How are neobanks changing the face of financial services? How will their sudden and meteoric rise to prominence impact the retail banking landscape? Will banks - as we understand the term today -still exist in five years time?
These were some of the questions raised during Capco Belgium’s second Digital Innovation event, ‘Neobanks, Fintechs and banks: a changing landscape’, held at La Tentation in the heart of Brussels. The event gathered together experts across a range of disciplines - banking, consultancy, regulatory supervision and entrepreneurship – to participate in a panel debate and a number of focused session discussions.
The programme included contributions from Dan Jones and Jack Burrows from Capco’s UK Digital team, who looked at the creation of Mettle, RBS’ new digital bank for SMEs; Reinout Temmerman, Prudential Supervision – Oversight Analyst at the National Bank of Belgium, who presented on PSD2 and open banking regulations; Marc Coppens, a partner at Yuki, an online accounting solution provider linking accountants and corporates; and Rinse Jacobs, Head of strategic partnership at Solaris Bank, a neobank offering tailored services to financial markets across Europe. The subsequent panel discussion and Q&A session were moderated by Peter De Keyzer, managing partner at communications firm Growth Inc. and a former chief economist at BNP Paribas Fortis.
Drawing on their insights and first-hand experiences working with clients, the gathered experts highlighted some of the challenges and opportunities arising from the relentless and swift evolution of financial services. Operations and technology are converging, and new concepts - such as open banking, hybrid models and user-centered channels - are driving profound changes across the enterprise and reshaping the wider financial landscape. At the same time, regulators continue to focus on how best to manage these changes in a way that encourages innovation and competition while protecting customers and mitigating risks.
Creating a neobank - the story of Mettle
Launched in 2018, Dan Jones and Jack Burrows shared with us the story of Mettle, established by parent RBS to meet three objectives: to avoid potential disintermediation by new market entrants like challenger banks; provide a very focused service offering to SMEs; and to meet changing customer expectations around their banking services.
Mettle is a unique initiative in the financial services industry , as one of the first NeoBank developed by an incumbent, in a separate entity, with a brand new tech stack unconnected to legacy assets. This success story was built on a number of core principles that proved instrumental to define the product but also deliver this new business in under a year :
- A relentless focus - both on customer requirements and the key tasks at hand;
- A ‘minimum viable mindset’ – adopt an agile approach, only developing solutions that add value, remaining pragmatic, and choosing solutions that strike a balance between cost and quality;
- be autonomous - within clear boundaries set by the sponsor bank;
- be customer-centric – focus on the end-client experience, not technical components;
- establish customer trust and leverage your brand as an incumbent
What can regulatory institutions do?
Sharing his experiences as a national banking supervisor, NBB’s Reinout Temmerman looked back at PSD2, at the new business models now emerging and how unintended interpretations of the Directive and a lack of engagement among banks remain roadblocks to true open banking in Europe.
Temmerman reminded his audience that PSD2 does not create a new reality – rather it provides a new framework that opens up activities that have been performed for years to newly-designated account information service providers (AISPs) and payment initiation service providers (PISPs). While legacy banks see AISP status as an opportunity to increase cross selling, new non-bank players are looking to leverage on AISP to disintermediate the banks.
However PSD2 still has some way to go to achieve its goals. From a third-party provider perspective, differences in payment account definition and the absence of an EU standards for APIs are both major roadblocks to a true ‘open banking’ framework. There remain across Europe differences around regulatory knowledge and interpretation, and in licensing procedures.
So how will this state of play evolve from a regulatory perspective? Reinout Temmerman offered a couple of observations: tech giants are yet to enter the European market in a meaningful way; instant payments will mean new use-cases; and business models and bank cards are far from dead. Ultimately the Directive is about earning the trust of customers and giving them greater freedom to move their money Does the European Commission & ECB feel PSD2 ‘open banking’ has achieved its goals, he asked. Likely not, and ‘PSD3’ looks likely.
Ecosystems: how strategic partnerships are helping banks
Yuki partner Marc Coppens outlined the model his firm has adopted with its integrated accounting services platform. Connecting corporates to their accountants and aims to ease the administrative process in a customer friendly way, the platform allows users to focus on added value activities and so position itself as an attractive partner to banks as a combined financial management platform for small and medium size businesses.
Solaris bank: banking as a service
The business model developed by Germany-based Solaris Bank looks to address the needs of fintechs and banks who are looking at how to bring to market - in a rapid and agile way - innovative value propositions; at the same time, it seeks to help them to tackle the inherent regulatory challenges they face. Via a neutral, modular offering of selected APIs and by leveraging its own banking license, Solaris enables companies to offer tailored financial service solutions to niche markets.
Solaris’ Rinse Jacobs explained that the bank’s ecosystem is built on a banking-service platform that provides a layer of banking products API (compliance and controls, digital banking, cards, lending). These are offered through selected TPPs - who manage functions such as cards issuance, e-signature, KYC services, and scoring - and other partners including banks, corporates and tech companies. Jacobs highlighted two case studies: an Islamic bank which established a niche bank in Europe, and the creation of a lending service for an existing online platform for a Dutch banking group.
Jeroen Dossche, Partner at Capco Belgium, had the final words and takeaways, he put the emphasis that financial services; whatever form they will take and at whatever level of the value chain they are; they must be built on two pillars: enforce the trust in the brand and deliver a solution that meets a client need.