PSD2 is now live for 2 months. As we can start to make an evaluation of this new directive and the consequences for the industry, we continue our series of Open Banking Interviews.

This week we had the honour to talk of Marc Lauwers and Inge Ampe, CEO and CCO at Argenta, Belgium’s 5th largest bank. Argenta proofs that you don’t need to be a challenger bank to provide free of charge daily banking. The flip side is that their model is currently under increasing pressure in today’s economic conditions as a bank.

We asked them how they think about PSD2 and Open Banking.

Part XIV of The Open Banking Interviews (see part XIII, with Karel Van Eetvelt, CEO of Febelfin).

The deadline for PSD2 is now behind us. It was a long process where the industry also experienced a changing mindset: going from a lot of reluctance to a quest for opportunities. What was the experience of Argenta?

Marc Lauwers: “The complexity of the implementation process, the technical requirements that came rather late, and the reactive approach by regulatory instances on what could and could not be done didn’t make it easy for us.

Apart from that, we also had to cope with the lack of maturity of partners to provide us with sandboxes. There was a lot of noise and hesitancy about whether certain cut-off dates would be reached or not.

Due to the size of our organization, we are tight in resources. This means that you’re pretty quickly submerged by the day-to-day issues of such a project rather than its potential implications and potential benefits in the longer term.

So in terms of mindset, we have been, certainly in the beginning, a very cool lover of Open Banking without really seeing the added value of it. Gradually we shifted, accepted the new circumstances and went for it. Considering the technical barriers and the lack of a real harmonized landscape today, we see more the investment that PSD2 requires and less the benefits we can source from it. The road ahead of us is still technically complicated and costly."

Argenta asked an exemption on the fall back scenarios on APIs. Not every bank took this initiative. What made you decide to ask for an exemption?

Marc Lauwers: “We asked for an exemption primarily because we were horrified by the idea of having to revert to the solution of obligatory screen scraping. We are a fanatic opponent of that technique and we still cannot accept that some banks adhere to that technique allowing customers to have access to others’ accounts and data.

Screen scraping is the preferred technique of phishers and fraudsters; who try to steal data and money from our customers. The financial sector as a whole should stick to the core message we always communicate with our customers: “Never share your passwords with anybody else”. This also includes other banks.

We see a reputational risk, privacy risk, level playing field risk and legal risk attached to screen scraping. The reason we asked for exemption was that we did everything we could to be ready on time because we did not want to be condemned to use the technique that we are horrified by.”

I see PSD2 more as a starting point. I believe that one day we will be going to a new journey, the one of Open Banking, which goes far beyond PSD2 and also beyond payments. I call it the journey of “Everywhere Banking”. How do you look at this and will this keep banks like Argenta relevant?

Marc Lauwers: “I agree with you that PSD2 will create a new landscape and will gradually integrate other products than just the current accounts.

It seems logical to me that once the landscape is established, there will be a broader user base and broader combinations. And that will create opportunities domestically and internationally.

I don’t think it’s a question of ‘making more relevant” or not, we feel that today we are extremely relevant, but we are extremely relevant because of the proximity and the “love nature” of the Argenta brand.

The challenge we will have is to translate that into this Open Banking landscape environment. Today that’s not our primary preoccupation, because of the reasons we explained earlier.

We are still in the very early stages of creating a real Open Banking landscape, but we do acknowledge this is something that we will have to take into account for our future strategy.”

I think I know the answer already on this one, but would you say that technology is the biggest challenge today in Open Banking or is it more the change that is required within the organization to start thinking differently about the way we will be banking in the future?

Inge Ampe: “It’s not about technique — digitization was also a challenge. The combination of the digitization, PSD2 and the low-interest rate puts enormous pressure on the classic model of banking.

We are moving to a new environment, with new entrants. You will probably have the big players entering the Open Banking arena, much more than Fintechs because they are extremely well-capitalized. So the question will be how to remain relevant, not 5 years from now, but 20 years from now.

I foresee some kind of schizophrenia in a society where you have the digital natives who embrace Open Banking and then the ones who tend to be more classical. We already notice this in our society now, it’s not so much old vs young, but it’s more the “openness”, different appetite, appetite for trust, appetite for the more global, cosmopolitan approach.”

Marc Lauwers: “We are pretty curious to see how the increased attention to privacy will impact the way that Open Banking evolves. GDPR, although it is also an investment nightmare in responding to the requirements of the regulation, has created more awareness on the importance of protecting your private data and on the impact of sharing your data with other parties.

The Open Banking world is a world in which you share your most secret data — your financial situation — with other parties and I’m not sure whether that will not clash with the evolution on privacy awareness. And there, banks can play an important role.

We are still the ultimate providers of trust. The way we can protect that image of a trustworthy partner gives us a head start compared to others in accompanying customers on that journey to more Open Banking. The vision of how it should evolve and what our position would be is not totally clear yet. We have to play along, we will evolve gradually, it will create opportunities. As long as we can keep the position of trust, we can play our role.

That is the mindset we have. But if you would ask the 2500 Argenta employees (1000 in HQ- 1500 in the branches) whether they understand PSD2, presumably only a limited number would answer that question affirmative. Few people understand what it is about and what it can mean. This shows the need for a broader, more harmonized landscape which will allow for faster demonstration of the potential of Open Banking.

In terms of mindset and technology, there has been a very high focus on technology. Only a limited number of people in the organization are truly a mind-set and clearly aware of the potential of Open Banking.

Inge Ampe: “The same goes for the clients. Based on market research most of our clients are completely unaware of PSD2.”

Our survey on 1.000 Belgian consumers confirmed this: not even 3% are aware of what PSD2 is. In Belgium, it is not known and probably it’s not even required as long as they get the advantages and the security measures they need to think about, it’s probably OK. They don’t have to be aware, but they need to know that the opportunities come.

Marc Lauwers: “The gradual uptake of API-connectivity between the major banking players will start to make people aware of the fact that there is the potential to view your accounts in 1 place, but I don’t think that the term PSD2 will be linked to that. At a certain point in time, the technique will become common sense. Once you cross that threshold, you’ll start to see more awareness and more traction within the organizations.”

What I also heard during most of the interviews, is the importance of learning, not only for consumers, not only the ones working in Open Banking, … everyone. They all acknowledged that most people are unaware of what Open Banking is of what it can bring and what the risks are. We are always in it, every day, but we are ones of the few that are probably.

Marc Lauwers: “The sensitivity on what I can or cannot do with the data I acquire in such a manner from a customer is very important. A nice example from a competitor: KBC states clearly in its mobile application “we will use your data to analyze and come back to you with …” That is very clear and transparent. I’m curious how customers will react once they realize that their financial institution is going across different financial institutions’ data to do proposals to them.

I’m not sure all customers will be really happy with that since people often choose to have different banks to keep certain data separated. It will be interesting to see what will happen then. And we’re certainly not on a track where we want to be the frontrunner. We want to see a clear trend before we move…”

In Trends you (Inge Ampe) warned for too much data sharing with big tech companies like the GAFA’s (Google, Amazon, Facebook, Alibaba). Isn’t PSD2 rather an opportunity to better follow up on which data they are gathering thanks to APIs?

Inge Ampe: “In theory, you are completely right, except that we see that not everybody is using APIs, and we see also that when American or Chinese Bigtechs come to Europe, they don’t register in Brussels. They register in other countries where the regulators usually have smaller footprints.

So you do have an issue. In theory, the concept is OK, in reality, it will take the next accident to see the balance between the two.”

Marc Lauwers: “Actually I believe that regulators are naive. When I express my worries about the fact that these parties would be using data in a non-compliant manner, I get the answer that it’s regulated, it’s clear what they can and cannot do.

The GAFA’s have a shaky reputation with regards to privacy, the most recent example being that they had to concede that some of the voice controllers (Alexa,..) were being listened to.

We see that these parties register in countries where the regulator is not heavily equipped for profound checks. We are extremely naive thinking that everybody will abide by the law all the time. We have seen too many examples in recent years that a number of these tech players don’t take things seriously enough. Just because they are capable of escaping it, or because they are capable of paying the penalty without blinking an eye. That is a huge risk.”

About data sharing, I saw a few different opinions during the Open Banking interviews as well, e.g. Bunq asks for more openness from the banking industry, and on the other hand there was Karel Van Eetvelt asked for a level playing field, claiming that the Google and Amazons etcetera should also be sharing more data with financial services. How do you look at that? Are we going too far in financial services or not far enough for other industries?

Marc Lauwers: “According to me, it is extremely strange that if everybody says that data is the new gold, that everybody expects to get it for free.

I don’t agree with that, I have built over 60 years of systems to lock in, to understand the data of my customers and to deliver appropriate services related to that. So if I have to share these data, I would like a quid pro quo.

It should be evenly balanced, and I fully agree with Karel Van Eetvelt on that. Data is not for free, there is a lot of effort made to collect and organize it.”

The more fundamental question would be who owns the data, but as a bank you are also managing the data, you are the entity that needs to make sure that data gets captured, that it is secured, that it is properly managed, and that maybe, at the end, a customer can do with it whatever he wants.

Marc Lauwers: “Again, then how am I remunerated? Because I will have performed a lot of work for the customers’ data. I am willing to share if the customer says so, but there’s still the question of what is the normal remuneration we should get for that. That’s a discussion that is overlooked too easily.”

Inge Ampe: “You invest in an infrastructure to produce reliable payments, which results in data. To do that properly we invest in abundant controls including AML, privacy, … Whatever you have, it’s all about data. When the data leaves the bank, it’s out of our control. We’re heavily controlled. Who is controlling the third parties proactively on a regular basis?

And then there a second question: the one of accountability. The customer agrees you send the data out, but then shit happens. The directive is very clear: it’s the originator banks’ accountability.”

Marc Lauwers: “The bank is supposed to compensate the customer for a loss. Of course, you can consequently appeal to the Fintech involved and ask the money back, but do you reckon that if those guys are in Malta I will easily receive my money back?”

Inge Ampe: “It can understand people claim that banks are very conservative, but there is a reason for that. After all, it’s about our customers’ money, it’s about trust and accountability.”

In case when we talk about the money, I can guess in the case of Argenta it’s probably even trickier than for other banks who can just increase their price. In the case of Argenta for Daily Banking, there is no price. So how do you deal with that?

Inge Ampe: “That’s a question that we need to ask regularly: how do we keep our business model sustainable?”

Marc Lauwers “I have always publicly declared, and will do it now again, that we’ll continue to offer our services as cheap as possible, preferably free, but there may come a day when a free service is no longer an option. We will maintain it as long as we can.

And it’s clear that if the Open Banking landscape becomes the standard, the current model will have to be revised unless we find opportunities to compensate.

I understand that from a philosophical point of view, the owner of the data is the customer and it’s the customer who decides who gets his data and why. I fully endorse that. But I still don’t see the broader picture. How will everybody involved be fairly remunerated for their efforts?

When I think about Open Banking in 2020 and beyond for consumers, what can we expect from Argenta in that respect?

Inge Ampe: “We’re working on the commercial strategy and the budgets now as we speak, so it’s not the right time to go into the details for next years but our approach in 2020 will not change dramatically.

We are a very classic bank, focusing on mortgages, insurance and investments for the private individual and we will continue to do so. We will continue to question ourselves with regards to the profitability of our business model.”

Marc Lauwers: “We follow very closely what happens in the sector. We’re opening up to others through API’s to access to our customers’ accounts, we’re linking with other major players to be able to have the same, and we will monitor the changes of customer behaviour.

I agree with Inge, we will not see a big wave in 2020, it will come later. It will grow gradually and it will take some time before we see how behaviour is starting to change. We will have to take that into account. But it will not be in 2020.”

This story is part of a series of interviews with executives of the financial services industry.

The complete list of Open Banking Interviews can be found here.

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