IIF Authors

Status: Will be live at 07/06/2017 00:00

Hey Siri, Find Me a Mortgage

Thursday, July 6, 2017

We were in Copenhagen last week meeting with members and hosting an event with Finance Denmark called "The Digital Agenda in Banking".

We continue to see technology reshaping financial services across all regions of the globe. Cloud computing, mobile, machine learning automation, and an accompanying geometric growth in data are drivers of change. They have collapsed cost barriers to entry for fintech while creating huge network and scale advantages for global digital platform companies. In contrast, many banking and insurance firms are still hampered by cumbersome legacy systems and regulatory requirements which limit their ability to keep pace in data use and aggregation.'

European banks, in particular, are experiencing a convergence of challenges as these global technology trends accelerate, new EU data regulations enter into force, and banks' business models continue to come under pressure.

One change on the horizon is the EU Payment Services Directive II (or PSD2), which is scheduled to come into force in 2018. PSD2 will require banks to open customer account and transaction data to third parties via open APIs--publicly available Application Programming Interfaces that provide software developers with access to proprietary applications or web services. With global digital platforms and technology trends intermediating bank relationships with their customers, the command "Hey Siri, find me a mortgage" is not so implausible and could evolve quickly.'

Another example is the General Data Protection Regulation (or GDPR), which imposes rigorous requirements for banks to protect customer data, with stringent penalties for those who fail. These new regulations come on the heels of MFID II-the EU's Markets in Financial Instruments Directive II-which is proving to be a wide-reaching challenge for product and client reporting requirements. '

On top of these policy changes, low interest rates and post-crisis regulatory reforms have put additional pressure on European banks' return on equity while, at the same time, the cost of equity capital has risen. This makes investing in new systems difficult for some banks.

The challenges are clear but the push to build compliant data systems could be a catalyst for dramatic digital transformation of the banking sector. Creating platforms that support new services such as secure digital identity management and authorization could be essential in an economy where data has primacy and where Google, Alibaba, and others are moving fast.'

This kind of transformation could set up for an exciting future of finance and some of our European members are leading the way.'

  • Nordea is focusing development engineers on core data capabilities, opening up third party development portals, and moving staff into fintech incubators to accelerate their digital innovation and partnership ideas.'
  • Erste Group has created BeeOne, a joint venture development company, which is thinking like a fintech by developing George, their new app that integrates all of a customers' financial data from all providers into a single experience.
  • mBank in Poland has shown how getting the mobile channel right can fuel rapid growth.
  • BBVA is building new digital identity capabilities in a venture called Veridas and announced their acquisition of Cobalt, a cloud identity service provider, at Money 20/20 Europe last week.
  • Caixa is incorporating new talent and capabilities in AI and blockchain into their organization.
  • UBS has adopted remote video on-boarding and authentication solutions, meeting a new standard for customer experience.'

These examples point to the ability of the industry to develop valued new capabilities in a changing digital marketplace. Moving forward, we must ensure these firms, as well as others around the globe, have the right regulatory environment to harness the power of fintech and regtech. We look forward to continuing to work with regulators and policymakers to ensure technology can help improve compliance and risk assessment and meet customer needs, while allowing institutions to help drive economic growth and job creation.'