Consumer data is the gold of the 21st century. Building on this analogy, one might say the banks are the mines. They know how much we earn, whether we like to purchase online, if we prefer Netflix over Amazon Prime and, most importantly, if we occasionally fail to pay our debts.
Making available this treasure of consumer data to third party service providers has been a hot topic in the financial industry for some time. The revised Payment Services Directive (PSD2), which essentially requires banks to share their data with licensed service providers, appears to be a catalyst in this regard.
The big question is, of course, who will be the big winner of such open banking? Leading figures from the traditional banking sector have been skeptical whether the new regulatory regime may lead to an unfair advantage of service providers over banks.
This asymmetry has been a key topic at this year’s Money 20/20 conference in Amsterdam. If established credit institutions cannot find ways to move beyond their traditional business models, they will lose out on the highly profitable business that can be built on consumer data. Even more, if the gold they hold gets mined by big tech companies flocking into the finance industry, they may soon find themselves confronted with a whole new set of competitors.
It is a real possibility that the lucrative business of distributing financial services will be provided by companies like Amazon or Netflix while traditional banks will be left with the heavily regulated, low margin business of manufacturing financial products.
This challenge has made established institutions look increasingly towards the FinTech sector. Partnering up with startups allows banks to challenge inherited structures and disrupt themselves before being disrupted by others.
The positive news for credit institutions in Europe: the unique combination of the regulatory environment combined with a diverse consumer base makes the continent one of the most interesting regions for FinTech companies around the globe. In short, there are plenty of opportunities for traditional banks as well as newcomers. But now is the time to act.
