Are Fintechs and Bigger Banks Levelling Playing Fields with European Reforms?

Banking CIO Outlook | Wednesday, July 01, 2020

Smart regulations are infusing competitive spirit into the banking sector in the European region.  

FREMONT, CA: Europe saw the introduction of Payment Services Directive 2 (PSD2) in early 2018 and effected significant changes in the way the financial sector functions in the region. The regulations have ensured that fintech companies can access the APIs and data from established European banks. Now, it has been more than a year after the open banking revolution was initiated. Traditional banks and their modern counterparts have experienced several developments which have led to better services, more competition, and enhanced customer experience. Although the financial institutions are still adapting to the changes, one can easily see the impact that has come about with the targeted focus on making European banking sector open.

Open banking has many implications for service providers. According to several studies, cross-country banking in Europe was very less even after the PSD1 reforms which were adopted in 2008. Today, technology is much more advanced. Connectivity and penetration of the internet have reached an all-time high. Given these changes, banks are a better position to undertake innovations and cultivate improved services. From online payments to internet-based lending, from user-friendly apps to convenient customer services, a series of disruptions are evident in the industry. In such a situation, financial service providers must assess the market thoroughly, adopt relevant technologies, and fast-forward technology-led innovations.

Fintech companies shoulder a majority of responsibilities when it comes to the application of advanced technologies in making banking modern and efficient. While the traditional banks have depended on their position to stay ahead in the competition, fintechs have introduced customer-centric banking solutions that have challenged legacy models. Customer surveys in the region have clearly outlined the demand for advanced, tech-backed banking services. The adoption of open banking is crucial to empowering smaller fintech companies. With their up-to-date technology, they offer different and customisable services.

While successfully leading banking industry in towards technological disruptions, fintech companies have always faced the data challenge. Being new players, their access to customer data has always been limited. This becomes a significant hurdle while making use of technologies like artificial intelligence, machine learning, and big data analytics. By granting fintechs access to customer data with bigger banks, open banking reforms have created valuable opportunities. Now, fintech companies can obtain data and train learning-based systems to give effective business results. Bridging the data gap is essential to work out predictive analytics and big data analytics that are becoming vital to intelligent decision-making.

The scopes for fintech companies are unlimited in the European open banking era. However, traditional banks are also in a very advantageous position owing to PSD2. The reforms have pushed banking organisations towards a fresher approach. Big banks are now in the race to become technologically proficient and have a reason to make customers central to their business models. Initially, the competitive environment was seen to be unfavorable for bigger banks, but now most of them have adapted through a range of collaborations. Partnering with fintech companies is making it convenient and faster deployment of advanced technology-based workflows and new services. 

Forward-thinking fintech companies are all digital innovators. While these companies function from niches, they also help create integrated banking experiences. Through banking-as-a service or software-as-a-service offerings, they are contributing to the creation of platforms that banks can embrace in their journey towards a more digital sector. The European market is today, replete with numerous examples of small yet impactful companies that are rewriting the fundamentals of banking. Be it back-office technology or customer-facing capabilities, lending or underwriting, open banking has created a pan-European market for banks. The new ecosystem is marking the rapid development of forward-thinking banks. 

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