It has arrived. The European Union’s revised Payment Services Directive, or PSD2, came into force on 13 January 2018. The regulation will push retail banks to open up their customer data, and Sweden could have a good head start.
“A UBS study [Open banking & PSD2: more margin cuts?] says everything we expect to happen post-PSD2 is already been happening in Sweden,” he says. “In some markets, people are now debating whether they are really going to allow third-party service providers to aggregate data. We had the same discussion in Sweden five years ago.”
The debate stems from PSD2’s requirement for banks to grant third-party providers access to account and transaction data. This will open the door for non-banking firms to build services on top of existing bank data. These services will include paying bills, managing budgets and comparing mortgage rates from a mobile app provided by an organisation other than a customer’s own bank.
In Sweden, Tink is one of the companies already enabling this. In 2013, the startup launched aggregation technology to collect bank data, such as account details and savings rates, from multiple sources, and built into an app. The company says it has 500,000 users in Sweden and its technology is used by Swedish banks such as Nordea, Nordnet and SEB as part of their mobile offerings.
“Technology, together with consumer demand, drive the market, not PSD2. But in some markets a lack of legislation has stood in the way of the consumer movement,” says Kjellén. “In other markets, like Sweden, there have been aggregation services for a number of years. Still, PSD2 can take away some of the risk [for new services].”
Banks as data pipes
At the core of PSD2’s open data requirements are application programming interfaces (APIs). While many banks already use APIs internally, they are now taking steps to make them externally available. Nordea has been among the front runners in this movement, with the public beta launch of its Open API developer platform in December 2017. Others, including Danske Bank in Denmark and Finland’s OP Group, have similar services in closed pilots.
Artificial intelligence technology could help banks retain the important link with customers when open banking arrives in Europe.
The question many ask is, what happens to banks when they lose the exclusivity to their data? Kjellén says the Swedish market has already provided some answers. Thinking of banks as data providers would have been unheard of in the country five years ago, but today banks increasingly consider data as a new potential business channel.
“In some cases, it will be very beneficial for banks to be linked to the product providers. It will definitely happen to some extent, and banks are providing data pipes to products,” he says.
Consequently, the most significant impact Kjellén sees PSD2 having in Sweden is the growth of competition. Traditionally, banks have had very similar offerings across different customer segments, but PSD2 is forcing them to re-evaluate their strategies.
“With tougher competition, banks need to target the segments they want to win and have a laser focus on how to win that segment,” he says. “I believe 50% of the current market [in Sweden] will change their financial products in the coming three years, and this is a conservative estimate.”
Driven by the fintech boom
But PSD2 and the digitisation of banking aren’t only about competition. Swedish banks are increasingly turning to startup and fintech companies to learn about new technologies and tap into new services.
“Banks are partnering with startups and buying services from startups, but they are also investing. We see new venture funds managed by banks,” says Kjellén. “This is one way of going forward. Not for all technology, but for what banks consider may become their core technology.”
“In some markets, people are now debating whether they are really going to allow third-party service providers to aggregate data. We had the same discussion in Sweden five years ago”
Daniel Kjellén, Tink
And banks have plenty of fintechs to collaborate with in Sweden. TechEU’s 2015 fintech study placed the country third, behind the UK and Germany, for the amount of fintech investment, despite its population of under 10 million. In 2016, the Nordic Web estimated almost two of every three fintech investments in the Nordics in the past two years was made in Sweden.
Kjellén identifies several drivers behind this Swedish fintech boom. There is Stockholm’s thriving startup ecosystem and a sizeable digitally-savvy consumer base willing to trial new digital banking services. For example, six million Swedes use the country’s mobile peer-to-peer payment service, Swish.
BankID has seen similar success in Sweden, bringing third-party providers the same level of banking-grade identification across mobile and online platforms. There are also several established fintech successes, such as payment providers iZettle and Klarna, which have grown into major financial services players.
It is a combination of these factors which have contributed to Sweden’s readiness for PSD2 and advances in the digitisation of banking, according to Kjellén. “I think Sweden is at least three years ahead [in banking digitisation] compared to other countries,” he says.
