantage of the open environment.
Interoperability underpinning innovation
Customers are increasingly expecting real-time, personalised and seamless service offerings from their banking service providers. On the business side, this heavily relies on fintech companies deploying a more scalable and flexible SaaS-based infrastructure and moving away from wholly-owned legacy systems in a bid to increase operational agility and scalability.
All this disruption creates an unmissable opportunity for software developers to create and market new products for the industry – and interoperability is key.
For banks, that means the ability to get maximum value from customer data across the whole of their business, as well as integrating third party capabilities into their core offerings to improve and expand core services. For the software providers, it means putting integration capability at the heart of their product for newcomers wanting to grab a share of the market and for incumbents seeking to innovate.
Forward-thinking ISVs can offer new opportunities to fintech companies that are considering how their legacy operation can integrate with new software services as well as for collaborations and new competitors aiming to create impact and secure customers.
Delivering integration with iPaaS
ISVs have a choice of how to offer integration to their customers. Software developers can choose to offer a ‘one size only’ product to the market which reduces their own time and cost of integration but instead transfers responsibility to the customer. This strategy risks losing customers that don’t have time and resources to dedicate to the job.
Alternatively, ISVs can reactively respond to customers’ demands for integration, re-engineering the solution for each customer. Though not only does this increase the cost of bringing a product to market, it can also limit the field of customers to which the ISV can profitably market its solution. So far, it is a lose-lose situation with one party or the other bearing the burden of integration.
The third option, offering flexibility and speed to market, involves building a white-labelled integration platform as a service (iPaaS) solution into the foundation of their own software products. In this way, ISVs can offer complete interoperability with any existing architecture, as well as any applications or collaborations that may be added in the future. With integration capability at the heart of the product, the ISV can guarantee interoperability with any other programmes within a legacy infrastructure, or across systems owned by third party partners.
Furthermore, without the need for manual programming for systems integration, iPaaS-based solutions offer a faster launch time for new products and initiatives to be brought to market. In a competitive open market, where time and cost are critical, this factor should not be underestimated. ISVs that can offer reduced integration costs, increased connectivity and agility across systems will have a strong business case to attract – and retain – banking sector organisations.
Time and cost to market for new consumer products and services will become even more important in the post-PSD2 marketplace, so reducing the burden of integration is a key component in easing this pressure for ISVs and their customers alike.