A new connected ecosystem to support open banking business models needs the vision of banks to make it happen, says Deutsche Bank’s Michael Spiegel
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The global payments market has reached an inflection point. Driven by a combination of client demand, emerging technologies, market competition and regulation, the electronic payments segment has significantly enhanced the customer experience.
These customers are now used to getting the service they desire when they want it and how they want it, made possible by payment companies’ embrace of big data, analytics and cloud technology. Consequently, a number of incumbent technology providers, including fintechs and challenger banks, are entering the space with new digital service offerings.
However, the good news is that banks can seize upon the opportunities that digitisation presents. We can flourish by providing connectivity, building new bridges for an even better end client experience, connecting new with legacy solutions and infrastructures, maintaining and improving network and reach and connecting with the wider ecosystem.
There are a number of transformative dynamics where it makes sense for us to do this. Firstly, the emergence of real-time payment systems and alternative technology, driven by the "anytime, anywhere" consumer and the regulatory push for developing fast and frictionless services are providing banks with the functionalities and features to innovate and meet customer demand. Since these players, including fintechs and platform providers, are continuously exploring new technologies such as open API, blockchain and the Internet of Things (IoT), we no longer see them as disruptors. Instead, we see them as partners and we appreciate the value they bring.
And, they need us too. Clients tell us that they appreciate how we as banks are unlocking that value by offering them access to those fintechs via our platforms. In the latest research we have conducted in partnership with the Economist Intelligence Unit (EIU) most of the 300 treasurers we surveyed say they value safety and security over speed.
This makes us a trusted partner to those corporates, who tell us that they are more likely to consider using fintechs if they know that the service is being integrated via a bank’s platform. They explain that this gives them the comfort that those fintechs meet the trust and security requirements that are commonplace in banks.
Secondly, the payments value chain is being transformed by integrated digital solutions to offer the best customer experience, either by building in-house capabilities or by collaborating and leveraging fintech partnerships. Open APIs, combined with advanced technologies, are being used to deliver more personalised payment options. API-enabled networks are enabling mobile payments and driving real-time payments. The emergence of open banking, or third party ecosystems, are also helping banks to explore ways to monetise data and customer information.
Thirdly, regulatory drivers such as the European payment services directive, PSD2, are mandating open access and boosting competition, innovation and transparency across the region while enhancing the security of electronic payments and account access.
Fourth, the modernisation of cross-border payments through (SWIFT)’s global payments innovation (gpi) initiative, which utilises cloud technology, has vastly improved transaction processing and transparency and facilitated end-to-end tracking of payments for cross-border clients using APIs.
Based on these dynamics transforming the payments value chain, we are setting out our long term position in the payments segment. This involves investing in new technologies, establishing ourselves as the ecosystem connector, beyond just current market infrastructures covering critical network. This involves a multi-stage approach.
In the first stage, we are setting our foundations by identifying, and continue to identify, strategic opportunities for growth and value – namely in the B2C and B2B sectors. We have set out the required levels of digital capabilities including analytics, API connectivity, cloud, AI and robotics. This includes strengthening our current position through strategic investments and partnerships, to harness those digital capabilities, to secure profitable growth. For example, we acquired India-based technology company Quantiguous Solutions in April this year to accelerate the development of our open banking platform that forms the core for developing innovative client applications and connecting corporate clients, fintechs and partner companies to Deutsche Bank’s Transaction Banking platforms and services.
In stage two, we are building out our digital offering and laying the foundation for a fully digitilised, fast, network agnostic offering. We are investing in "Push Payments" which leverages regulations such as PSD2. While it only became applicable on 13 January 2018, PSD2 has already benefitted International Air Transport Association (IATA). The trade association for the world’s airlines saw the opportunity to create a new online payment method as an alternative to credit cards. In this case, Deutsche Bank is the third party payment provider collecting ‘push’ payments from passengers by means of API connectivity to the passenger’s bank.
We are also further investing in our cross border payments capabilities through SWIFT gpi. One example of where the initiative has already brought benefits is in Australia, where the country’s largest banks are connected to the cloud-based infrastructure via API to enable their cross border clients to see a payment transfer from the sender to the beneficiary’s account in a matter of seconds. Consequently, to address the demands of domestic customers, these banks have embraced an open banking and an innovation ecosystem by investing in a New Payments Platform (NPP), replacing an existing infrastructure to enable faster, more transparent payments.
Our partnership with US-based mobile payments provider Modo also sees us expanding our digital B2B and B2C payments business to facilitate payments into non-bank platforms such as Alipay, Paypal, M-Pesa and WeChat beyond traditional banking channels.
Where do we go from here?
In the third stage, given the drivers of an open payments landscape, our goal is to have a unified API ecosystem which will become the foundation to support the opening banking business models that will enable our clients, partners and fintechs to integrate with Deutsche Bank in a seamless and secure way. In short, we are opening up our infrastructure to expand our payments leadership. If we want to be more than merely infrastructure providers, we have to work with our competitors and create win-win results for everyone.
I’m convinced that institutions and corporates will work with these platform providers and fintechs if they are supported by a bank. For example, 75% of treasurers surveyed say they are willing to use them in some form if the service came wrapped in a bank recommendation. Whilst opening up our infrastructure and becoming a leading player through state-of-the-art platform play, protecting our clients against financial crime will remain a non-negotiable priority. Indeed, in this space there are also opportunities. By offering real-time screening of payments we will also be able to attract further client segments, for example, the fintechs.
In other words, the industry is looking to us, the banks, to design and influence solutions that give clients the best experience. And with the help of APIs and the right partners, we can make this happen.
Michael Spiegel, Global Head of Cash Management and Regional Head of Global Transaction Banking Germany, Deutsche Bank