INNOVATION INSIDER: 3 EXPERTS VIEWS ON OPENBANKING 🤝🏼

New platform models push banks to review their model and open it up to broader ecosystems. At Societe Generale group, we quickly realized that this was an opportunity to create new services with a more customer-centric approach, knowing that this would not be an easy path as a traditional bank, to confirm this, we therefore asked 3 experts within the Group to give their point of view on “OPEN BANKING “, here they are:

Yves Blavet, Open Banking & Platforms Director in the Group Innovation Department of Societe Generale.

What Open Banking Is Really about

 "When a wise man points at the moon, the fool looks at the finger"     

There are still some technical issues to make PSD2 really work: numerous and poorly specified API standards, cumbersome user experience related to mandatory strong customer authentication, etc. But is it wise to consider that open banking is a failure just because the connectors need fixing? If open banking really required regulated standards, then Plaid would not have emerged as a key open banking player in the US. Even without mandatory APIs, fintechs have done a great job at leveraging banking data and payment rails.

Let's take a step back here and consider what is really at stake. Platform models are increasingly penetrating the financial industry. Major online retail platforms such as Amazon offer payment facilities (BNPL, consumer credit and even car leases) to the consumers buying from their platform. They also offer financing to the merchants selling on the platform by leveraging the data collected on sales, thus developing "data driven lending".

Platforms are now providing payment wallets, credit cards, consumer credit, insurance and even current accounts...They are disintermediating banks because they have moved up the value chain to address the economic needs (commercial transactions triggering financing and payment needs) rather than just dealing with the narrow banking needs that traditional banks were addressing.

Financial services are now "embedded" in the real world. They are ubiquitous and not anymore provided through banks only.

Platforms are also increasingly disintermediating banks thanks to models that are focusing on broader client needs. This is most obvious on the SMB segment. Some platforms have been very successful in developing compelling value propositions around the e-commerce needs of SMBs, such as Shopify or Stripe. Others are building from accounting and business management needs, such as Quickbooks, which has become a major direct competitor for banks in the US.

Whatever the industry, when incumbents are confronted with platforms, they are faced with a clear strategic alternative:

(i)     They can either extend their client base by selling their products through third-party platforms.

(ii)   Or they can extend their product offering to better address their own clients' needs and avoid disintermediation. Adopting a true client-centric approach, they can become platforms themselves, by widening their offering to third-party products. These third parties can specialise in adjacent businesses (e.g., accounting, adjacent to banking) or even be direct competitors: for example, private banks need to open their offering to all kinds of investment products, not only their own.

These strategies are commonly known as (i) Banking-as-a-Service and (ii) Banking-as-a-Platform. And of course, they are not exclusive, they can be combined.

At Societe Generale, we are so convinced that this is the future of banking, that we invest both in Banking- or Insurance-as-a-Service, for instance through Treezor or Moonshot and in Banking-as-a-Platform through Shine or Reezocar. We are also progressively adapting our more traditional businesses to the new distribution modes. Our consumer credit, insurance, and leasing businesses ‒ to name only a few ‒ are already well into that deep transformation process.

What the finger is pointing at is not APIs. It is pointing at a clear and structural split between the production and the distribution of financial services; a phenomenon which will profoundly reshape the banking industry in the next decade. This is what open banking is really about. It is not a failure; it is a tidal wave.

Alain Pierre Fischer, Chief Digital Officer at Societe Generale Global Banking & Investor Solutions Expertise and solutions all in one place

 “Open Banking” was created with the introduction of the second European Payment Services Directive (PSD2) in 2018. This paradigm shift now allows financial institutions to share their banking data more simply via programming interfaces (also called APIs).

The shift to a more transparent and open banking world has given banks an extraordinary opportunity to modernise how they build their information systems, making them more agile, and enabling them to market financial products aligned with their customers’ needs, quickly and at a lower cost.

At Societe Generale, we have taken advantage of this opening through our SG Markets platform, an open ecosystem from which large corporate and financial institution clients and Societe Generale employees can explore and build new business opportunities together

SG Markets simplifies this collaboration through unique authentication, enabling Société Générale services to be used via a web interface, APIs or external systems (MDP, ERP, TMS). This improves the omnichannel experience of our customers and partners, and allows them to enhance their own tools and to deal more easily with Société Génerale.

This platform vision has paved the way in recent years for new collaborations.

For example, in 2021, we signed a strategic agreement with Kyriba, a global leader in cloud treasury, payment and finance solutions. Through this partnership, we want to develop a Cash Management solution based on Kyriba’s global platform and marketed by Société Générale.

By drawing on Kyriba’s cloud expertise and infrastructure, and integrating the solution directly into our SG Markets offering, we can offer our customers functionality meeting the highest requirements and quality standards in terms of data management, cybersecurity, user experience and business process management.

SG Markets makes it possible to combine the best of the two worlds: Société Générale’s expertise in its core businesses, and that of its partners whose expertise is recognised in complementary business lines. All at the service of our customers, who remain at the heart of our strategy.

Faysal Oudmine, CEO & Co-founder of Fintecture

Infrastructure ownership without data ownership is a burden

Open Banking, and more generally Open Finance, is a weak name for a powerful transformation of the banking industry: its APIfication. Pushed by regulators (eg: EU) or markets (eg: US), the banking industry is starting to adopt open and shared technical standards. Using these standards, orchestrators/aggregators are building industry interoperability enabling a healthier market competition and empowering account holders (businesses & consumers) over institutions.

 There is an underlying dynamic to this huge shift in the industry: infrastructure commoditization. In fact, infrastructure ownership without data ownership is no longer an asset, but a burden. Value propositions must move from simple infrastructure provision to be high value-add services. These changes will force business models to change from servicing fees to ROI based pricings, aligning institutions’ interests with their customers.

 When we launched Fintecture we understood that payments will eventually become a commodity, sooner than later.

We therefore aimed to enrich payments with high value-added services from the start through constant problem solving and innovation. We focused on B2B merchants and set ourselves on a clear mission to enable businesses to transact effortlessly (saving time) and efficiently (optimizing cost & speed).

 We started by building a new payment system, successfully addressing the failures of the legacy ones, enabling our merchants to increase their sales (~+15%) and significantly save on their transaction costs (~40% saving). Currently we are focusing on bringing added value to our merchants by embedding adjacent services into our next-gen payment infrastructure. From our perspective, Open-banking-payments were only the first step to bring value to merchants by increasing their sales while reducing their costs. We continue to fill other gaps in merchants’ financial needs by redefining the role of payment infrastructure, based on merchants’ needs and on our problem solving skills.