Open banking allows users to see their bank accounts from different institutions--in one location. These accounts can even be in different countries. Fintechs like Revolut or N26 have become quite successful. But in Luxembourg, it’s not used as much as one might expect it to be.
Slow to take off
The United Kingdom was on the “forefront” of open banking--“they had already open banking when we were just thinking about open banking,” said Fred Giuliani, head of information technology at Spuerkeess. “The first lessons we already had from the UK was that it does not take off very quickly.”
Here, too, “it has not taken off as fast as most people thought it would be,” he said. “I take the example of Spuerkeess: we offer our customers that they can access their accounts in all major retail banks in Luxembourg, a lot of banks in France, Germany and Belgium. And it’s something that customers use, but it’s not 20% of the customers that use it. It’s some customers using it.”
When asked about an approximate percentage, Giuliani answered, “It’s definitely below 5% of customers really using it actively.”
Why? This seems rather low, for something that could be quite useful. “That’s a good question,” said Giuliani. “But it’s a question that has to be asked to the customers, and there might be different things into it. The first one is: how usable is it?” For now, a customer must “recommit” their authorisation every 90 days. “Suppose I am a Spuerkeess customer. I want to view my accounts I hold in a French bank. Every 90 days, I have to give my consent to that French bank again.”
“That’s the first hurdle. It’s something which is built into the framework,” said Giuliani. Even if it’s just two clicks, it does take some time and presents a “minor blocking point.” The second hurdle is that, for the moment, “it’s limited to payments accounts, and it’s limited to payments,” even though banks do other things. The law limits it to those two categories.
Anne-Sophie Morvan, head of business & legal affairs at Luxhub, an open banking API platform founded by Spuerkeess, BGL BNP Paribas, Banque Raiffeisen and Post Luxembourg, echoed the payment services feature of the directive. “The only data that can be accessed are payment account data,” she said. “You don’t have in the scope the saving accounts, you don’t have the securities accounts.”
Developments in open banking
Things, however, are moving forward. Spuerkeess, for example, has developed a product called Mytax, in cooperation with a fintech--Vireo. Completing a tax declaration isn’t always easy, so Spuerkeess offers customers the possibility to “pre-fill” their tax declaration. Using available account information, the wizard helps by putting the correct information in the correct place. “So there are some successes,” said Giuliani.
But are the benefits just for clients? What about benefits for banks? “The benefits we take out is that there are fintechs, and they have brilliant ideas,” replied Giuliani. “And those brilliant ideas, those products they create, those services they create--they will of course be an added value for our customer. And if we can deliver the product to our customer, then he might stick more easily with us.” The idea of “increasing competition” therefore does work--not as well as the EU initially thought it would--“but it’s bringing first effects.”
I think open banking is here to stay. And it will expand. And it will go beyond what is imposed by legislation.
Besides developing a platform on which banks publish APIs, Luxhub also provides payment initiation and account information services. The company received an award in November 2022 for helping a large company to initiate payments from its internal software. “Now they don’t need to go to the web banking to initiate the payment, they can do it internally via their internal software,” said Morvan. “They use it, and they can directly initiate the payment via us [Luxhub], whatever the bank behind.”
Then is the use of open banking in Luxembourg increasing? For Morvan, the answer is yes--it is increasing.
“I think open banking is here to stay. And it will expand. And it will go beyond what is imposed by legislation,” declared Giuliani.
Shifting towards open finance
“The European Commission is also thinking about open finance. So really opening the finance, as it has been done with open banking--opening up the data, the financial data,” said Morvan, who is also a member of an expert group at the European Commission on open finance and data economy.
There are many points to consider when preparing legislation on this subject. “When we speak about financial data, it’s not only banking data. It might also be insurance data, it might be data related to investments. So it’s far broader.” Topics include the scope of the data, how the data should be protected, who is liable, should data be standardised, should data be monetised?
“For open banking and open finance, in principle, we will have a proposal to review PSD2”, the EU rules that facilitate open banking, “and a proposal of an open finance framework by the end of June 2023--so in less than six months,” said Morvan.
Open finance allows more and more interconnection between services. Banking apps in other countries, such as Belgium, allow clients to buy metro tickets or change electricity providers, as detailed in a conference on banking priorities hosted by Deloitte in January.
In the future, Morvan hopes that access for consumers, as well as provision of services, improves. “If you go to our platform, you will see that we have Baloise, for instance, that is one of the first actors nearly in Europe to really publish an API to enable the interconnectivity between banks and insurance.” It’s an interesting case, Morvan pointed out, where an insurance company is creating a product that is “complementary” to a banking product.
In November 2022, Luxhub also announced a new partnership around the collection and processing of custodian data, available to insurance companies, through the Custodix Hub. “Today, there is a huge challenge, that custodian banks have various formats to provide data. And for life insurance companies in the wealth sector, it is really a challenge to retrieve the data,” said Morvan. The partnership with Vermeg allows life insurance companies to retrieve data in the format they desire.
“Having the possibility to access data more easily--to me, I consider that it’s going to change our life,” said Morvan.
Key to increase awareness around open banking
A challenge that is not necessarily linked just to Luxembourg, said Morvan, relates to the democratisation of open banking--raising awareness and making sure that people really know about it. “This is a problem that we see all over Europe,” she noted. “In some countries, the concept of payment initiation or account aggregation was, like, absolutely normal--everyone knew about it. Whereas in other countries, it’s completely new.”
For countries where it’s new, there’s the challenge of making sure people understand what open banking is. Therefore, Morvan suggested, there should be campaigns to explain the idea and raise awareness.
This article was published for the Paperjam+Delano Finance newsletter, the weekly source for financial news in Luxembourg. Subscribe using this link.