As part of the Strategic Plan - A Europe Fit for the Digital Age - the Digital Agenda, published in September 2020 by the European Commission, sets out 4 main priorities:
- Removing fragmentation of the Digital Single Market,
- Adapting the EU’s regulatory framework to facilitate digital innovation,
- Promote data-driven finance, and
- Addressing the challenges and risks of digital transformation, including strengthening the digital operational resilience of the financial system.
Aware of the issues at stake, the banking sector has been taking ownership of digital topics and addressing these priorities for years. It has in fact become a top priority for most of them. If we take a look at the expected benefits from both bankers and clients sides, they are pretty clear. On the one hand (banker), an opportunity to differentiate yourself from the competition via customised client experiences, an increase in operational effciency and security via the use of cutting-edge technologies and finally a new showcase including subscription tools for your products and services.
On the other hand (clients) time and cost effciency, self-care opportunity and an increase in the accessible service range. Now, let’s face the truth, Digital Banking is no longer a “digital topic”. This might sound easy but having a look at what happened on the tech side over the past few years, we can clearly see that the path to full digital banking is now paved with a lot of powerful and reliable digital solutions.
Fintechs’ and digital solutions’ offers have never been so large, the whole value chain is now covered and open finance leads the way to seamless interconnections between the involved parties. Consequently, the question slides from ‘who is able to provide me with a solution?’ to ‘who has got the lead on what?’ and ‘who is responsible for what?’ This situation, where there is no more one single producer but a fragmented ecosystem, highlights risks and compliance issues for the one that is client-facing. No doubt that endclients are expecting this full digital journey but what happens when we start talking about data ownership, data protection and responsibilities at every step of the process?
From our perspective there are 3 main drivers to respond to those questions: transparency, standardisation and regulation.
Transparency: it is now common that for a given product or service, multiple parties will provide different parts. Just like in other industries, if one plays a leading role assuming the global relationship with the client, full transparency on the sub-contract chain is mandatory to define limits and responsibilities. It is of high importance for the end-client to fully understand who will access and manage his or her data and who will be responsible if something goes wrong. Full disclosure and transparency is also participating in the harmonisation of processes between the producers, everyone being aware of who is doing what and, who relies on what to deliver its service. In a nutshell, digital and open finance disrupted the full in-house model to bring what a few years ago we use to call “the best of breed model” back to the fore.
Standardisation: Directly linked to transparency is standardisation. We are all aware that for each new tech promise a lot of differing standards will compete and only a few will survive to finally define the basis the whole industry is going to work on. Don’t get us wrong, we are not saying that products have to be standardised but we believe that tech layers do need it. Standardisation of technologies and protocols is the best way to avoid breaches in service delivery and ensure continuity. In case of a default by one of the providers, if tech layers are standardised it shouldn’t be painful to find an alternative solution but for a full proprietary model it could lead to data losses and service interruption. It is also obvious that standardisation is helpful when we consider audit and controls.
Regulation: when talking about digital, regulation is needed as both a door opener and an enabler for adoption on a global scale. It is important to keep in mind that technology and regulation are not evolving at the same pace. The sandbox approach certainly contributed a lot to bridging that gap for the adoption of new solutions, allowing some kind of “test and learn” opportunity at scale. The role to play for regulation is now much wider and will definitely form the cornerstone and the final piece of the puzzle. Trust, in the end, is not only a question of technology but much more of clear guidance and sets of rules commonly shared by all parties. Simply put, for financial players to move towards and increasingly digital future, it is essential to understand what is permitted by regulation and what is not.
In that area, we expect a lot of guidance from incoming regulations such as AI regulation, the MiCA regulation, the Pilot Regime regulation, and the Digital Services & Markets acts.
This article was originally published in the February 2022 edition of the Eurofi magazine