The rise of integrated finance in the post COVID-19 era

The COVID-19 pandemic has accelerated the digitalization of many major business processes, and banking has been no exception. Although the financial industry’s digital transformation was already a reality in 2019, especially following the entry into force of the Second Payment Services Directive (PSD2), the current health situation and the change in consumer preferences have accelerated the change of model toward a more open banking system.

But what will happen in a post COVID-19 scenario? Will this trend continue when we reach the long-awaited normality? One thing is clear: this new reality is here to stay, and the integrated finance promoted by open banking will be part of this new paradigm.

The need for digital to improve health care

2020 completely changed everyone’s lives, and affected every aspect of our day-to-day lives. The need to maintain a safe distance caused an unprecedented change of behavior in our culture and routines, affecting such everyday aspects as the relationship with money: we replaced physical money and bank cards with contactless, we began to familiarize ourselves with the digital applications of banks to avoid having to physically go to a branch, and we tried to subscribe our mortgage or a bank account online, for example.

Luckily, the pandemic came at a time when the financial industry was undergoing a profound transformation toward a more digital model. In September 2019, the PSD2 came into force. It opened the banking infrastructure to third parties through APIs, introducing new digital services and consolidating the emergence of new players, such as fintechs, which have actively collaborated with banks to offer a better experience to their customers.

This has been resulted in a revolution for the financial sector, and in many countries it has already reached significant levels of transactions. For instance, in the United Kingdom, one of the pioneering countries in this regulation, the number of active users related to open banking applications doubled between January and September 2020, at a pace of 160,000 new users every month. In fact, during their strict lockdown, one in five consumers began to use applications linked to this ecosystem, according to a study by the Open Banking platform. 

In Spain, open banking has also had a more than acceptable response, even for the banks themselves. According to a recent study by Abanca Innova and El Referente, there are already more than 400 fintechs in operation in Spain, 350 Spanish and 50 foreign. 75% of them actively collaborate with companies in the traditional financial and banking sector. And it is expected that, in the long term, there will be greater collaboration between the fintech and traditional sectors.

Integrated finance: is this a new fully digital model?

As we have seen, the financial industry’s digitalization has given way to a new model where the open banking infrastructure is the protagonist. This new ecosystem allows, for example, any company to integrate banking services within its platforms thanks to APIs, and thus be able to access data, infrastructure and banking information, always subject to the customer’s consent.

Integrated finance has advantages both for the business processes themselves and in the service offered to their customers.

• Companies can integrate the information of their bank accounts into their cash flow, confirm that their customers have been charged in real time in their ERP, or automate their bank reconciliation process.
• In the case of their  service to consumers, consumers can make payments directly on their platforms, get credit instantly to finance their purchases or report on the status of a transaction.

One of the most recent examples of this new digital reality is the partnership between BBVA and Uber in Mexico. Thanks to APIs, the driver partners and collaborating partners of the North American company can carry out all their banking operations from their own application. The two platforms are completely integrated, so that no driver will need access to BBVA applications to carry out all their banking arrangements.

A model made possible by APIs

APIs make this integrated finance model possible for any banking service or product. For example, BBVA has a wide range of APIs that allow any third-party company to access all its infrastructure and create applications that are integrated into other platforms.

For example, APIs such as Payments PSD2 allow your customers to initiate their payments immediately and automatically from your own platform; Checkout Financing, which offers an immediate loan to finance purchases without having to leave the application itself; or Auto Loan, ideal for car sales applications in dealerships, since it performs real-time simulations on the conditions of vehicle credit and presents contract arrangements instantly.

These are all examples of how integrated finance is the present and will be the future of the financial industry, in an environment whose regulation favors the opening up of banking infrastructure. An ecosystem in which fintechs and banks go  hand in hand to offer the best possible experience to consumers, especially in such an uncertain environment as the one caused by the COVID-19 pandemic.

Unfinished business: having Spanish consumers adopt open banking

Although open banking is advancing fast as refers to supply, in Spain it is far from being a reality from the point of view of demand, according to a study by Deloitte. This insufficient adoption is largely due to the reluctance of Spanish banking customers to share their bank details, which must always have their explicit consent.

The challenge for both banking and fintechs is to change the perception of many of these users, especially as refers to security and privacy of their data, two aspects that are already included in the PSD2 regulation and that open banking already guarantees. If this change in behavior and attitude is achieved, the growth of open banking and, consequently, of integrated finance, will be much more relevant in the near future.