PSD2. A piece of legislation that has changed, or, rather, is about to change, the financial industry. Even though the new legislation came into effect on January 1st, the Regulatory Technical Standards (RTS) have not. As a result, many don’t expect API access to bank data for third parties to be in actual effect before 2019.
“A lot of stakeholders have been holding their breath in anticipation of PSD2’s arrival. The delayed onset of RTS, however, has created a confusing situation for the financial ecosystem. Fintechs that had anticipated a new reality are struggling financially, and financial institutions are left with two choices: innovate in-house ahead of implementation or open up now. At Spar Nord we have chosen the latter,” says Ole Madsen, Senior Vice President of Communication and Business Development at Spar Nord.
To partner up or not to partner up, that is the question
For fintechs the deadlock could spell trouble, according to Madsen: “The fact that the RTS have not come into affect yet will force many startups to revise their business plan. Making no money for 18 months—or longer—before you become financially viable is very difficult.”
Choosing partnership over disruption seems to be the best way for fintechs to survive financially while they wait for the anticipated changes to happen. But the establishment has not been overly welcoming to the incumbents.
“For a time there was a discussion about whether disruption and innovative companies would steal the business of legacy banks. Nothing of the sort has happened so far. Banks might be slow to adjust to changes and come up with innovation, but they have a lot of customers—something that startups cannot say about themselves,” points out Madsen.
He thinks that fintechs that cannot bootstrap their way to RTS implementation, should consider the partnership route to reach a sound amount of users.
“Even though fintechs usually create relevant solutions, there is no guarantee that customers will want to pay for them. They need to reach a critical mass to make ends meet. They may reach 50,000 customers on their own, but that number could increase tenfold if they decide to engage in a partnership with a bank,” argues Madsen.
A banker’s choice between the devil and the deep blue sea
The delay has left financial institutions with two, equally undesirable choices: They could either conduct business as usual until the RTS are in place, or give early access to third parties. Spar Nord has taken the second route.
“Basically, we have chosen a model that rests on the basis of open innovation: we will open up our platform for external actors and allow them to build services using our core data. The choice was made after we considered our resources. We realised we will never have the manpower to compete with larger financial institutions, but with this approach we can tap into great innovational powers,” explains Madsen.
Being small is not bad per se, however, and Spar Nord has found a way to take advantage of its size and special organisational characteristics.
“By default, larger financial institutions have a more rigid structure and it takes them longer to get themselves up and running with an open banking mindset. Because of our small size and flat structure, we have the ability to execute more swiftly,” says the vice president.
Spar Nord did not hesitate to turn the above principles into action and already has three fintech partnerships under its belt: Subhub, an app that allows customers to easily manage subscriptions, Ernit, an IoT piggy bank that connects childhood savings to a savings account, and Debito, a no-cure-no-pay solution for collecting unpaid invoices.