Quality over quantity: A vital motto for Open Banking expansion

Quality over quantity: A vital motto for Open Banking expansion

Notching up eye-watering numbers of APIs is not a valuable metric for success. A creeping, deep-rooted growth strategy is vital for successful expansion in Open Banking says Rune Mai, CEO and co-founder of Nordic API Gateway.

Speaking of the Danish Open Banking platform's strategy, Mai says to Finextra Research the intention to-date has been to flesh out the firm's infrastructure on the local markets in a tailored, customised manner.

This may seem obvious, however “it’s not necessarily what we see in the markets right now, even from some of the big guys like MasterCard who tend to focus on the number of banks that are onboarded rather than prioritising a full coverage of the markets which they focus on. That is the approach we take.”

The firm is a leader in the region and became a “financial institution trailblazer” according to Mai earlier this year when it extended its account aggregation service to incorporate account-to-account payments with Norwegian bank DNB.

The platform plans to roll out to 17 European countries during 2020, an ambitious but well-strategised plan says the company’s CEO.

“Of course we want to spread to the rest of Europe, and yes, it’s aggressive to do so. But the goal isn’t impossible or unwise because we’ve done our homework before deciding to move ahead.”

Mai comments that firms need to recognise and reshape their approach to expansion across Europe, crafting customised strategy for each nation. He elaborates: “what’s great about the United States is that it is one big inner-market and the integration process is a lot more straightforward than in the EU.

“While it makes sense for firms like Plaid for example to roll out quickly across the US, I don’t think these companies realise the difference between spreading to 50 states and spreading to 28 countries in Europe. You don’t get a licence for Europe, you get a licence for one country and you can passport that to other European countries but each might have custom regulation or payments laws. This makes it a much more cumbersome task here than in the States.”

PSD2, a help or a hindrance?

A research paper produced by the platform due to be published in March surveyed over 100 financial institutions including fintechs, payments firms and accounting service providers across the Nordics, to explore the impact PSD2 has incurred on the sector since its inception.

The paper’s findings show that we’ve reached the second wave of Open Banking, where the building-out of customised solutions now sees platforms effectively monetising these systems.

Christie Holm Kristensen, CMO, Nordic API Gateway, tells Finextra Research the white paper “shows just how mature the Nordic markets are with their implementation of PSD2. It’s also quite clear that the Nordics are quickly catching up to the UK market and I believe we will soon be the ones leading the way with innovation.”

Mai says the thorny process of rolling out Open Banking across the EU should be a streamlined process. Yet, given the lack of standardisation of PSD2 implementation across EU nations, fragmentation is becoming the norm which is affecting firms’ ability to efficiently expand.

“Because PSD2 was introduced as a directive rather than a clear-cut regulation (like GDPR for instance), diversity of interpretations means firms’ have to account and prepare for a large range of regulatory contexts.”

This inconsistency also ties back to the quality issue of ramping up large API onboarding figures without necessarily building out robust infrastructure in each country.

According to Mai: “Open Banking platforms should be limited in the amount of API’s they are able to onboard until they have fully matured the initial APIs successfully.” In this way the speed and the quality of APIs would be standardised across the EU, guaranteeing a robust infrastructure rather than just hoping for one.

Is Nordic API Gateway’s success purely a result of a welcoming and well positioned birth-place in the Nordics?

The Nordics are renowned for their innovative payments infrastructure. The pioneering P27 project, for instance, is set to revolutionise the region’s payments landscape with instant transaction flow between people and businesses within Denmark, Finland and Sweden.

Mai believes that innovation only goes so far, and solid groundwork needs to be undertaken prior to onboarding: “I think that’s where we differ from many providers. Because we didn’t hurry out and try to onboard across 20 markets we are not stretched too thin.

“You might have a thousand APIs on your open banking platform but if you don’t cover any market fully, what value does those APIs have for the companies implementing open banking solutions? We spent a significant period of time in the Nordic markets ensuring that all the banks’ interfaces were matured and of productive value to the end user.

“We could easily onboard all nine banks in the UK in two months, or the entire French market in one month, but that wouldn’t be a valuable strategy in the long term. We realised early on that if we stretch out too fast and only onboard a couple of major banks on our API platform in each country, we will be spread too thin.”

Mai draws on an analogy to illustrate the point: “Imagine if we were a telecommunications company building out the relevant networks and infrastructure. Say we moved to Germany and provided only 60% of the country with the requisite communications cabling. The consequence would be that in more or less every second German city I would not be able to use my phone.

"In the same way it would be for telcos, to try and provide effective Open Banking services to just a portion of a new market is an unfeasible and impractical model.”

This is particularly concerning to Mai who foresees increased competition in API aggregation working to marginalise current base income. Premium APIs will become the new method of product differentiation and Mai is adamant that in order to remain competitive firms like his must be positioned to give banks access to further functionality which cannot be done on immature, hastily built infrastructure.

What’s more, if (as Mai believes) loyalty and automation across payments will dictate trends in the space, developing reliable rails to deliver these technologies is essential.

Despite its plan to expand across Europe, Mai plans for the Nordic API Gateway team to grow from 58 at present to just 90 by year end - topping out at 140 in a few years’ time: “I’ve always believed that if you want to do something effectively, you have to stay small and nimble.”

Opting out of accepting VC funding, Nordic API Gateway preferred strategic investment from the Nordic banks (Danske Bank and DNB) which allowed the firm to develop “fully-fledged” infrastructure across the Nordics. The approach has worked well for the platform, which now covers 99% of personal, business and payment initiation access in the region.

Comments: (1)

Andrew Smith
Andrew Smith - RTGS & ClearBank - London 28 February, 2020, 11:31Be the first to give this comment the thumbs up 0 likes

Obviously i am a big API first fan. I believe in APIs and their ability to bring systems together, however, i don't believe we are using them in the correct ways with PSD2 or the UKs slightly broader adoption of Open Banking.

We cannot expect thousands of companies to alter their systems to leverage banking APIs, even if they are starting to lower the number of APIs used via gateways or aggregators (TSPs). The issue is that the build cost, the cost of maintaining that API connectivity and service, maitnenance, patching, re-engineering to move forward with the standards or underlying tech just don't make economic sense. The value of the PSD2 API is that is must run through us as the individual customers, we are the glue that bring together companies with our own banking data and accounts. Only when we recognise that, do we see far simpler APIs, only then do we see customer first business models and only then do we see mass adoption as the entire ecosystem can expand rapidly at minimal cost.....