OPENING UP - ARE BANKS AND CONSUMERS READY FOR OPEN BANKING?
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www.retai lbankeri nternati onal.com Issue 744 / DECember 2017
OPENING UP
ARE BANKS AND CONSUMERS
READY FOR OPEN BANKING?
REGULATION DEBATE STRATEGY
Canada to review the Key industry figures Sweden, China and India
Bank Act as the fintech discuss the challenges and are the world leaders in
revolution takes hold opportunities of PSD2 digital payments
RBI December 744.indd 1 07/11/2017 16:22:52
contents
this month
NEWS
05 / EDITOR’S LETTER
16 / DIGEST
• N26 readies UK launch
• HSBC haunted by Halloween gremlin
COVER STORY • Banking contributed £35.4bn to UK
finances in 2016-2017
OPEN BANKING
• Nubank readies digital banking launch
• Hellenic Bank to transform payments
platform with Fiserv’s Dovetail solution
• HSBC UK unveils new m-banking app
• Temenos and Abu Dhabi collaborate
• Regions taps Fiserv to expand digital
money offering
• Postbank and Deutsche Bank merger plans
take shape
• India plots $32bn capitalisation plan
• Itaú finalises deal for CITI Brazilian unit
• Finn, Chase’s ‘bank in an app’, goes live
• Emirates NBD teams up with
Gemalto to strengthen security
06, 13
• Lipetskcombank reveals new platform
Editor: Douglas Blakey Group Editorial Director: Head of Subscriptions:
+44 (0)20 7406 6523 Ana Gyorkos Alex Aubrey
douglas.blakey@verdict.co.uk +44 (0)20 7406 6707 +44 (0)20 3096 2603
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Senior Reporter: Patrick
Brusnahan Sub-editor: Nick Midgley Director of Events: Ray Giddings
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Junior Reporter: Briony Richter Publishing Assistant:
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19
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2 | December 2017 | Retail Banker International
RBI December 744.indd 2 07/11/2017 16:23:09
contents
december 2017
INDUSTRY INSIGHT
08 / ACI WORLDWIDE
With more than five million tourists from
China expected to travel to Europe this year
alone, merchants that ignore their payment
preferences risk missing a huge trick, writes
Andy McDonald, vice-president, merchant
payments Europe at ACI Worldwide
22 / SAS
While the banking landscape is still
dominated by traditional players, a new
wave of digital banks is disrupting the
high street by offering a differentiated
customer experience and an alternative value
proposition, writes SAS’s Lee Thorpe
09
REGULATION DISTRIBUTION
06 / OPEN BANKING
With the PSD2’s implementation coming
ever closer, a recent survey from Ipsos Mori
09 / NATWEST
Natwest has opened its first digitally driven
20
branch in Liverpool, Briony Richter writes. s to talk about cracking China, disrupting
analysyes the extent to consumers worldwide
are ready to embrace open banking and share
The new outlet aims to provide customers STRATEGY
SWIFT, and leveraging WeCha
with a wider range of options on how they can
personal data with providers other than their
bank. Briony Richter reports
conduct and oversee their banking activity
20 / DIGITAL PAYMENTS
Sweden, China and India are the world
10 / CANADA DIGITAL leaders when it comes to the use of digital
According to Canada’s Department of Finance, payments. Robin Arnfield looks at key
several hundred fintechs are active in the 12 / NON-BANKS research into the state of play in the digital
country and have attracted over C$1bn in A new report from McKinsey highlights the payments arenas in key global markets, and
capital since 2010. The Canadian government need for the global banking industry to revamp reports back on their progress
is reviewing Canada’s Bank Act and its retail its digital platforms to combat the growing
payments legislation in the light of the fintech threat from online retail marketplaces, writes
revolution. Robin Arnfield investigates Briony Richter
PRODUCTS FEATURE
07 / CURRENT ACCOUNTS 13 / DBC DEBATE
Lloyds Banking Group has axed unauthorised With the deadline for PDS2 just around the
overdraft fees and standardised charges across corner, banks and fintechs must be prepared
its three brands. As Douglas Blakey reports, for the challenges it brings as well as the
while the new fees are simpler and offer greater
transparency, they are anything but cheap –
and there will be some losers
opportunities that come with it. Briony
Richter reports from the latest Digital
Banking Club debate
13
www.retailbankerinternational.com | 3
RBI December 744.indd 3 07/11/2017 16:23:15
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editor’s letter
And finally – the UK catches up and
rolls out remote cheque deposit
Douglas Blakey, Editor
B
ack in the summer of 2016, regulatory approval Cheques remain a crucial source of income for UK
was granted in the UK to allow remote cheque charities. If for no other reason, the modest cost
imaging. More than two years later, the UK is associated with the launch of remote cheque deposit
finally set to introduce a phased rollout of remote cheque can be justified by the benefits to be accrued by the
deposit. And about time too. charitable sector.
The technology works. It is not a novelty. First While cheque usage has collapsed as a percentage of
introduced by USAA in the US in 2009, remote cheque all payments, almost 500 million cheques were written in
imaging works well in a number of markets including 2016 in the UK. The new cheque-clearing system finally,
the US and Canada. I recall chairing a roundtable on the belatedly, offers a service fit for the 21st century.
subject with NCR and Barclays years ago, perhaps as long There will be other consequences, if lessons from other
ago as 2012. markets are repeated in the UK. Branch visits will drop.
One immediate benefit will be a reduction in cheque With a further reduction in footfall – a significant number
clearance times. Instead of the four-to-six-day clearance of branch visits are made simply to deposit a cheque –
of old, cheque processing times will be reduced to one there will be added impetus to close more branches.
working day. By the end of 2017, there will be around 8,000 bank
Banks in the UK dragged their heels for a number of branches in the UK. Fast-forward another five years and
reasons, including cost of implementation and a desire it is quite conceivable that this figure will have reduced to
to abolish cheques. The notion that legacy UK banks around 5,000.
had suddenly discovered the concept of customer- Even challenger brands, hitherto publicly committed to
centricity and were driven by delivering services their the branch model such as TSB, are now shrinking their
clients actually wanted was never more shown up by their branch networks. TSB, with around 580 branches at
outright hostility to cheques. present, could offer coverage across the major towns and
Off the record of course, any number of bankers cities of the UK with around 300 outlets.
admitted that they really wanted to see an end to HSBC has said it will end 2017 with 625 branches, and
cheques. Only last month, a UK bank chair told me that, that it does not envisage any more major branch-closure
compared to the US, cheque-clearing in the UK “was a programmes – it is down from 1,501 outlets in the past
joke”. decade.
For years now, we have been hearing from the banking Remote cheque capture, as just one element in the
sector about how they are driven by the need to optimise increasing move towards digital banking, will give HSBC
the customer experience – about how digitalisation will cause to look again at the size of its network – anything
benefit the full range of customer needs and how banks over 400 HSBC branches by 2022 would be a surprise.
are becoming customer-obsessed. At best, to be realistic, this belated UK banking
Banks use of innovation and data analysis would enable innovation may do no more than give a brief kiss of life
them to be customer led with a deep empathy for the to the cheque for another few years. There will, however,
customer. That has been the consistent party line. And for be benefits to the admittedly diminishing number of
a time, when asked, why as an example of this, the over customers still writing cheques.
40s or 50s who might still like to write a cheque could not It may also boost mobile banking penetration rates;
deposit a cheque without trekking to a branch, the answer once the cheque-using segment of the market see how
came back: These types of customer will die off in time. easy it is to use a mobile banking app, expect a further
But those same retail banking customers of a certain rise in m-banking.
age – clients who will have been among the banks most There will be benefits also for banks that remain
profitable customers over the years – still happen to like enthusiastic about shrinking the size of their branch
using cheques. networks. <
Get in touch with the editor at: douglas.blakey@verdict.co.uk
www.retailbankerinternational.com | 5
RBI December 744.indd 5 07/11/2017 16:23:21
regulation | open banking
Banks will have to respond to consumer
are consumers ready
requests for more convenient and faster
service, but also address concerns over losing
control of their money and data.
to embrace
The survey notes that these results are
typical with new initiatives before they have
been implemented. This was the case with
mobile contactless payments, which recently
open banking?
boasted a 336% year-on-year increase in
uptake. For many it will just be a case of
waiting a while to see how open banking
performs for the early adopters. Once it
becomes mainstream and trustworthy the
With PSD2 coming ever closer, a survey from Ipsos number of people signing up will increase.
Mori looks at whether consumers are ready for Stamper also notes: “For people in the
UK to adopt the new opportunities offered
open banking’s arrival. Briony Richter reports by open banking, financial providers will
have to convince them of the relevance and
O
pen banking has the ability to Respondents in the UK are, again more practicality of their innovative new services.
revolutionise the way we bank cautious about an all-in-one platform, with “Banks have been cautioning us for
and manage money. However, 55% saying they found this unappealing. years about the need to keep our personal
to amplify its potential there needs to be banking data secure. Open banking means
tight regulation, collaboration, and firm MEANINGFUL IMPACT that message is going to need modifying
strategies on how to protect consumers. and consumers will have to be persuaded
An Ipsos Mori report reveals that UK Paul Stamper, UK head of financial services at to change attitudes and behaviours. The
respondents are enthusiastic about new Ipsos, says: “January’s new legislation is set to potential is clearly huge, but it will require
technology, but are far more sceptical about have a meaningful and long-lasting impact. effort to realise it.”
handing over personal data to third parties. “It may take longer to become fully Open banking will force banks to use data
The survey shows that 63% of people in the embedded in countries with more traditional, to its full potential if they want a chance at
UK think the PSD2 directive is ‘unique’ and entrenched banking systems, such as the UK, competing against other industry players. For
are enthusiastic about the new developments. France and Italy, where it seems people are less consumers, the data they share will help them
However, asked whether they would partake likely to immediately embrace change. to manage account information and access
in open banking, only 21% say they would “However, the sorts of product and service products and services of which they may not
sign up, and only 13% of people would be that open banking makes possible will provide have previously been aware.
willing to share their data with third parties financial consumers with improved services The data can be used by banks and other
at this time. Of the 15 countries participating and exciting new products.” financial organisations to create a fuller picture
in the survey, only Canada, France and Japan Respondents from China rank highest in of individual customers, enabling them to
rank lower when asked about sharing data. terms of willingness to share data, with 60% build and provide tailored and compelling
Consumers are understandably concerned happy to have data viewed by third parties. offers. If open banking is incorrectly used,
about having personal data shared with third Countries with developing banking markets however, it could cause conflicts of interest.
parties. It is vital to educate consumers on tend to respond more positively to this idea. The rise of competition in the financial
the benefits of open banking, and reassure industry relies heavily on consumers wanting
them on how data will be protected. If they openness to open banking to access new services, so it is imperative that
sign up, licensed Account Information Service % Percentage of people the banking industry goes into it responsibly,
60 happy to share data
Providers (AISPs) and Payment Initiation with the consumer the top priority.
Service Providers (PISPs) will be able to access The survey, however finds positive levels of
50
a platform on which they can develop new trust among consumers to their banks. Of the
and unique types of products and services. respondents, 77% state that their bank would
40
The challenge will be bridging the be their most trusted advisor. For fintechs it
gap between the excitement of the new was much lower, with only 5% of respondents
30
development and the reluctance to actually choosing them as potential main provider, and
sign up. If successful, the regulation will be 20 19% for newer banks.
highly beneficial to both consumers and the Open banking will create a new and
banking industry. 10 innovative platform where unique services
Globally, the survey finds that 41% of can be built on a better understanding of
respondents hold more than one financial 0 each customer. The survey reveals that if open
a a a il e y y a e
product with their primary bank. Overall, in re bi az AE hil tal SA a and and UK pan ad anc banking is used properly, the industry will
Ch Koi Ara Br U C I U orwPol zerl Ja an Fr
C
S d N i t
57% view the idea of having everything u Sw benefit from much more informed data, and
Sa
accessible from a single point as attractive. Source: Ipsos Mori consumers will be able to call the shots. <
6 | December 2017 | Retail Banker International
RBI December 744.indd 6 07/11/2017 16:23:23
products | current accounts
lloyds, Halifax and bank of scotland
go live with shake-up
of overdraft charges
Lloyds Banking Group (LBG) has axed unauthorised overdraft fees and
standardised charges across its three brands: Lloyds, Halifax and Bank of
Scotland. As Douglas Blakey reports, while the new fees are simpler and offer
greater transparency, they are anything but cheap – and there will be some losers
L
loyds has ripped up its existing The losers will be those customers who The threat of overdraft charges being
charging structure and in its place, have an existing high level of agreed overdraft, regulated in a similar way to payday loans
as of 2 November, introduced a used for much of the month. So take the remains, as the FCA is now investigating the
single fee: 1p per day for every £7 ($9.18) of example of a customer who uses all of a cost of short-term consumer credit. With
overdrawn balance. £1,000 overdraft for say 10 days a month: some overdraft charges exceeding payday
It is radical, and the move ends That customer will now pay around £15 per lending rates, the banking sector has only itself
unauthorised overdraft fees. It also affects month, up from £11 under the old rules. to blame if further regulation results.
millions of customers. Of the 46 million UK Again, to be fair to Lloyds, it has given its Lastly, Lloyds’ decision can be viewed
adults holding a current account, around customers more than adequate notice of the against increased competitive pressure. Since
25% maintain a current account with Lloyds, changes by letter, online and via social media the advent of seven-day current account
Halifax or Bank of Scotland. since the changes were announced in July. switching in September 2013, Lloyds has been
Why the change? The LBG party line – LBG is also at pains to assure students losing market share. By contrast, its Halifax
and to be fair it has some merit – can be running overdrafts that they are not going brand has been among the winning brands led
summarised thus: The new approach to to be adversely affected. Lloyds Bank and by Santander, Nationwide and Metro Bank.
overdrafts is simple and clear, giving customers Bank of Scotland Student Accounts are Lloyds is also wary of competition from
more control of their overdraft borrowing and automatically converted to Graduate Accounts rivals that have entered the current account
how they manage their finances. in the summer of graduation. Customers will sector in recent years, such as Marks and
That is not however the full story. The new continue to be able to operate their Graduate Spencer, the Post Office, and Metro. Next
fee is fixed, and other than the 1p for every £7 Account for three years, and this includes year, the new breed of start-up banks,
borrowed per day, there are no other charges. an interest-free overdraft, with the amount including Starling and Monzo, will enter the
The LBG spin adds that customers will no tiering down over the course of the three years. current account battle ground.
longer pay monthly arrangement fees, and Halifax customers can retain their student Traditionally, banks have not viewed
returned-item and monthly usage fees will also account and interest-free overdraft for an overdraft charges as a competitive arena.
be axed. extra year after graduation before the account Santander, the big winner from seven-day
There will be winners and some losers: is converted to a Halifax Reward current switching, has overdraft charges that are, if
Lloyds estimates that more than nine in ten account. anything, higher than Lloyds.
of its customers will either be better off or Barclays ended unauthorised overdraft
unaffected financially by the changes. A NINE-FIGURE SUM charges more than two years ago – and has
Take the winners first. Under the outgoing been one of the bigger losers from seven-day
fees regime, a customer who exceeds their LBG itself will drop revenue due to the switching.
overdraft limit is charged £10 per day. They changes. The Competition and Markets And Lloyds’ fees changes may give a boost
also paid 19.89% interest on the overdrawn Authority (CMA) estimated last year that to the UK’s low bank-switching rates. At
balance plus a monthly overdraft usage fee of UK banks rake in a total of around £1.2bn present, only around one million out of the
£6. So customers who dip into unauthorised from authorised overdraft fees. With its 25% 46 million adults with UK current accounts
overdraft by a small sum for just a few days market share, one can do the sums: This move switch their main current account every year –
will be better off. will cost LBG a nine-figure sum. a miserable 3% – against double-digit rates for
Halifax customers will not benefit to quite And that is the second reason for Lloyds’ mobile phone and energy supplier switchers.
the same extent under the new standardised radical change in fees strategy: regulatory The move by Lloyds represents a move in
fees tariff, as they were charged £5 per day of pressure. Last year the CMA decided not to the right direction – and now attention turns
unauthorised overdraft borrowing. impose a cap on overdraft fees. to how its traditional rivals will respond. <
www.retailbankerinternational.com | 7
RBI December 744.indd 7 07/11/2017 16:23:23
industry insight | aci worldwide
as the apple iphone x launches:
no mobile strategy is
an opportunity missed
With more than 5 million high-spending tourists from China expected to travel to Europe
this year alone, merchants that ignore their payment preferences risk missing a huge trick,
writes Andy McDonald, vice-president, merchant payments Europe at ACI Worldwide
A
pple’s new iPhone X arrived place to start. Many European retailers have preferences and devices and alter their
in stores globally on Friday 3 already updated, or are currently working on payment offering accordingly.
November. As with every iPhone updating, their payments infrastructure in A merchant’s payment provider – if they
launch, experts have been debating the ins order to accept alternative payment methods, are suitably experienced – should be able
and outs of the Apple X for days as fans and we at ACI are helping many of our clients to provide valuable guidance. Offering the
queued overnight to get their hands on one. to accept Chinese customer payments. right payment methods conveys a sense of
One of the hallmark features of the new The logic is quite simple: More than fuve legitimacy, which is important to building
device is Face ID: the primary way to unlock million tourists from China are expected to trust with shoppers.
the new phone is with the face scanner. More travel to Europe this year alone, and figures Merchants should also ensure that they
importantly, the new iPhone X will use the show that the Chinese spend more than any always offer at least the top three payment
technology not only to unlock the phone, but other nation when travelling. Merchants in methods in each market or country. Most
also to authorise users for mobile payments. Europe are missing a big trick and a huge shoppers will use at least one of them, and it
I believe that the launch of the Apple opportunity if they do not develop strategies has been shown that providing the top three
X could be one of many inflection points to integrate new forms of alternative payment methods, rather than only the most popular,
that drives consumers across the globe to to cater to this huge consumer group. can increase conversions by up to 30%.
use mobile devices as their main method of Where does this leave merchants, and which Finally, retailers must continually analyse
payment. You only need to look at China steps should they take next? Understanding the conversion rate and usage of each
to understand the future of commerce and the payment preferences of your customers payment method, and be ready to adjust
mobile payments. is crucial to getting the payment mix right. when necessary. This is easier to do when
In the US and Europe, we are still debating Consumers typically have one or two payment working with a payment provider that offers
the future of cash and whether the use of methods that they prefer, while others are an extensive global payment network, enables
cards will one day be challenged by mobile useless to them. rapid payment method switches, and provides
payments. In China, this discussion is Retailers need to look closely at their access to comprehensive payment data for
completely irrelevant. China has adopted customers, understand local payment advanced analytics. <
mobile almost exclusively as its payment
channel of choice, as everyone of every age is
connected to their mobiles for social, content
and services related reasons.
Alipay, the world’s largest online and
mobile payment platform with more than
450 million active Chinese users, and Chinese
social media platform WeChat with over 963
million monthly active users, are today the
dominant forms of payment in China. In little
over five years, these two digital platforms
have changed the nature of Chinese retail
payments, and shifted hundreds of millions of
Chinese citizens away from cash to electronic
payments.
Where does this leave the rest of the world?
Learning from China would be a good
8 | December 2017 | Retail Banker International
RBI December 744.indd 8 07/11/2017 16:23:26
distribution | natwest
including our mobile and internet banking
natwest opens services.”
Burrow believes there is good reason to
be optimistic about digital branches. “I
first digitally
don’t think there are any hurdles to opening
more digital branches – assuming there is
an appetite. The bigger challenge is making
sure we continue to provide the right types
focused branch
of service and product that customers want
in the digital space, which is changing very
rapidly.
“I think the potential of our digitally
focused branches is their adaptability. We
Natwest has opened its first digitally driven branch. know technology is constantly changing, so
we need to make sure our digital products and
In Liverpool, it aims to provide customers with a
services reflect these changes.
wider range of options on how they can conduct and “We have a team of developers who are
oversee their banking activity. Briony Richter writes firmly focused on developing our digital
services to ensure we are meeting our
T
he north-west of England’s two committed to digital skills training for nearly customers’ banking needs. TechXperts also
major cities, Liverpool and 10,000 NatWest staff. receive regular training on mobile devices
Manchester, are the venues for the More than ever, customers are taking and internet platforms so they are best-placed
country’s two largest retail banking groups’ advantage of the convenience and efficiency to support queries. All of our services are
latest branch initiatives. of online and mobile banking. The branch in developed with our customers’ safety and
In October, RBI reported on Lloyds’ new Liverpool offers guidance as well as free Wi-Fi security in mind, as both are essential to good
flagship store of the future in Manchester. and access to iPads so customers can register banking in the 21st century.”
Hot on its heels, NatWest has opened its first for online banking services. With open banking just around the
digitally focused branch in Liverpool. Burrow adds: “We’re continually innovating corner, it is imperative that banks grab the
Michael Burrow, MD of personal banking in the way that we serve customers face to opportunities it has to offer.
at NatWest, tells RBI that new digital branches face. With our TechXperts, community “We’re excited by the opportunities
have great potential. “With an increasing bankers and mobile bank branches, we’re presented by the advent of open banking,”
number of our customers choosing to bank excited to see how customers will engage with Burrows says. “We’re continuing to enhance
with us using their mobile phones or online, our new branch so we can learn and adapt and develop the integrated services that we
we recognise the need to provide a branch how we serve them. offer customers, for example enabling small
that is both digitally focused and supports “Knowing our customers are becoming business customers to login to FreeAgent, an
customers with their financial needs.” more tech-savvy in the way they engage with accountancy software platform.”
Earlier this year NatWest and Royal Bank many different organisations, we feel it’s In all customer segments the preference for
of Scotland hired ‘TechXperts’ in each branch important to make sure our branches meet digital is growing, and NatWest is looking use
in England, Wales and Scotland to support their changing needs. Our Liverpool branch is its digital branches in the UK to strengthen
customers using online and mobile banking the first of our new digitally focused branches. customer relationships as well as provide new
through their mobile app. The banks also We live in a digital world, and as a bank we and unique experiences. <
need to embrace this through our branch
network using the learning from Liverpool.”
First responses from customers have been
positive, as they embrace the branch’s modern
look. “I think our customers like the look
and feel of the branches as it doesn’t look like
a traditional branch and feels very modern.
There is a counter service for complex
transactions such as foreign exchange, but
for the most part it’s very much self-service,
which is great for customers who don’t want to
queue,” Burrows explains.
“All our staff are trained TechXperts who
can support queries on how to use our mobile
app across a range of devices or the automated
tellers in the branch.
“We are a customer-focused provider, and
this remains central to everything we do,
www.retailbankerinternational.com | 9
RBI December 744.indd 9 07/11/2017 16:23:31
regulation | canada
credits, debit card payments and ATM
fintech revolution withdrawals. These national payment systems
are administered by Payments Canada. In
powers review
addition, payments card companies and card
networks are subject to the Government’s
Code of Conduct for the Credit and Debit
Card Industry in Canada.
of services
Other retail payment service providers
(PSPs) such as non-bank PSPs are not
subject to a comprehensive oversight
framework. “Non-traditional PSPs aren’t
subject to operational requirements including
The Canadian government is reviewing Canada’s Bank mechanisms to safeguard consumer funds in
the event of insolvency, specific disclosure
Act and its retail payments legislation in the light of the rules or complaint handling procedures,” the
country’s fintech revolution. Robin Arnfield reports department’s consultation report notes.
“This can create risks and confusion for
I
n August 2017, the Department competition by streamlining onboarding and payment service consumers who may expect
of Finance published the second making comparisons more transparent. similar levels of protections irrespective of
consultation document in its Canadian the payment service provider they use,” the
financial services legislation review, CONSULTATION department spokesperson says.
requesting comments by 29 September. “The new framework’s objective is to ensure
The document incorporates comments The department’s consultation asked how the retail payments ecosystem evolves so
submitted by stakeholders following the to streamline entry and exit processes for payment services remain reliable and safe for
August 2016 publication of the department’s entrepreneurs such as fintechs targeting consumers and merchants, and the ecosystem
initial consultation report. The review is due underserved niches, and how small and mid- enables the development of faster, cheaper,
to complete by 29 March 2019, at which sized banks could promote competition and more convenient payments methods.”
point the current Bank Act will expire. innovation. The department’s proposal includes a
“The Department of Finance is reviewing “We’re at the first stage of examining the comprehensive national registration regime
the comments it received on potential policy merits of open banking, and developing an and, for the first time in Canada, a definition
measures to include in the 2019 update to the approach to consider the risks and benefits of payments industry players through a
Bank Act,” a spokesperson says. of the issue, learn from the experiences of functional approach.
These measures are categorised as other jurisdictions, and fully consult with “The Competition Bureau believes
supporting a competitive, innovative financial stakeholders,” the spokesperson says. periodic reviews of legislative frameworks are
sector, improving bank consumers’ protection, “The government takes the protection important to ensure laws remain relevant, and
modernising the financial sector framework, of financial consumers very seriously. The adapt to the new realities of the marketplace,”
and safeguarding the sector’s stability. Financial Consumer Agency of Canada is a spokesperson for the Canadian competition
Canada’s six largest banks represent around reviewing bank sales practices and will address regulator says. “In the case of open banking,
93% of the country’s total banking assets, any non-compliance. OFSI is conducting a we’re pleased to see that the Department of
and in 2013 they were designated as domestic concurrent review focused on risk culture, Finance has emphasised competition and
systemically important by the Office of the the governance of sales practices, and how innovation. Regarding the Department’s retail
Superintendent of Financial Institutions banks manage the potential reputational risk payments review, the bureau believes that the
(OSFI). Canada has 23 small and mid-sized that’s inherent in sales activities. The results of department’s review of these issues can help
domestically owned banks that together the reviews will help inform whether further pave the way for increased innovation and
comprise 2% of all Canadian bank assets. adjustments to the consumer protection competition down the road.”
The Department of Finance says several framework are warranted.” In late 2017, the Competition Bureau plans
hundred fintechs are active in Canada and In July 2017, the Department of Finance to publish a draft report on the Canadian
have attracted over C$1bn in capital since launched public consultations on a new fintech market for public consultation.
2010. The department is considering updating oversight framework for retail payments. “The Bank Act revision was postponed
the Bank Act to clarify the fintech activities to Its purpose is to extend the perimeter of from 2017 to 2019, which is good due to the
facilitate bank-fintech collaboration, it says. Canadian retail payments supervision to cover fast pace of fintech developments,” says John
The department’s consultation asked companies not previously subject to oversight. Armstrong, head of KPMG Canada’s financial
whether to give banks greater flexibility to The framework currently focuses on service practice. “Canadian banks are currently
make non-controlling investments in fintechs Canada’s core national payment clearing constrained as to how they invest in fintechs
and to make referrals to fintechs, and whether and settlement systems: the Large Value due to the Bank Act’s lack of clarity. We would
to introduce regulations for open banking. Transaction System (LVTS) and the like more clarity about their ability to invest
The department says open banking Automated Clearing Settlement System in and partner with fintechs, especially with
potentially facilitates consumer interaction (ACSS), which processes retail payments fintechs that offer technology for non-financial
with financial service providers and increases such as cheques, pre-authorised debits and applications.”
10 | December 2017 | Retail Banker International
RBI December 744.indd 10 07/11/2017 16:23:33regulation | canada
Armstrong also calls for clarity on open “The CBA’s concern about protecting
banking. “Canadian banks feel open banking at-a-glance statistics customers’ data and credentials is a red
causes privacy and security concerns,” he says. • Canada total bank branches: 6,190 herring,” says Christie Christelis, president of
“With open banking, if someone is hacked, • Number of banks in Canada: 87 Canadian consultancy Technology Strategies
it isn’t clear who’s liable once fintechs are • Bank-owned ATMs: 18,550 International. “If Europe can do open
injected into the mix with banks. The banks • Total transactions at bank-owned banking, Canada can do it. Canadian banks
feel there needs to be clarity if they open their ATMs: 704 million are more afraid of fintechs being disruptive
data to fintechs. • Total online banking transactions and ‘eating their lunch’ using open APIs.”
completed at big 6 Canadian banks
“They are talking about whitelisting, which (2015): 614 million One area where there is room for disruption
involves specifying which platforms and • Total mobile banking transactions is business payments, Christelis says. “While
fintechs meet their requirements for security. completed at big 6 Canadian banks consumers have various alternatives for P2P
But fintechs are concerned as to what hoops (2015): 202 million payments, businesses don’t have any real
they’ll have to jump through to comply with • Technology spend by big 6 Canadian alternatives apart from the bank-operated
banks in 2016: C$10.2bn
banks’ data security requirements.” systems. It’s the regulations that are holding
• Technology spend by big 6 Canadian
Armstrong mentions Canadian banks’ banks 2007-2016: C$76.5bn back business payments here.”
concerns, for sovereignty reasons, about using While major Canadian banks already have
Source: The Canadian Bankers Association
US-based cloud-hosting services. “Canadian partnerships with fintechs, this is a different
banks and other businesses were reluctant move to real-time payments than the US dynamic from open banking, Christelis says.
to go to cloud when Amazon Web Services, because fewer banks are involved. “The Bank “These partnerships are mutually beneficial
Salesforce.com or Microsoft were just doing of Canada is very keen on replacing the LVTS to banks and fintechs,” he says. “But open
hosting in the US,” he says. “But we’ll see with RTGS and, when it decides to move to banking means banks would have to open
cloud take off in Canada now that these firms real-time payments, the Canadian banks can their APIs to any regulatory-compliant
have started to do hosting in Canada.” do this as one program,” he says. fintechs meeting certain criteria.”
A driver for open banking in the UK is Firoz Patel, CEO of Montreal-based “Canada’s thriving fintech ecosystem has
consumer mistrust following the bank failures payment services business Payza, says the partnered with traditional banks to deliver
of the financial crisis, Armstrong says. “But Department of Finance needs to open up the innovations to consumers and businesses,” says
Canadian banks survived the financial crisis fintech sector in Canada. “The Canadian MSB Anne Butler, Payments Canada’s vice-president
magnificently, and there’s a lot of trust in sector has been essentially shut down by the of policy, research, legal and general counsel.
banks here,” he adds. “When open banking actions of the banks,” he says. “The current regulatory regime places
arrives here, will Canadian consumers be Patel adds that Canadian banks have refused constraints on this collaboration that don’t
willing to let their bank data be shared with to provide bank accounts to legitimate MSBs make sense. Revisions to legislation to enable
non-banks and fintechs? I think there’ll be as they claim to be concerned about money- Canadian banks to invest in and support
slow adoption by Canadian consumers.” laundering, but the real reason is that they financial technology development would be
On the retail payments oversight review, see MSBs as competitors. “They argue that a catalyst enabling the fintech sector’s true
Armstrong says of new payments players Canadian regulators want them to exclude potential.
requires an overall framework. “As there aren’t risk,” he says. “We need similar regulations “Given our aim of reducing friction
just banks any more but also fintechs and in Canada to Europe’s PSD2 which says in payments and facilitating more fluid
other new entrants, the regulation’s scope that European MSBs that are fully regulated commerce and lower business costs, Payments
must widen from banks to any organisations cannot be denied bank accounts after PSD2 Canada supports the Department of Finance’s
handling payment origination or receipt,” he comes into play. If Canada sorts this out, we examination of open banking. But this
says. “It should move to regulating functions could see more MSBs moving here.” initiative must maintain the high standards
rather than specific entities. We’ll see a lot In its Department of Finance submission, provided by our current framework.”
happening in Canada due to players such as the Canadian Bankers Association (CBA) said Payments Canada is working with its
WeChat and Alipay.” many open banking initiatives in different members and stakeholders, the Department
Another driver for the overhaul of Canada’s jurisdictions “appear to be addressing of Finance, and the Bank of Canada to review
payments regulatory framework is Payments concerns that may not be present in Canada. access to Canada’s core payments systems.
Canada’s modernisation programme, Additionally, there’s a need to gauge consumer “We expect our learnings from our
Armstrong says. “Payments Canada wants demand for third-party access, which may modernisation review will contribute to
to replace the LVTS with a real-time gross vary across jurisdictions. the Department of Finance’s study of open
settlement (RTGS) system, move to real-time “Protecting consumers’ security and privacy banking, particularly with respect to risk
payment rails, and implement ISO 20022,” will be key to any framework aimed at management criteria,” Butler says.
he says. “Real-time payments require tighter increasing third-party access to financial data Scott Talbot, senior vice-president
regulations to prevent fraud, as real-time and systems. Consideration must be given to of government affairs at the Electronic
ups the ante in terms of fraud. Currently, the potential impacts on the safety, soundness Transactions Association says: “Regulations
Payments Canada is trying to decide what and stability of the overall Canadian financial applicable to a major bank should be very
the timeframe is for real-time payments and system, given the potential for third-party different to those applicable to a start-up.
what their priority is for the first item in their access to give rise to contagion, reputational Regulations should be tailored to different
upgrade program to be actioned.” and other risks with broad-ranging categories of risk in terms of size of player and
Armstrong says it is easier for Canada to consequences.” their risk profile.” <
www.retailbankerinternational.com | 11
RBI December 744.indd 11 07/11/2017 16:23:34digital | non-bank competitors
Amazon already has a foot in the payments
digitise services
industry, offering small businesses a payment-
processing service. It is using the initiative
to encourage more customers to buy from
to combat
Amazon using debit cards.
Another serious competitor that is
taking advantage of areas where banks are
falling short is Japan’s largest online retail
competition
marketplace, Rakuten Ichiba.
Rakuten – meaning optimism – was
founded in 1997 by Hiroshi Mikitani. With
a membership population that now exceeds
one billion, Rakuten has extended its services
beyond online shopping to online and offline
A new report from McKinsey highlights the need services including credit cards, mortgages,
for the global banking industry to revamp its digital travel and security brokerages. Using e-money
and loyalty points, Rakuten customers can
platforms to combat the growing threat from online make purchases from thousands of stores.
retail marketplaces, writes Briony Richter By embracing digital innovation,
Rakuten has created a unique ecosystem and
strengthened its customer base. The company
C
ompetition in retail banking from bricks-and-mortar retailing – and lending also runs instant-messaging app Viber, which
fintechs has arguably receded and factoring for small and medium-sized has around 800 million users globally.
as banks have made strategic enterprises. It is hurdling through traditional Chinese company Alibaba has also tapped
partnerships to expand digital services, industry territory by offering an ever-growing into financial services, providing electronic
rather than compete with the startups. range of products and services. payments and data-centric cloud services.
The real threat is coming from companies Companies such as Amazon are becoming Its aim is to fully transform how businesses
such as Amazon, Alibaba and Japan’s Rakuten important to the financial industry as they operate by providing innovative technology
Ichiba, which are swiftly staking positions move the data they have received into cloud to connect with consumers globally. Alibaba
as viable alternatives for traditional banks’ storage and push further towards artificial is no longer just an enormous e-commerce
customers, according to McKinsey’s Remaking intelligence. company; it is also a large asset manager,
the bank for an ecosystem world report. lender, payments company, B2B service and
On the emerging digital threats, the report CUSTOMERS AND PROFIT ride-hailing provider.
comments that new strategies adopted by Losing customer loyalty to these companies
these so-called ‘platform companies’ are even Banks also risk losing customers and profit. is a real threat if banks do not respond
more challenging for incumbent banks. By The report predicts that if banks fail to digitise quickly. The McKinsey report concludes
creating a customer-centric, unified value their business models, customers will move to that new digital entrants are impacting bank
proposition that extends beyond that which other providers, such as platform companies, performance, particularly by threatening the
users could previously obtain, digital pioneers which already offer similar services. customer relationship and creating margin
are bridging the value chains of various By 2025 the global banking industry’s erosion in retail segments.
industries to create ‘ecosystems’. return on equity (ROE) could reach 9.3%, Will banks join up with these companies
These strategic moves by platform but if consumers move to digitised companies like they have with certain fintechs, or do
companies are attractive to consumers, as the as quickly as they are using emerging they aim to beat them? If it is the latter then
businesses are providing them with unique technologies, the ROE could fall to a banks will have to fully implement a digital
experiences, and also reducing customer costs. dangerously low 5.2%. platform. McKinsey argues that, for the time
They are quickly becoming more central in Banks cannot afford to wait any longer to being at least, banks still hold higher trust
financial decision-making for customers. extract the potential of digital to industrialise among consumers than tech companies.
The rate of competition from these new their operations. As an essential first step, Although the report notes that the banking
entrants has increased much faster than those that have not yet fully digitised must industry has shown improvements in capital,
anticipated, and companies such as Amazon explore the new tools at their disposal and cost and liquidity, it also describes a string of
and Rakuten are reshaping one industry after build the skills in digital marketing and lacklustre performances and concludes that if
another, blurring sector boundaries as they analytics that they need to compete effectively. banks do not digitise their services, the threat
seek to be all things to all people. This gain from digitisation would lift the from non-bank companies will only continue.
Amazon founder Jeff Bezos has been average bank’s ROE by around 2.5 percentage Banks must develop platforms to enable
tapping into financial innovation to extend points – not enough to fully offset the these emerging technologies and changes in
the company’s reach into consumers’ daily 4.1-point drop forecast in McKinsey’s worst- trends among the customer base. What is
lives. Amazon continues to confound rivals case scenario. But no bank can afford to forgo more, the competitive nature of the banking
with moves into the cloud, logistics, media, the benefits of digitisation, and individual industry will only be heightened with the
consumer electronics and even old-fashioned banks can do much better than the average. implementation of open banking. <
12 | December 2017 | Retail Banker International
RBI December 744.indd 12 07/11/2017 16:23:38feature | dbc debate
consumers about the benefits of open banking
and sharing data in a responsible way.
will open banking “Unless we do this, the customer interface
will be hijacked by the social media
breathe new life
companies. If we do this as an industry
correctly then we will continue to own the
interface. If we do not, it may go to Google,
Facebook and the rest.”
into the industry?
Roberto Ferrari, chief digital and
innovation officer at Mediobanca group, said:
“Open banking will force banks to use the
data they have to its full potential.”
In agreement with Ferrari was TSB Bank’s
digital innovation and transformation director,
With the deadline for PDS2 just around the corner, banks Pol Navarro, who argued: “Open banking and
and fintechs must be prepared for the challenges it brings as the introduction of PSD2 is pushing banks to
become more oriented towards the customer.
well as the opportunities that come with it. Briony Richter Customers seek good experiences from their
reports from the latest Digital Banking Club debate banks.”
Asked if TSB is approaching this from
the mindset of an incumbent or challenger,
W
ill open banking really there is a little reservation. Is it really going to Navarro said: “We are a challenger. We at
be transformational? The live up to its promises? Do consumers really TSB are making sure that we can take full
latest Digital Banking Club understand it and will they embrace it? It is advantage of the data we receive.”
debate of 2017, powered by Intelligent quite a confusing time for a lot of people, and Jenkins argued that data is important, but
Environments, discussed just that. it needs to be carried out carefully. customers must always come first. “Data is
Hosted at the formidable Law Society in “If customers allow it, licensed AISPs the fuel, but you have to think carefully about
London, the debate featured an outstanding [Account Information Service Providers] and the customer experience and what their needs
panel to debate the challenges and PISPs [Payment Initiation Service Providers] are. We need that creativeness coming into
opportunities posed by the implementation of will enjoy unprecedented access to a platform the industry to give our customers something
open banking. on which they can develop entirely new kinds of value. Often, customers are a little anxious
of products, services and experiences.” about open banking.
Why is it a good time to be discussing Anne Boden, CEO of Starling Bank and “We need to ask ourselves, how are we going
open banking? the 2017 Digital Banking Club Power 50 to get customers to trust us with their data as
Simon Cadbury, director of strategy and Personality of the Year, added: “It could much as they trust us with their money?
innovation at Intelligent Environments, began completely change retail banking forever “We have to answer this together. We have
the debate by expressing his thoughts on the – if it happens. There is a huge amount of to think about putting the customer first.
introduction of open banking. opportunity out there but implementing it in Some big banks may naturally want to hold
He said: “It is the topic on everyone’s lips. traditional banks could prove difficult. onto their customer base, but collaboration
The most interesting thing for me is that “The opportunities that PSD2 will open is the way forward. If we do it securely with
every article I read and everyone I speak to is up are great; they are good for consumers, APIs then it really could be phenomenal. ”
incredibly positive about open banking. but those changes actually attack the heart of The panel were all agreed that open banking
“I agree that it is a very exciting time, but banking as it is at the moment.” has great potential – if harnessed with the
actually when you scratch beneath the surface Hilda Jenkins, digital experience and right tools.
engagement director at Barclays, argued that
it is the customer that should be the priority.
“The way we go about it has to put the
customer at the centre of everything. The big
banks, the fintechs are all looking to come in
and create new ways to excite our customers.
If we do that then it can only be a good thing
for all of us.
“At Barclays we put the trust of our
customers first. If data is shared securely and
open banking is approached in a mature way
by all, then it could work.”
Boden emphasised this point: “Customers
should come first and they should own their
Hilda Jenkins, Barclays data. It is up to the industry to educate Roberto Ferrari, Mediobanca
www.retailbankerinternational.com | 13
RBI December 744.indd 13 07/11/2017 16:23:41feature | dbc debate
Will open banking live up to expectations? “Traditional banks are in the driving seat, to create different types of data. With these
On the topic of whether open banking is more but if they hesitate, technology heavyweights partnerships we can marry the data gained
exciting in business than in other sectors, Will like Google, Amazon, Facebook and Apple are from them with the data we already hold.”
Beeson, head of operations and innovation well placed to take advantage of PSD2.” Cadbury said: “I hope the challenges are
at Civilised Bank, stated: “It is very exciting. Navarro stated: “In the long run it will overcome and there is success, but I do fear
There is much broader competition. Banks are really change the banking industry. If you give that the big brands have an advantage at this
doing it because of the changing expectations good, trustworthy customer service then the time.”
from customers. Also, if you look across customers will continue to come again.” Boden added: “The big banks will be
the industry you are seeing fewer and fewer PSD2 follows on from PSD, and could pushed to be more creative and make more
standalone banks wanting to own 100% of essentially revolutionise the banking and investments in things that make the customer
customer services. payments industry, affecting everything from happy. New entrants will drive innovation
“It will be much faster to deliver with the way we pay online to the information and creativity, and hopefully everyone will get
collaboration, and there will be more that can be seen when making a payment. a better deal if it works. We must, however,
comprehensive services for customers.” Adapting to these new regulations will educate our customers in what all this will
Boden reiterated the need for collaboration, need significant levels of investment and mean for them.”
saying: “We envisage a world where people commitment from the banking industry. Navarro believed that it will be the
like us will provide the business current Boden talked about the differences that customers that will benefit the most from
account, and then customers can use APIs to consumers will all see with PSD2. “With PSD open banking. Ferrari agreed, but emphasised
get access to other services. We can provide we didn’t have all these new players providing that it is essential to have the right architecture
an alternative and different value chain to the people with specialised services. PSD2 is going from the top to the bottom of the bank.
traditional banks.” to do that. It has the infrastructure to join up Beeson said the winners will not necessarily
Customer expectations are at the heart new services to old services. It is going to link be specific companies or individuals, but those
of the debate; they are the main driver for the incumbent and traditional banks in new who are prepared.
implementing the changes needed. and interesting ways.” He stated: “Regardless of bank or non-
Ferrari argued that the expectations of For consumers who hold more than bank, incumbent or new entrant, the winners
customers are clear: They want top service one bank account, the changes will allow will be those that have efficient, scalable, open
from their banks. Ferrari stated: “Banks are businesses and providers to show all their architecture. The losers will be the ones that
data companies, therefore money and banking account information in one place. Of course, do not. There are so many factors that are
is about data. along with these changes come much stronger changing and there will be pressure to make
“There are very high expectations from security checks to ensure safe customer changes.”
customers. You can see this from the rapid payment. A question from the floor – again the DBC
uptake in mobile banking globally. In the end debate played to a full house – referenced
it is what you give to them.” Who will be the winners and losers? seven-day switching and why, as customers,
As well as customer support, open banking With high expectations for all players across we should switch our accounts for, potentially,
will also be beneficial to banks and fintechs. the board, the panel were asked who will be another average experience. What unique
Cadbury emphasised how the business banker the ones that stand up to the challenges and experience do the panel have to offer?
has more to benefit from in the short term, overcome the hurdles. Beeson began by stating that Civilised
but must look to the future in order to secure Jenkins stated: “This is the time to be in Bank’s unique experience would be “delivering
customer loyalty. banking. These new laws are exciting for a face-to-face human interface that would be
“The open banking component of PSD2 us and our customers. Of course the big the single point of contact for all of the bank’s
is nothing less than an invitation to rethink banks will embrace it. We want to keep our resources”.
banking. The walled gardens that banks have customers and keep them satisfied. Boden added that when customers come
built around their customers’ data will start to “We need to innovate and take hold of the to Starling Bank it is because they want that
crumble. The customer loyalty that banks have opportunities opening up. Barclays has been unique experience, and the mobile app it
spent fortunes to build could be challenged. opening up to partner with small players provides does just that.
14 | December 2017 | Retail Banker International
RBI December 744.indd 14 07/11/2017 16:23:42You can also read
