Open finance: a roadmap to success

HSBC & Nordic API Gateway


You are watching the MoneyLIVE summit and we are about to dig into open finance and the steps being taken to ensure that it is a success. It is a big subject, obviously, and one that I don’t really think I can talk about by myself, which is why I am delighted to say I can call on the expertise of two people who know a great deal about this subject.
Now, first up is Hetal Popat. Hetal, it is good to see you. Tell us about yourself, please.



Morning, Juliette.  It is a pleasure to be here with you today.

So I have spent most of my career in commercial banking, frontline, supporting customers with their cash management, lending, asset‑backed funding needs.  But I have spent the last six years now working in open banking, in particular leading the HSBC implementation of, first, UK CMA open banking and then PSD2.  We have now created a global team who look after this service for us in multiple markets and we are live with open banking of various sorts across 19 different countries and growing.  So we have got a very busy 24 months ahead of us now, and more and more markets are following Europe and implementing regulations of this sort and it is an exciting time.



It certainly is.  Well, thank you so much for introducing yourself and also telling us what you do.  Can we also give a big welcome to Rune Mai.  Now where are you joining us from, and tell us about yourself and what you do.



Hi everyone and thanks for being here.  So I am sitting in Copenhagen, in my office actually for a change, and I am the CEO and co‑founder of something called Nordic API Gateway.  It is a project I started back in 2010.

In 2012 we started experimenting with building and aggregating financial APIs from banks.  And that involved into Nordic API Gateway in 2018, where we wanted to build an open banking infrastructure that actually works.  It is something that seems a bit corny, but it is actually really hard to build quality into open banking.

So we focus a lot on privacy by design, compliance, security and quality coverage; three things that we feel are sometimes missed in some of the solutions out there, and it is getting more and more important to get these things right, in order to get the consumer adoption going.

So we spent a lot of time in the Nordics building and fleshing out that quality model and today we have above 95% coverage on all of the markets for payments and data and we have more than 40 banks as customers here, prominent names such as Santander, Danske Bank, OP Bank, DNB and also the new bank, Lunar.  And we are starting to roll out the model to the rest of Europe; so we are actually already live in the Baltics, Holland, Poland, UK, Spain, Portugal, and expect to be fully European at the end of this year.


Okay, so you are two very busy people which is why we appreciate the fact that you have taken time out from your schedules to be with us.  So thank you and welcome.

Now, open banking promised to be a game changer, but a few years on, it does appear that that promise has seemingly fallen short or has it?  Things are picking up as we shift our focus from open banking to open finance.

So this is a question to both of you, starting first with you, Hetal.  Taking it back to basics: what is open finance and what does success look like?



To me, open finance is an extension of what we do in open banking today, to all the other parts of the financial services marketplace.  So think about credit products, such as mortgages, loans, business lending.  There is a range of asset‑backed loan types there; insurance, long term savings and investments, and so on.  And the intention here is to enable third party partners, whether they are regulatory or otherwise, to access customer data with permission from the account holding institutions across all of those types of products; and then, over time, hopefully extend to the right services which would be the equivalent of payments.  So it might be trading in investments, it might be opening and closing accounts, changing your address on an account.  There’s all sorts of things you can do to change something about a product.  You might be making an insurance claim.

And this will enable a whole range of new personalised services to be developed which sit on top of all of us, as account holding institutions.  In many cases, it will be us as account holding institutions that provide these services and that’s an area for us to compete.  But it will enable customers to have a much more tailored financial service and experience.  And over time, I think this will blend into wider smart data as it is called in the UK, there’s different names in other markets, which extends the data economy to many, many industry sectors where it hasn’t quite yet reached.



Okay.  Rune, is that your take as well?



Yes, I think he pretty much nailed it there.  I think that open finance is a broad term, to be quite honest, and I think that Hetal also mentioned many of the areas that we will see as part of that.

And even extending into other industries as well, because in the end, open finance is about value exchange, like following the value exchange from one system to another and being able to do so in automatic ways; it is probably what will help us in the future.

So I think the one thing I would like to add is that on a more complex level, you could also say that this is what actually allows banks to do the digital transformation, moving from being branch‑oriented to be more product‑oriented and meeting consumers and customers, wherever they are, instead of in the branch.  Like building embedded banking is probably something that goes way beyond account access, but also way beyond what you see banks do today and also what you expect of banks, like building themselves into ecosystems that are out there producing markets for them.



And Rune, stay with me on this because when you look at the various open banking journeys that banks are actually embarking on right now, do you feel that, logically, open finance is the next step or is it still a fair way off?



I think it is a totally logical next step.  It makes so much sense.  PSD2 and open banking has been, to a large degree, forced upon banks.  It is not that banks don’t benefit from it, but still they have to provide this for free, for others to consume, which is quite strange, to be honest, that a business has to do that for free, extending their payment capabilities to others to use for free.

But I think the real benefit of open financing and also open banking in general is probably moving from a pure cost‑based strategy more into understanding the full potential of APIs.  I keep saying that PSD2 open banking is, to a large degree, what could be called API economy drivers.  They are not API economies themselves yet, but they are opening up for space, for opportunities where banks can start monetising APIs and also build themselves into other services and that is where it becomes really interesting.  And I think we already see banks do that, especially on the payments front.  Also guys like HSBC and Hetal, what you build on the payment gateway front is probably what we see a lot of banks moving into, being able to monetise payments and being at the top of the value chain, instead of tucked away somewhere below.  Card infrastructures and so forth is probably also a future glimpse that we see right now.


It is interesting, because you can see the advantages to the banks.  But, Hetal, what about the benefits for customers?  Perhaps on their financial well‑being.  How do we experience the uplift?



I don’t think banks benefit, if customers don’t benefit, would be a starting point.  So we are a business like any other and we need to serve our customers in order to have a sustainable business model.

But let’s bring that to life.  So at the moment, I can envisage a customer product that would enable me to link all my long term savings and investments into one place, so I can see an aggregated realtime view.  And then, with some fairly simple algorithms, you could start to provide me with advice on how I might better invest or better use my assets.

Now, that’s very easy to visualise and we even have robo advisers in the market today, but we don’t have access to all those account types.  So it relies on me as a customer in and linking my accounts manually, using screen scraping or updating, via some kind of other statement upload service, my current balances, which is clunky and therefore puts off most customers.

By extending from open banking to open finance, we create the opportunity to have these sorts of services in the market.

Similarly, if we think about the impact of the pandemic, right now I would expect there are many, many businesses across Europe and the world who are thinking about their funding model and how they make sure they have a sustainable balance sheet going forward, so they can ride this through and then progress back towards normality.

Again, you would want to have access to all the different types of asset‑backed loans and other SME lending products that are available, so you could pull that together and have a single view for a customer: here is your total position and here is how you could optimise.

And some of the monetisation rules are quite simple.  You could move to a digital relationship manager type set of services, but you need the data first, and open finance is the key enabler of that data piece and then people can build that service layer on top which actually adds value to customers and I am sure we would have many, many ideas as a commercial bank on what to do with that, for example.



Sure.  Because effectively, what you are referencing there is seamlessness.  It is one of these things that has always been talked about in relation to customers, that they can actually access the accounts if there are other things which they want.  It is a painless experience.  But I guess that it is one thing to actually build these capabilities that customers can use, but it is another to actually get them on board, so that they have the confidence to use them and that is a really big thing to tackle.  And how do you go about confronting that challenge?



So we haven’t found this to be a challenge.  Just to give you examples.  At the moment, we offer automated income and expenditure analysis on lending journeys across loans, mortgages and credit cards, across three different brands in the UK.  And more than half the customers who have the option put in front of them voluntarily choose to use the open banking route to automate the uploading to the bank of their income and expenditure from another bank.  And they choose to do that because they trust HSBC, they know that we will use their data in a way that they have authorised and is safe, and we will look at it thereafter.  They don’t want to go through the manual process of uploading information or keying it in, because it is painful, let’s be fair.  And therefore, there is a win‑win.

And from the bank’s point of view, this is also better quality data, because asking Hetal: “How much do you spend, how much do you earn”, is always subject to me making mistakes or just forgetting things.  Who amongst us really knows how much we spend on our utilities?  It is not the sort of thing you keep in front of your mind all of the time.

Whereas getting that data directly from a source which is reliable means that we know we have got full coverage, therefore you can make appropriate recommendations to a customer.  And over half the customers who have that put in front of them choose to do that.

Similarly with the open payments product, which Rune referred to, we are finding commercial customers are really interested in exploiting the opportunity that open banking offers to collect payments from customer accounts.  So I don’t think the challenge really is about adoption; I think it is really about innovative propositions that really add value to the customer.  If it’s a brand they trust, I think they will follow.



It sounds as if you have actually got it right.  You’ve got them hooked in and they are probably wanting more as well, so they are keeping you on your toes, in terms of what you can provide.



I think it helps being HSBC.  Customers do trust us.


Rune, let’s turn this around.  Strategically, how can banks actually benefit from open finance and do they really get just how big those potential benefits are; the difference it can make to the bottom line?


I think there are a couple of ways that banks can benefit.

One is, to me, still very unexplored and that would be monetising the APIs themselves.  The whole regime has been built around not being able to monetise, but I think there is so much potential for building, using next level APIs, where it makes sense to also have banks monetise them; because if they are valuable enough, why not pay for them; right?

One area is extending open banking into becoming something that aggregates any type of account, like investment accounts, as Hetal mentioned, is to me an area where I would be looking for rough share(?) models with banks to enable that through a gateway like mine.  Alone from the fact that sharing this data is also very high value for the one sharing them, right, because if I share them off HSBC, for instance, it might also be that I end up pulling some of the engagement I have in that bank, and of course that has a tremendous value for both ends; so why not monetise the data exchange in itself?  And nothing prevents companies from doing so today.  So that’s one area where you can start to kind of monetise and build an economy around APIs themselves.

Also if you have cashflow predictive analytics stuff in your own tech stack, you could monetise letting that go for others and then put your own loan at the end of it, like a HSBC loan, now that we have HSBC here, in the end of a cashflow prediction engine like that and then let it go on the market, because then it is your loan that is powering that solution.

The other end where I see a strong strategic fit is also what Hetal is pointing to, and that is how you build the solutions, because at the end of the day, we spend a lot of time in the Nordics and also in the Baltics, in Holland and so forth, trying to manipulate the usage from customers and business owners up by doing the quality of the infrastructure so great that you don’t have any issues, you can connect to any bank, you can do any payments and so forth.

But in the end, all that matters is the solution built on top of the infrastructure, on top of these APIs.  If that solution is not trustworthy, if it is not engaging, if it is not providing the end user with any real benefit, people won’t use that.

So if you look to the UK, and remember how big a population is in the UK, but it is many millions, and we just had a celebration of 3 million users on open banking APIs, which is actually not that much.  So I think we will still see a curve going up, in terms of consumer adoption, along with the maturing of the solutions you build on top of these gateways.

And exactly from the Nordics, it is the biggest banking.  In Norway, DNB, they started out building a really nice experience of account aggregation and they did not see much take‑up on the usage part there.  Then they added front and centre the accounts and then allowed people to drag and drop, also aggregated accounts on top of each other to perform payments, and they had a 10x increase on usage for doing so.  So building the right solution is what really matters, in terms of consumer adoption, I think.


And Hetal, when we talk about these solutions, given the ambitiousness of their scope and what they can potentially deliver, not just to the customer but to the banks themselves, it always seems to stray into this question about partnerships; it is unavoidable.  But how should banks actually approach others within the financial ecosystem, if they are going to make these aspirations a reality; and is there a silver bullet?



I would like Rune’s insight on this.

But I think you actually touched on a very important example there, where what seems like quite a small change in the user experience, not in the functional capability, drove adoption.  So we are still at the point, I think, in all of this where we need to experiment and learn from what our customers do and how they respond.  That drives you towards partnerships.  You need to have an approach which is based around experiment fast and fail fast; which doesn’t necessarily suit a classic large regulated bank’s tech stack, because they are driven more by resilience and stability because when you are operating at high volumes, they are absolutely critical features, particularly when you think about payments.

So certainly at HSBC, everything we have done in the open banking innovation space has been with partners, and very little of it has been built on premises; and that has been by choice, so that we can follow that exact philosophy of experiment, adapt, fail fast if needed and there have been a number of prototypes that we have put out into the market, our public domain, and we have then pulled back; not because we are never going to follow up on those things, but because we learned from customers that actually those may not necessarily be the most important things to prioritise right now.  And the spirit of agile is: put at the top of the list the things the customers value most, right now.  And we really are trying to follow that as a philosophy.

And hopefully some of those features will come back, because this may be where I feel we are really innovative and we create value, but the time may be in the future.

So I think there are a few things that you need as a firm to make that approach work.

Firstly, I think you need a slick onboarding process for fintech partners.  Regulated firms do have relatively cumbersome onboarding and due diligence processes for partnerships.  That is so that we can fulfil our own regulatory obligations.  At HSBC we have simplified those, so that we can work more flexibly with fintechs and we can onboard within a few weeks.  And I think that is good.  Could it be even better?  Possibly.  But I think we are good at that.

I think the second bit that you need to have is digital colleagues who are out there, talent scouting.  There are so many truly innovative FinTechs out there in the market.  You have to have people who almost have that as a full‑time job, looking at what is out there, so you can get those good ideas, bring them back to the product owners and then decide which ones you want to progress with.  I think those two things go together.

And the third piece that comes with that is having a clear idea of what your own strategic priorities are.  So we see other firms invest heavily in personal financial management solutions.  We think that is an area of interest, but it was not the first thing on the list.  For us, lending journeys was a real area that we wanted to improve.  We saw an opportunity, and it fitted with the wider bank strategy in the UK; and indeed in a number of other markets.



Hetal, let me just jump in for one moment, because I know that at the beginning of the question, I know that Rune wanted to respond.  So you have heard Hetal’s feelings about partnerships.  What about yours?  Is that something which, do your views tally with his?



Yes, they do, in many ways.  But I actually see this as a continuing thing.  So at one end of the scale you would be looking at how to partner with FinTechs, so partner with banks, depending on who you look at, to provide better services for the banks’ customers.  In the other end, it would be banks looking for distribution in the market.  And I think that is probably going to be the future label of partnering within the banks versus FinTechs.  It is actually all the FinTechs that produce and generate market really fast, they are also a platform for others to engage with.  So if you can be the lending mechanism on the need for certain of these FinTechs or if you can be the provider of the account from where you deal with your payments and so forth, all of a sudden you can stretch your own company goals and have them multiplied by being part of a greater ecosystem than what you can build yourself.

And I think that is what we have seen in most other tech industries happen: that you build APIs in order to become part of a bigger ecosystem that you can build yourself.  And then you start co‑creating the markets together with other players out there, in order to sell more of the stuff that you want to sell, in order to serve more of the customers you want to serve or even to serve non‑customers as well.



Let me jump in for one moment, because I am conscious that time is shrinking; there are still a lot of things I want to squeeze in.  But again, following up on this issue of partnerships, Hetal, have other industries, such as pensions, wealth management, etc, actually seen the value of open finance; and are they fully onboard or is there still more work to do in this area?



I think they are not yet as progressed as the payment‑based firms like credit institutions, banks and other payment firms which were brought into the scope of PSD2.  I don’t think anyone would contest that.

I think there’s lots of activity, whether it is the teaser savings and investments initiative that is in place or the engines dashboard work that is going on in the UK; there’s similar initiatives going on in other markets across Europe.

So I think there is work in flight; but clearly payments started first, thanks to the legal change which prompted that.  But I think that gives us an anchoring point for all those other industries to look at.  It has established what good looks like in many ways and also it has established what not so good looks like, and areas and ways to avoid those pitfalls; and I think that is equally valuable.



Let’s stay with that point, Rune, because we can talk about this, but you do have to ask yourself whether other industries are technologically ready to embrace the initiative because the banks themselves, it took them a number of years to open up their APIs.



So I think on one end they are ready, because they are consuming these APIs from the banks to produce advantages in their own fields.  Pension companies are doing top‑up to account payments, so saving a lot of money on the credit card fees or saving a lot of inconvenient bank transferring by going to net banks and stuff.  They are also doing KYC and onboarding more swiftly by using data from accounts.

But on the other hand, whether they picked it up in order to lift the same strategies, we still have to see.  Many of them are still very protective of the data they sit upon, for many reasons, and they still think that they should build customer fences and tighter customer churn‑gates.  But in reality, the realisation is probably going to be the same, whether it is a loan account or an investment account, that it pays off to open up these things because that is the expectations of the customers and the consumers out there.



Right.  And from your perspective, have you seen any emerging partnerships or cross‑industry initiatives that really embrace the concept and which, from your perspective, really do stand as quite impressive?



Yes, I have seen it in two areas.

One is banks and accounting.  A lot of partnering happens there right now, also a lot of competition, because all of a sudden the accounting systems can do much of the banking parts and then become the primary interface of the banking customers.  But what we see there is the banks teaming up with accounting system providers, even buying accounting system providers in order to present better solutions for their clients and customers; and on the other hand, we see accounting system providers starting to build banking services.  There was a Danish group that recently lent a huge amount of investment capital to build a new bank for doing exactly this.

Another area that is really, really interesting is retail and banking where in the Nordics, we have seen a couple of partnerships appear where retailers team up with banks to provide SCA less payments done directly from your accounts, which is again something you can do on an agreement based, if you do this smart.  And we see them move really fast on these areas.  So in Norway there is a strong partnership between a lot of banks and retailers, already doing app‑based payments directly from your own account.  So I think we are seeing these areas appear and we probably see more of them in the future, especially centred around payments and the movement of data.



So that is something which presumably you are quite excited about, Hetal?



Yes, I think so.  And I think it points to, looping back to the beginning of the conversation, why this needs to be an industry‑led process.  I think Rune hit it on the head when he said there has to be a value exchange.  PSD2 was really quite unusual in requiring firms to build something and then make it available for free.

And if you want something to be sustainable and to keep growing, at some point there has to be a commercial incentive for all parties to do that and I think PSD2 provides a nice baseline of what free looks like and then as you extend beyond that, in all sorts of different directions, you create opportunities to generate revenue or reduce cost or risk and therefore commercially incentivise the industry to do the right thing.  And that is the only way this is really going to, I think, move forward at the pace that it needs to.

And if I think about that, what that pace looks like at the moment, across Europe we are seeing customer adoption broadly doubling every six to nine months.  That really is a very fast growth rate and that could easily be sustained through ongoing industry innovation by both large institutions and small challenger entities, FinTechs or otherwise.  So we just need to have regulators and governments support us in unblocking areas where we might otherwise hit difficulties.  For example marrying PSD2 and GDPR, it is a complicated legal conversation.  There are things that the government needs to do to help us, but I think industry needs to really drive this, so that our customers get the benefits.


That is interesting.  You have actually anticipated the question I was going to ask you about who should actually lead this, whether it should be the industry itself, regulators or somebody else entirely.

But Rune, let’s go on to the question of the regulators, because you can’t exclude them from this conversation.  So look, what do you need from the regulators to drive this forward?  Because yes, the industry is leading the way, certainly from Hetal’s perspective.  But you do need to have the regulators onboard too, without then perhaps the accusation often levelled against them that if they get too involved in things they stifle innovation, so sometimes they can do more harm than good.



Yes.  I still think: look to the UK if you really want that answer.  So active participation of the local NSAs, I guess, is probably the most important part here.  So if you look at the way the CMA acted in the UK and how much they drove forward, together with the banks, together with the TPPs, I think that is what we should be seeing in Europe before we really get to the point where we have a sturdy set‑up with high quality everywhere.  And luckily what we saw yesterday to appear was actually the latest EPA opinion that states that they want the NSAs to be much more active on the local plan.  So they actually put forward a lot of supervisory actions for the NSAs to take, in order to ensure quality and removal of obstacles, and even allow them to start finding banks that were incompliant.  And that is a total shift from the way the PSD2 regime has been led in Europe, where the way I see it is that the NSAs ended up being in a compliance game themselves, trying to just be compliant with what came from the EU, and therefore being a bit passive in the markets.  Now the EU is actually trying to awaken them again, saying that: no, you need to be very active in enforcing these things in the market.  And I think that is a good thing, but still we need the industries to be part of that.  It is not something that comes from regulation itself.



Yes, an interesting point.  I want to put the last word to Hetal.  We can talk about the regulators, but can they really keep up and be across what is happening, because technology is not static.



Well, I think they can actually, and I think the important thing is to focus on: what are the real areas where we need enablers put in place.  For example, the FCA’s recent consultation on changes to the PSD2 technical standards is all about removing blockers that are stopping PSD2 achieve what it could achieve, and that is simply a statement that we now know things in 2021 that we did not know in 2015/2016 when this was all being drafted.  So now that we know those things, perhaps we should change the rules slightly.

And that seems to me to be entirely in the spirit of the legislation and a proactive move.  I am sure many other regulators will follow suit or the EBA will take the lead across the European Union and drive that, which is a good thing.

But at the same time, you can’t regulate for innovation.  You create a framework which enables it, and then industry needs to innovate and there has to be a commercial incentive to do so, there has to be an opportunity to win customer relationships and win customer business.  So there needs to be a careful guiding hand to help all this happen, without trying to force it.  What we learned with PSD2 is: forcing something can take two or three years before you see any benefits, because a big programme of change takes time to deliver.  But we also know that consumers take time to adopt, even contactless took six to seven years to gain adoption, and it now seems like a very simple change.

So you do have to be realistic, I think, in your expectations around how fast customers will adopt; so you need propositions from compelling brands and then you need to give customers time to come onboard.



Okay, a sound note on which to end this conversation.  But Hetal Popat and Rune, thank you so much for joining us.  It has been an absolute pleasure speaking with you.  Thank you.

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