PSD2: It’s Open Banking, not just Open Payments by Paul Rohan - FinTech Belgium Summit 2016
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1) The document discusses PSD2 and its implications for open banking in Europe, not just open payments. 2) It analyzes how PSD2 creates new entities like AISPs and PISPs that can extract and use bank customer data, potentially disrupting traditional banking models. 3) It also examines new dynamics in open banking ecosystems, with traditional and challenger banks becoming substitutes, complements, or partial substitutes depending on the services offered.
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PSD2: It’s Open Banking, not just Open Payments by Paul Rohan - FinTech Belgium Summit 2016
- 1. PSD2: It’s Open Banking, not just Open Payments Paul Rohan Thursday 13th October Fintech Belgium Summit, Brussels.
- 2. Regulatory Burden/Barriers to Entry CREDIT INSTITUTION Loans Deposits Payments Payment Accounts (=AS PSP) PAYMENT INSTITUTION Payments & Payment Accounts (=AS PSP) ACCOUNT INFORMATION SERVICE PROVIDER (AISP) Account Data Extraction from AS PSPs PAYMENT INITIATION SERVICE PROVIDER (PISP) Payment Initiation from AS PSPs PSD1PSD2PSD2
- 3. Modular purchasing by SMEs in an API Economy? Aggregated Cash Picture by Accountancy AISP Direct Debit Collections at Incumbent Instruct Cash move by Accountancy PISP Invoice Finance by Monoline Invoice Finance by Challenger Payroll Specialist PISP Specialist Card Services PISP Audit Specialist AISP Overdraft at Challenger Alternative Overdraft at Incumbent Alternative Invoice Finance by Challenger Deposits at Challenger
- 4. Modular purchasing by Consumers in an API Economy? Personal Financial Mgmt (PFM) AISP Supermarket Credit Card Instruct Cash move by PFM PISP Supermarket Loyalty Points A/C Car Loan A/C – Car Leasing Specialist Airline Air Miles A/C Pension Provider API Tax Account API Overdraft at Credit Institution Deposits at Credit Institution Specialist Deposit Broker AISP Airline Mobile PISP
- 5. Where has the traditional banking industry made its money? Non- Interest Income (Fees, FX and Free Float) Interest Income (Interest earned on Loans minus Interest paid on Deposits)
- 6. Interest Income (Interest earned on Loans minus Interest paid on Deposits) Deposit Interest x% Loan Interest 3x% Why does the market let Credit Institutions earn this? They carry shareholders’ equity on their balance sheets to act as a buffer, which absorbs losses when market conditions become adverse. If borrowers default on their loan agreements, depositors still get their funds returned on schedule. Banks also perform a "maturity transformation process". Even though deposits can be funding loans with an average maturity of 2 years, depositors can get their money back on shorter maturities.
- 7. Dynamics in an Open Data ecosystem Substitutes Big Mature Banks & Small Challenger Banks Payment Specialists offering Payment A/Cs & Payment Specialists that don’t Complements Big Mature Banks & Payment Specialists not offering Payment A/Cs Challenger Banks & Payment Specialists not offering Payment A/Cs Payment Specialists offering Payment A/Cs and Credit Monolines Part-Substitutes Big Mature Banks & Credit Monolines (Substitute Credit) Challenger Banks & Credit Monolines (Substitute Credit) Challenger Banks & Payment Specialists offering Payment A/Cs (Substitute Payments and Accounts) Big Mature Banks & Payment Specialists offering Payment A/Cs (Substitute Payments and Accounts)
- 8. Substitutes Big Mature Banks & Small Challenger Banks Payment Specialists offering Payment A/Cs & Payment Specialists that don’t New Dynamics in an Open Data ecosystem
- 9. Part-Substitutes Big Mature Banks & Credit Monolines (Substitute Credit) Challenger Banks & Credit Monolines (Substitute Credit) Challenger Banks & Payment Specialists offering Payment A/Cs (Substitute Payments and Accounts) Big Mature Banks & Payment Specialists offering Payment A/Cs (Substitute Payments and Accounts) New Dynamics in an Open Data ecosystem
- 10. New Dynamics in an Open Data ecosystem Complements Big Mature Banks & Payment Specialists not offering Payment A/Cs Challenger Banks & Payment Specialists not offering Payment A/Cs Payment Specialists offering Payment A/Cs and Credit Monolines
- 11. PSD2 creates Legal Entities for “Layers of a Stack” 1. Communities Users, Professionals, Small Entrepreneurs 2. Curated Platforms Xero, Facebook, Moneysupermarket.com Salesforce.com 3. Traditional Regional Credit Institutions with licenses for Loans and Deposits 4. Infrastructure Card Scheme Rails Bank-to-Bank Payment Rails ACCOUNT INFORMATION SERVICE PROVIDER (AISP) PAYMENT INITIATION SERVICE PROVIDER (PISP) ACCOUNT SERVICING PAYMENT SERVICE PROVIDER (AS PSP)
- 12. PSD2 enforces the standards for “Layers of a Stack” 1. Communities Users, Professionals, Small Entrepreneurs 2. Curated Platforms Xero, Facebook, Moneysupermarket.com Salesforce.com 3. Traditional Regional Credit Institutions with licenses for Loans and Deposits 4. Infrastructure Card Scheme Rails Bank-to-Bank Payment Rails Receive financial data and financial services from lower layers. Can innovate collectively, can deal with high uncertainty but low economies of scale / scope. In the layer below the Community they curate, acting as Hosts. Could become a very dominant marketplace and market standard for a community or communities in how they consume routine financial services. “The Broad Middle”. Can deal with uncertainty if it can be calculated. Significant economies of scale, scope and experience but not overwhelming in a global context. Improve incrementally. Permission to build a Balance Sheet is the distinct capability. Co-ops and Utilities. Provide component services to upper layers without receiving services in return. Huge economies of scale. Long-term, numbers driven capacity management. Have the ability to monopolise, so under close scrutiny from anti-trust regulators, with occasional interventions.
- 13. Additional FARMING metrics in the Cloud to drive additional lending growth Sector Specific Add-On Farm Mapping Collateral Sector Specific Add-On Grass Management Risk Sector Specific Add-On Animal Monitoring Risk Sector Specific Add-On Production Monitoring Risk Sector Specific Add-On Animal Treatments Risk Sector Specific Add-On Animal Movements Risk Curated Platform Farm Accounts Cash Flow Curated Platform Payment Account Movements Cash Flow Curated Platform Accountant Dual Access Covenants Curated Platform Lender Dual Access Covenants Curated Platform Feed Supplier Accounts Credit Risk Curated Platform Aged Listing of Creditors Credit Risk DEPOSITING AND BORROWING COMMUNITIES CURATED PLATFORMS
- 14. Additional RETAILING metrics in the Cloud to drive additional lending growth Sector Specific Add-On Stocking Levels Collateral Sector Specific Add-On Daily Revenue Risk Sector Specific Add-On Returning Customers Risk Sector Specific Add-On Seasonal and Daily Patterns Risk Sector Specific Add-On Average Transaction Size Risk Sector Specific Add-On Staff Worksheets Risk Curated Platform Shop Accounts Cash Flow Curated Platform Payment Account Movements Cash Flow Curated Platform Accountant Dual Access Covenants Curated Platform Lender Dual Access Covenants Curated Platform Wholesaler Supplier Accounts Credit Risk Curated Platform Aged Listing of Creditors Credit Risk DEPOSITING AND BORROWING COMMUNITIES CURATED PLATFORMS
- 15. Additional EDUCATIONAL metrics in the Cloud to drive additional Student Loans DEPOSITING AND BORROWING COMMUNITIES CURATED PLATFORMS Sector Specific Add-On Student Drop-Out Rate Risk Sector Specific Add-On Graduate Employment Rate Risk Sector Specific Add-On Graduate Earning Power Risk Sector Specific Add-On Average College Costs Risk Sector Specific Add-On Average Subsistence Costs Risk Curated Platform Guarantor Payment Account Cash Flow Curated Platform Student Payment Account Cash Flow Curated Platform Guarantor Credit History Covenants Curated Platform Guarantor Credit Score Covenants
- 16. DEPOSITING AND BORROWING COMMUNITIES CURATED PLATFORMS – NOT SECTOR SPECIFIC LICENCED CREDIT INSTITUTIONS Accountant Personal Financial Management Get Paid Sell More Produce More Borrow Capital Get Insights Cash Surplus Lend Capital Get Insights Hold Deposits New metrics in the sector-specific layer Social Media Platforms
- 17. Credit Institution CEOs will want to measure the APIs that matter APIs provided by the Credit Institution that are a very useful tool for internal and external developers = efficient APIs provided by the Credit Institution that provide a modern alternative channel for customers to access their data and processes = effective APIs both provided and consumed that create ecosystem dynamics to produce a faster and more cost-effective balance sheet growth = game-changer
- 18. Balance Sheet Growth Customer Ecosystem Gravity Partner Ecosystem Gravity Ecosystem Customer Retention Ecosystem Partner Retention
- 19. Ecosystem Measurement PSD2 API PREMIUM API CREDIT APIS API use in Substitute Products API use in Complement Products Proprietary Channel retirements API Investment Costs per Project Operational Deposits from TPP Users Data Licensing Costs in API Consumption APIs developed with Equity support Number of Fee Earning APIs APIs with a Tracked Developer Satisfaction Score Number of APIs with a Marketing Plan Number of Product Information APIs Customer Transaction Data APIs Customer Reference Data APIs Data Extracts by Major Competitors Data Extracts from Major Competitors Premium API Users V All APIs Developer Willingness to Recommend Developers upsold to Premium
- 20. If customers continue to value the same things, an ecosystem could produce a bigger pie with the same slices Non- Interest Income (Fees, FX and Free Float) Interest Income (Interest earned on Loans minus Interest paid on Deposits)
- 21. PSD2: It’s Open Banking, not just Open Payments Paul Rohan Thursday 13th October Fintech Belgium Summit, Brussels.