9 min read

The dawn of banking super-products

Krzysztof Trojan

With a mixture of hope and concern, the FinTech world awaits the introduction of open banking APIs. The PSD2 and The Open Banking Standard promise that exposition of the API will no longer be just an unfulfilled vision, or futuristic solution for banking industry, but a must.

The impact of the APIs will surely be different depending on the scope the industry settles on – smaller, if we just stick to plain access to account (XS2A) and payments; much larger, if product information and origination is also exposed.

One of the results expected is the golden era of intermediaries and aggregators – services such as Mint.com which cannot wait for the APIs being exposed universally. It would be a convenient thing to manage all accounts from a single app.

But the true potential to be unlocked is different, possibly understood by most, but somehow hardly explored. The true benefit is the dawn of composite, multi-provider products. The banking super-products.

We've all been there

Imagine you are on holidays in sunny Italy, and want to buy a family boat trip. You could have bought some euros back at home, at a decent exchange rate, but, of course, you have spent all of it already on pizza and gelati. So you take your MasterCard out of the wallet, and pay with a loud sigh – you already know you will be charged an extra 10 per cent for this type of transaction. After returning home you may find out it was actually 20 per cent, as your salary was a day late and you entered overdraft.

Banking products heaven

Think about the same scenario in an API enabled banking super-product heaven: you have never bought any currency, you took your multi-currency virtual MasterCard with instead. Actually, there is five euro left on it, and no pounds altogether. So, you do pay with it for the boat trip, the payment request hits the card just to discover there is nothing left there. No worries, you have a euro account connected by API … but it’s empty as well! OK, let’s buy some euros for pounds! Who offers best price for 162.45 euro? Hmm, TransferWise’s rate is looking good, let’s get it for GBP 135.37! Oh, but there is just 120.25 pounds left there on the current account. Any ideas? 2000 pounds limit left on the credit card, and the billing period just started, let’s get some limit from there. Paid!

Sounds impossible? Yes, but, if all those banking products were API enabled – and some already are – it is perfectly feasible!

Risks and benefits

Opening access to accounts is perceived as a threat by many banks. Definitely there are challenges such as security or fraud potential. Companies regulated by less stringent regimes become competitors. But from the business perspective, the benefits outweigh the risks. Banks do spend a lot of effort and money on developing their channels, playing catch-up games with the competition, and actually having difficulties producing applications as good as the best web and mobile apps out in the market. APIs allow extending the number of channels to reach the customers without the hassle of developing and maintaining them.

There's so much to gain

Looking beyond the risks and challenges connected to open banking it is plain to see that there is a huge business opportunity. Super-products are going to favour specialized offerings – great current accounts, cheap mortgages, good savings rates. If done well, opening access to accounts can increase cross-selling and actually make customers use less popular products they would normally not bother with, as part of their portfolio. The banks have the scale and credibility needed so much in financial domain. Partnering with innovative start-ups, already visible trend, have the potential of benefiting both worlds. And banks can be providers of super products, too – it’s not too late to build strategy based on the assumption the bank does not need to offer best products in every category – it’s enough to offer best product in one, and ability to build a super-product on top of it!

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