Open Banking: New Rules for the future of payments
The world of finance is changing rapidly and the open banking and open finance movement is creating a great opportunity for banks to do “better” their job. Organizations must strive to know their customer, leveraging all important resources, allowing the share of data with the aim of completely transform the customer experience. Large banks are all beginning to move in this way. There is a lot of innovation and competition to benefit from. The EU regulation on digital payments (PSD2) in 2019 can be considered as the starting point for the Open Banking revolution. PSD2, however, is not the only trend forcing a shift of the sector;
Four major trends can be identified:
- Customer Demand
- Regulation
- Competitors
- Technology trends
and they are all forcing traditional banks to revise their business model in order to attract a new customer base and maintain their current market positions.
“Game Changer”
Banks and non-banks will be able to benefit from new partnerships from other financial and non-financial service providers by offering new value-added services to their customers.
Open Banking will enables banks to build relationships with external developers, which will leads to a deeply understanding of both the market and the end users. Open Banking is a game changer both for individual and corporate consumers.
If we assess the impact of COVID-19 in everyday life, we can consider it as a catalyst for the widespread of digital financial services; everyone was forced to think about the role of technology in our society. The laggards have realized that the trust in traditional banks have been betrayed by the difficulty of accessing the related services. Both young and adults came to realize the importance of all-in-one and “digitalised” services who can fulfill different functions and better respond to market needs. Let’s see…
“Some Numbers”
• Open Banking Market Outlook
The global open banking market size accounted for $7,3 million in 2018 and is expected to reach 43,2 million by 2026 (with a CAGR of 24,4% from 2019 to 2016). Over the coming years, we expect to see a rapid development of open banking approaches and models as people become more aware of its potential. Open Banking movement could allow banks to build trust among its customer, offering a tailored made approach while keeping safe and secure their datas.
• Geographical Segmentation: A quick snapshot on US and Asia-Pacific
North America is far more advanced compared to other countries and have had the major open banking market in 2018 and is expected to continue this trend, mainly thanks to the quick adoption of advanced technologies and presence of majority of key players. On the other side, Asia-pacific is forecasted to register the fastest growth: given the diversity, the roadmap for Open Banking development may varies. Its consumers and banks have differentexpectations about what they want from open banking and data privacy. One third of the world’s 1.7 billion unbanked consumers currently live in China an India, and they have different needs than their banked counterparts.
• But are Eu banks taking open banking seriously?
A Tink survey of 400+ European banks highlighted that half of banks failed to meet the dead-line for PSD2 to provide a testing environment for any third party services provider (TPPs). Since last report in 2019, Italy was one of the most favourable country to Open Banking: a positive feedback of 57% (average) of Italian banks compared to the EU average of 55%. Another interesting data is the capability of financial institution to notice the Open Banking wave as an “opportunity” and thus put in practice clear strategies. Numbers shows that two-thirds of respondents (average of 63.3%) consider open banking as a great opportunity for their company (compared to a European average of 58.6%). There is a need of changing in the way banking products are distributed and consumed: there is a clear consensus in the need to collaborate with TPPs. More the 82% of retail banks (up from 56% a year ago) now believe that partnering with third parties will enable them to improve their customer proposition. Open banking is forcing many banks into rethinking their entire approach. The coming year will see more banks bringing new propositions to market and enhancing and upgrading their capabilities to deliver innovation.
Focus on the Italian market : NEXI and Fabrik
Nexi
Headquarter: Corso Sempione 55 Milano, 20149 Italy, IT
Corporate identity
The Nexi Group is one of the top players in Italy in many business sectors ranging from Cards to Merchant Services to Corporate Digital Banking. As a matter of fact, it offers services and infrastructures to support Banks, Financial and Insurance Institutions, Commercial Businesses, Companies and Public Administration guaranteeing the best service of digital payment. Focusing on that, Nexi covers an important role in cards, payment acceptance technologies, money transfers between Individuals and Companies. Furthermore, the company provides the management of highly complex evolved services, such as those of Corporate Banking and Instant Payments. The Nexi group try to maintain a stable relationship with its partner banks in order to create value together, helping them developing their customer base with dedicated Customer Value Management initiatives, and offering a simple, intuitive and progressively more complete secure payment experience, close to the customer and constantly updated following the evolution of the market. The aim of Nexi is to bring innovation but also to spread digital payments in Italy as much as possible, which is relatively far from European average. The group want to be an excellence in the digital payment sector, always focused on innovation and in the customer.
Service Provided
First of all, Nexi covers the full landscape of digital payments, offering the traditional payment products, equipped with the higher level of technology, correlated with the most advanced services. The main purpose of Nexi is to offer safety, simplicity and a great pool of choices to the final customer.
Thanks to the internet and the whole smartphones’ word, Nexi has developed the payment experience, simple in the usage and efficient, with apps and user-friendly interfaces, every customer could, through a click, manage all his banking accounts and operations.
Furthermore, Nexi with the collaboration of the partner banks, can offer a full range of solutions and services for commercial business, linked to differentiated proposals based on customer’s needs. In addition to this, in the digital banking services field, Nexi proposes all the types of payment services to banks, payment institutions and ELMIs, such as: clearing and settlement services, management of collections and payments connected with back office activities, plus, it has included in its list of features also the real time IBAN based payments , known as “instant payments”.
On the other hand, Nexi provides the banking sector, the insurance field and the financial market system with System integration projects, advisory services, and in addition training on anti-money laundering, compliance and obligations to the Supervisory Authorities. Nevertheless also the customer care services are well covered, the cohesion between Nexi, Help line and Paycare (group specialised in contact centre services), has made possible a full assistance 24/7, all 365 year’s days, through all the channels: telephone, social network, virtual assistant and e-mail.
Nexi is the leader in the Digital Corporate Banking. As a matter of fact, Nexi manages and continuously develops both web and the front-end systems for digital corporate banking. The idea of Nexi is to offer to banks a great solution for remote multichannel banking. Speaking about the open banking sector, through the agreement with CBI consortium, Nexi has been able to develop its leadership in this sector through the usage of a platform, called CBI Globe, which facilitate the interconnection of banks and third parts throughout the usage of API (application program interface), in conformity with the new normative PSD2 (payment service directive). To summarise, the CBI Globe is a unique access point, which makes banks able to cover a new role in the financial market developing services with competitive value at lesser costs and a time-to-market faster.
Nexi today:
Nowadays Nexi is expanding its business, there are three most relevant partnerships which have permitted Nexi to amplify its portfolio of activities. Firstly, the collaboration with Unionpay has conducted to the spread of UnionPay cards in Italy. Nexi guarantees the full acceptance of UnionPay cards using integrated and centralised payment processes. Before this deal, the UnionPay acceptance in Italy was only 65%, after this agreement, the level will reach 95% by 2021.
Secondly, the main operation which has characterized the end of 2019, was the join of forces with ACI Worldwide, one of the global leaders in in electronical payments scene which offers real-time banking solutions. According to ACI Worldwide, Nexi and its partner banks manages 1.4 million POS across Italy, after the deal with ACI Worldwide the UP retail Payments solutions of ACI will be added to Nexi systems enabling a VAS (value added services) to its devices. To summarize UP Retail Payments is a full and personalized end-to-end payments solution for enterprise which brings high quality digital payments experience. What is added to Nexi services is: the processing of company meal vouchers, managing of the loyalty points and others.
Lastly, at the end of 2019 Nexi has signed an agreement with Intesa San Paolo regarding the purchase of Nexi’s merchant acquiring activities for 1 billion (which are the contracts between POS owners and banks). On one hand this operation implies that Nexi will become the exclusive partner of Intesa San Paolo. On the other hand, this deal will allow the externalisation of the acquiring activity, which until now was only internal for Intesa San Paolo, and this could bring a big valorisation to this branch which is in continuous development also in an international context. As a matter of fact, in 2018, the acquiring activity has generated net profits for 74 Million of euros.
Stock market
Nexi went public at the Luxembourg Stock Exchange (LuxSE), on Apr 16, 2019. Nexi’s IPO valuation was 7.3€ Billion. The company raised 2.3$ Billions during it.
Data
Speaking about data, Nexi registered 111,222 monthly app downloads, the most popular apps are: Yap, Nexi Business and easyPOS. Nowadays Nexi has an annual revenue of $1 Billions , and it counts on 2,000 employees. Main Group indicators for 2019, can be summarised in:
Fabrick
Headquarter: Milan, Italy
Corporate identity
Fabrick is an initiative born from Banca Sella in 2018, in order to face the new trend of fintech that is changing consumer’s’ needs in the banking system. It is defined as an open financial ecosystem that works through an API platform. It immediately registered a fast growth, and now its clients portfolio includes companies such as TIM and Illimity Bank.
Its business model consists of three main targets:
- Enterprises
It makes them able to use the platform for numerous operations such as bank payments via API beyond PSD2, PagoPA, F24, SDD (Sepa Direct Debit) and CBILL. It also provides a virtual IBAN and a more efficient and accessible way to manage and read payment collections. Moreover, the software helps the enterprise to centralize both inbound and outbound channel flows and to digitalize numerous administrative operations. Those services help the enterprise to both reduce fixed costs and to make the operations faster. Companies also receive a unique offer consisting in a platform to promote their activities, especially e-commerce and crowdfunding campaigns. - Fintech
Fabrick also provides an offer for fintechs, in order to make its platform the best way for them to improve their business. The Fintech District is a community built to find collaborations and the help of highly specialized experts. Then, it offers education and consultancy for banks and fintechs to understand and apply as fast as possible the PSD2 compliance, and it gives them access to a unique European database. - Bank
Banks have the opportunity to delegate the heavy lifting of complex functions in order to save time and be able to be focused on new trends and new opportunities. The platform provides also a personal financial management engine that helps end users in their daily activities. Another interesting aspect is smart banking, so the possibility for each bank to create and customize its own banking platform and to offer it in the market with its own brand. Also, Fabrick gateway is the software solution provided, that offers PSD2 compliance and ASPSPs to banks through an API based interface for TPPs. Moreover, they can manage their pull and push transactions easily throughout all the SEPA area.
Future outlook of the company
To understand the aim of the company, the best way is probably to quote what its CEO, Paolo Zaccardi, said about the reason why Fabrick was born: “It is clear that digital technologies have redefined the roles and boundaries of the financial industry. Today, to manage the complexity and speed of transformation without suffering it but taking advantage of it, a profound cultural change is needed, a place of neutral and open contamination that gives banks and financial institutions the opportunity to find new stimuli and tools on which to build innovative models of competition, thus promoting the evolution of the entire sector to the benefit of all”.
In conclusion, Fabrick demonstrates to be following the growing trend of fintech in all its features, and use diversification of clients as one of its main points of strength.
Yapily
Headquarter: 1 Clere St, Shoreditch, London, GB
History and General Overview
Yapily is a fintech startup founded in 2017 by Stefano Vaccino, a former Goldman Sachs employee, in London. The startup has raised $5.4m in funding in 2019 and over the six months before March 2020, its monthly recurring revenue has grown over 500%. The company offers an open Banking-based API platform that enables companies and financial services providers to connect to banks. It allows companies to seamlessly connect and access financial information and initiate payments through this single API that is able to connect to other supported banks open API. Therefore, expanding bank coverage is crucial for Yapily, which is why the company aims to have 80% of European coverage by the end of May of this year, having just expanded its coverage to Italy and Ireland in February.
Yapily enables any business to interact with customers using one secure API, through which they can get a complete financial view and can therefore focus on enriching the end-user experience to offer personalized financial advice. Powered by a secure and regulated service, Yapily manages and facilities the connection to fetch account information while ensuring that only open APIs that are PSD2 compliant are used. Furthermore, all of this is done behind the scenes, there is no end user interface or interaction: Yapily is just a technology enabler.
The startup also provides a regulator-ready solution for Banks to monitor and report API performance, for example they can monitor and maintain service quality while detect and resolve any performance issues. By using real-time data, an institution can have a greater understanding of context by benchmarking its API performance against competitors.
Among its customer base we can find accountancy firms, companies in the payment space, cryptocurrency providers, digital wealth applications, and e-commerce companies.
Business Model and Products
Yapily has a very simple mission: to be an API Only, developer focused, security-first technology provider that is built to scale and change. Yapily has therefore positioned itself as a pure technology enabler that is interested in security, in fact they do not store or have access in any way to consumer credentials or data. Its goal is to provide access to financial information using a single open Banking-based API platform, without any consumer interaction, to companies in order to help them perform the following services:
1. Accounting: it provides accounting software providers with a faster way of accessing and retrieving customer financial data. With one seamless integration, accounting firms can obtain years of transaction history including live inflows and expenditure.
2. Payments: Enabling a firm’s customers to safely make low-cost payments and transfers. Yapily is the gateway for companies to quickly collect funds and process payments on behalf of customers. A single integration gives access to thousands of bank connections, enabling providers to focus on simplifying the payment process while benefiting from a significant fee reduction.
3. Lending: Yapily connects and retrieves financial data so that lenders can build an accurate picture of their customers in real-time. Harnessing deep-learning technology, it provides access to categorized transaction data to uncover invaluable insight. From spending patterns, sources of income, debt and identity verification, lenders can build a customer profile to deliver customized capital suited to the borrower’s needs.
4. KYC (Know your Customer): Yapily enables a business to instantly verify and understand customers — without having to ask for their data. Using a single connection, Yapily fetches account information directly from the customer’s bank allowing the firm to focus on the best customer onboarding experience while protecting its business.
5. Money Management: Yapily enables Personal Finance Management (PFM) providers to build solutions to suit a customer’s spending patterns or business stage. Using one unique connection, Yapily fetches categorized data from multiple accounts which empowers businesses to respond to customer needs in real-time. Harnessing these powerful insights, providers have an innovative solution to improve financial wellbeing by encouraging customers to save or manage debt.
6. Corporate Banking: Yapily streamlines information from the Treasury Management System, providing seamless communication across the company’s entire banking network. Using one API integration, Yapily connects to bank accounts to initiate payment and access account information. With efficient and real-time data, treasurers are presented with the financial insight to strategically manage cash and liquidity.
Funding Rounds
Future Outlook
While they currently cover almost 95% of UK bank accounts with live connectivity along with 35 of the biggest European banks and many more in Germany, Spain, France, and other countries; Yapily are continuously working on growing its coverage. In fact, it aims at connecting to every bank worldwide, and in this sense, it has been helped by the European Union PSD2 directive which encouraged banks to bring their open APIs online in order to adhere to the legislation, significantly increasing the number of banks to which Yapily can connect to.
Yolt
Headquarter: Amsterdam
History and General Overview
Yolt app launched in the UK in June 2017 and have quickly sped to 500,000 registered users in less than 18 months. In this time, Yolt family’s been extended and launched in Italy and France! It is a venture of ING Bank N.V. which guarantees to the fintech the strength and stability of a bank.
Yolt is a developer of a money management application designed to give everyone the power to be smart with their money. The company’s money management platform helps the user in account aggregation and personal financial help. It allows users to manage their money matters with different banks for different financial services in one place, enabling people to experience the power of open banking for themselves.
Products offered by Yolt:
- One view of your money
See your current accounts, savings, credit cards, pensions, and investments, together in one place. - Track and budget
Know where your money really goes across your favourite categories and merchants. Then set budgets to stay on track, so you can take control and spend smart. - Save to reach your goals
Set yourself goals and see your savings history over time with a savings tile and goal tracking. Save smart by looking for deals made for you. - Pay your friends
With everything in one place, it’s easy to move money between your accounts. You can even settle-up with friends and family. - Future outlook
Leon Muis, Chief Business Officier di YTS (Yolt Technology Services), believes that Open Banking is the beginning of a trend which will move more and more towards Open Finance, which also includes investments accounts and loans. This process will take us to a larger system called Open Data, that consists in the opening of all types of data in every sector.
In conclusion, Yolt is an interesting start up. Nowadays services offered are quite incomplete and unnecessary, but it has the potential to become one of the leaders of the open finance sector when it will be ready for the masses.
General Conclusion
The whole open bank landscape is split between these 4 companies which possesses the predominance all over Europe in different sectors. First of all, there is Nexi which leads the digital corporate banking, through the usage of CBI globe platform, which we have cited earlier. Secondly, there’s Yapily, who is rapidly growing and gaining importance through its business model based on allowing companies to connect to banks and access financial information through one single API. Thirdly, Fabrick, whose strong structuring and customisation of the offer makes it unique and with an enormous growth potential. Lastly, Yolt, whose digital potential gives it the chance to become one of the future leaders of the market.
Authors:
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