With PSD2 now in place, Ioana Guiman, Managing Partner at Allevo, based in one of Europe’s most opportunistic fintech markets, believes banks already have the tools to change their model forever. They just need to believe it
European banks stand at the crossroads of threat and opportunity.
Having fully implemented the technical requirements of the revised Payment Services Directive (PSD2) this month, allowing third-party service providers to integrate with all banks via an application programming interface (API), competition in the marketplace space is wide open.
PSD2 has already brought in a host of new participants. By April 2019, the European Banking Authority (EBA) had recorded 891 payment institutions and 53 account information service providers registered under PSD2. But that’s just the start. To thrive in this open banking landscape, it’s generally accepted that banks must now act quickly and build a robust digital strategy, while also learning how to work alongside, or partner with, these alternative services providers.
That’s proved to be a bit of a mind warp for some established institutions, not to mention a considerable challenge, which is where companies like Allevo have stepped in to help – by providing software solutions for process automation while keeping clients compliant with local and international standards and regulations. Now it’s also seeing an
equal level of interest in its services from non-banking providers which want to integrate with banks over APIs.
Ioana Guiman, a managing partner at Allevo, based in Romania, believes that the prescriptive nature of PSD2 and similar open banking regulation is a big step towards solving one of the core issues plaguing financial services – that of interoperability. She doesn’t mince words.
“We all know that the banking space is a bit behind in terms of serving the real needs of customers,” says Guiman. “Fintechs have shown us how some of the problems can be solved, and it’s high time that banks were married with the functionality unlocked by fintechs to deliver some of these services to customers. I am looking forward to seeing how banks will take a more relevant role in this open banking-enabled space. They have the ability to act just like a fintech, aggregating data on behalf of their customers, and then analysing it to offer automated financing solutions to them.”
Allevo’s modus operandi is helping clients to reuse what they’ve got and open the channels of communication, both between internal processes and with external partners. It’s now busy exploring beyond PSD2 compliance.
“As part of our innovation process, we explore opportunities, turn them into prototypes, show them to customers, get their feedback, tweak them and then turn them into products,” explains Guiman.
A recent example of a product that has emerged from this innovation pipeline is an instant payments solution that Allevo has demonstrated to financial institutions.
“When we work with our customers to deliver a product,” says Guiman, “we make sure that we analyse what their environment is and pick those components that can be reused. If they already have an authentication solution in place, an identity server, or anything of that sort, then why not reuse it?
“I’m not looking to add any new luggage to their carriage, just reuse as much as possible and make systems work together, communicate together, to have an as lean
as possible implementation.”
A maturing fintech hub
Romania is embracing open banking. Earlier this year, a study by Exact Business Solutions revealed that 16 per cent of Romanian internet users currently utilise alternative financial services, with 40 per cent of these users choosing the fintech route because they trust it more.
The Romanian fintech scene is young but dynamic, driven by both local startups – such as Argentum, SymphoPay and Smart Bill – and the entry of foreign fintechs. It has grown spectacularly over the past five years, attracting an equally spectacular amount of investment. In response, many of the country’s banks, such as Banca Transilvania, have rolled out open banking platforms that allow these hungry fintechs to integrate with bank services.
“The fintechs and banks are not in a fight,” says Guiman. “It’s not a comic book story where there are villains and good guys fighting one another. But an interesting point is that many of the fintechs active in the Romanian market are fintechs that are active in the European Union (EU), so any fintech that is passported to offer their services in other countries can offer the same service in Romania, whereas the banks in Romania are not all active within the EU. This raises the bar high, and prompts banks to ask what it is that these fintechs offer, what is perceived as valuable by customer and should they partner with them to offer these services to their customers?”
The rapid adoption of digital banking app George, developed last year by Erste Bank for its regional entity Banca Comercială Română and London-based challenger Revolut, which launched in Romania in May 2018, shows there is appetite for change among consumers, particularly the younger ones.
“George is useful in two ways,” says Guiman. “For the bank, it has this more effective communication channel with its customers and can use it to deliver more services, but it also serves as a tool for digital financial education for its users. The rate of financial inclusion in Romania is very low. In 2017, the national bank reported it to be around
60 per cent but it’s actually even less because there are a lot of dormant accounts. In the Romanian market, you need to find the balance between delivering financial education to people who need financial services, and making sure you have the correct business model.”
Meanwhile, in a little over a year, Revolut, which set out to shrink the world with its borderless approach to transacting, has acquired around 100,000 Romanian customers. Its popularity, according to cofounder Vlad Yatsenko, is due to the fact that the local market hadn’t yet been seriously disrupted, so Revolut became the first choice for Romanians looking for a solution to the multicurrency problem faced by many migrant workers and students.
According to the United Nations, around 3.6 million Romanians live and work abroad. The country has a unique currency in the European shared economy, so there is a friction when working outside its borders. Revolut is providing them with a tool that does just what they need to do – send money abroad, receive money from their families, calculate easy conversions or take cash out when they need to. In 2019, Revolut extended Apple Pay and Fitbit watch pay to Romanian account holders and the company is set to introduce more functions and products, including new analytics and new vaults that can be shared with friends for joint saving. Yatsenko believes that fintechs entering Romania should look to solve specific problems. Like Guiman, he recognises the issue of financial education and inclusion in Romania.
’WeChatification’ of FS
Guiman is optimistic that incumbents will respond positively to such challengers – although the model she predicts banks will ultimately adopt might come as a shock. Launched in 2011, China’s WeChat Pay started out simply as a messaging service but quickly became known as a ‘super app’ for users to not just connect with family and friends, but also to pay businesses from street vendors to large retail chains. Guiman thinks Europe’s banks will similarly become full-service providers for customers’ every transactional need. Indeed, Russia’s Tinkoff Bank, the world’s largest fully online bank by customer base, is well on the way to this, helping customers to book plane tickets, restaurant tables and hairdressing appointments. In the UK, NatWest’s in-Beta app Mimo is doing something similar.
The WeChat model is ’the natural evolution of financial services’, says Guiman. “It is an important trend that we need to focus on. We currently have access to many apps, websites and services that all deliver just one type of functionality. Having all of these services in just one place would make it convenient for me to buy insurance and a valet service for my car, for instance, as well as pay my bills. We would very much like to be involved in enabling banks to offer those types of services to customers.”