1. Open banking- a revolution in the financial sector
XVII MEĐUNARODNI SIMPOZIJUM
OSIGURANJE NA PRAGU
IV INDUSTRIJSKE REVOLUCIJE
Open banking- a revolution in the financial sector
Svetlana Popović
Velimir Lukić
Aleksandar Živković

2. Introduced OPEN BANKING CONCEPT
PSD2 in European Union, November 2015
In CMA: “Open banking remedy” in UK, In January 2018
Introduced OPEN BANKING CONCEPT
development of digital single market
EBA makes guidelines and recommendations on PSD2
Final draft technical standards on the electronic central register (in effect since mid-2019)
Draft guidelines for technical standards on strong customer authentication and common and secure communication under PSD2 (since September 2019)
PSD2 is effective after adoption by the national legislation
24 EU members transposed it into national law
In 3 it is partially adopted

3. Open banking concept
The use of APIs to open up customers financial data to third parties enabling them to create and distribute their own products
After clients approval, EU bank must open up APIs and clients data to third-party companies (fintechs and other financial companies)
Third party providers will gain access to payment data

4. Open banking regimes in the world
UK: Open banking is compulsory
Goal: to promote competition in UK retail banking market and that UK banks become leaders in new technologies
CMA research: insufficient competition between larger banks in retail sector, for smaller and newer banks it is hard to compete
Higher costs for customers
Australia: third parties (other banks, telecommunication providers, energy companies etc.) will get access to data held by other businesses in different areas (financial services, then energy and telecommunication)- from July 2019
Hong Kong: Open API framework-competitiveness and relevance of banking sector, to foster collaboration with TPP, innovative banking services, keep up with international developments
US: industry-led approach
Rise of fintechs in India (mobile wallet segment), Singapore, Japan, New Zealand, Canada, South Korea and Iran
Governments support fintech innovations in financial sector and open banking initiatives

5. Significance of artificial intelligence and API
Use of AI- simple and smarter interfaces, machine learning that would change back office processes
AI is increasingly used in interaction with clients
Integration of bank core functions with
digital platforms to improve customer
relationship management.
Financial transactions will be done through platforms like Uber or WeChat.

6. API software/management companies have an integral role in open banking ecosystems
Banks can’t choose whether and to whom they provide access to their infrastructure
TPP must be licensed by supervisory authority and authorized by customer
Fintechs and software suppliers can offer new or improves services and attach them to existing banking infrastructure

7. Implications for the competition
CHALLENGES
Open banking changes client-bank relationship, clients can simply switch accounts
In focus is how to serve the client the most convenient way, not his loyalty
Open banking is liberalizing financial sector, innovators can lunch services very fast, shaking the market
New technologies are
Lowering entry barriers (cloud)
Opening up distribution (mobile)
Speeding up network effects (big data)
Facilitating collaboration with third parties
New companies are becoming a part of a bank value chain
Beside “traditional competitors” from financial industry, there is increased competition by large IT companies (Google, Apple, PayPal etc.)

8. OPPORTUNITIES
Banks can be the beneficiaries of technology development
Automation, integration and data availability increase the transparency of their activities, and enable more effective decision making
They can became marketplace for different banking and non-banking services
Work in partnership with TPPs to build new business models and offer improved services

9. Benefits for customers
Reduced costs- customers can have control over their financial arrangements- single digital APP enables them to manage their accounts with different services providers
Tailored services, greater convenience, larger choice in financial services
More people will have access to financial services through digital distribution channels
Fintechs are capturing the needs of underserviced clients (lower credit scores, small business, without adequate banking infrastructure)

10. Implications for insurance companies
McKinsey: insurance will shift from current state of “detect and repair” to “predict and prevent” model
Insurers can be a part of financial ecosystem
Use of data from sources like Google, Amazon and Apple
Use of data from any manufacturer of connected devices (cars, smartphones, wearables, medical devices etc.)
allow better profiling of customers, enable customized pricing and prompt services delivery
enables better calculation of relevant risk score for a client
Every aspect of business will change, from underwriting and distribution to pricing and claims
Focus on real-time transacting
AI enables prompt response of insurer on subtle shifts in underlying risks
Insurance policy could be priced and purchased in the real time

11. Changes in insurers business
Open banking enables new income and better client management
Indemnity insurance-for TPPs
Access to payment data gives info about consumer behavior and enables sales of core insurance products with better risk based pricing
Insurance companies can expand their services in payment and account servicing
Usage-based insurance products
Traditional model of “purchase and annual renewal” –”continuous circle”
Insurer is permanently at service to client
Adapts timely to their behavioral pattern and circumstances with offerings
Bancassurance development
Sophisticated analytics of bank data enables timely offers
Offer could be initiated by information on particular event
Relevant debit/credit card or money transfer by customer can trigger offer sent by mobile message or app notification
Insurer can react on data obtained by geo-location services

12. Insurtech- instant need coverage-real time service
Client can insure single item through a mobile app with possible coverage activation and termination at any time
Disaggregation of existing products into separate micro elements
Cost reduction
Enhanced detecting of frauds
Cross checking their customer data records by comparing with bank ones
Automation of processes
Reduced handling costs of claims
Reduced time for processing a sale of a policy
Open banking can trigger reform in insurance regulation