Open Banking: Open Vision or Obsession ?

GROUPE
INTERNATIONAL
DE CONSEIL
Open
Vision or Obsession
Initio Breakfast Club - June 2019
Review Initio Breakfast Club – June 2019

ACKNOWLEDGMENTS
The production of this document and the Breakfast Club Event dedicated to Open
Banking were supported by Initio Luxembourg.
First of all, we would like to extent special thanks to our guests and partners for
participating to the success of the event.
We thank speakers and experts Olivier Brisac, Radu Popa and Pierre Kollen for their time
and commitment. We also would like to thank all those who supported our coordinator
to prepare this event: - Coralie Jeanty, Consultant, Initio Luxembourg; - Diana Cutolo,
Manager, Initio Luxembourg; - Edouard Lambert, Business Manager, Initio Luxembourg; -
Laure Chambon, Manager, Initio Luxembourg and Mathilde Guillous, Associate Partner,
Initio Luxembourg.
Finally, we would like to show our gratitude to the event coordinator Marie-Charlotte
Renaux, Senior Consultant, Initio Luxembourg who dedicated her energy to make this
moment special for both speakers and attendees.
The information presented in this document is the result of the discussions addressed
during this event.

TABLE OF CONTENT
Disintermediation: Should Banks Still Be Afraid?
How Customer Centricity Killed your Innovation?
The Marketplace: An Unexpected Journey

OPEN BANKING
The event started with a little of background and history. Pierre Kollen, Senior Consultant -
Viatys (Square Group) went through the strong historical background of the banking industry to explain
banks strategies and business models as we know them today. He draw a generic picture of the place
they hold in households and consumption patterns.
We discussed the role of banks and how they managed to be the only intermediary in the market being
able to take care of financial matters for customers from loans to deposit, from payments to financial
investments and advices.
But consumption is not a linear science, it has its trends and innovations breakthrough. Indeed
innovation and consumption habits are the main drivers of change in the banking industry.
Society is evolving and its new structure, influenced by new technologies, is changing customers
wishes, needs and expectations. The so called Open Banking wave is a consequence of these changes
but not only. Digitization, high frequency transactions and technology improvements raise new legal
issues that are addressed through the GDPR, the PSDII or MIFIDII which are as many new challenges for
financial corporation to comply with.
These game-changing regulations and consumption patterns could shatter the established business
models and drive massive investments campaigns within financial institutions.
Disintermediation is one of the consequences of these majors changes. If we have witnessed such a
discomfort from financial actors towards disintermediation, it could be explained by the long history of
direct and tight relationship with their customers.
But how could banks take a step back and engage in a journey where disintermediation is serving
their purposes?
Before being a scary term, disintermediation is a useful technique to lean exchanges by simplifying the
chain of actors and cutting non- or less- valuable steps or interlocutors.
Furthermore disintermediation is not new in finance, it already exists through peer-to-peer
transactions such as crowdfunding or crowdlending. It is also used in the bond market when bonds are
issued and bought by investors without financial intermediaries. We closed this introduction with the
recent buzz around Distributed Ledger Technologies (DLT) and blockchain. Blockchain or DLT is a
technology that allows actors that don’t know each other to trade together through a distributed
ledger that tracks all transactions and register them on digital blocks. The ledger is made immutable
thanks to the hash cryptology used to code the information it holds.
This seek for lean processes and increased transparency is fostering disintermediation. From the
customer’s angle, it has many advantages processes are made more transparent and valuable actors
more visible. But indeed, it raises the necessity for companies (or actors in the value chain) to justify
their value and proof that they are bringing intrinsic value.
According to our speaker this is where the challenge relies, banks legitimacy is questioned for the first
time and they have to prove their intrinsic value.
Disintermediation: Should Banks Still Be Afraid?

This race for legitimacy, is also reinforced by regulatory requirement, as per the PSD2 stating
that data shall be from now on accessible by third parties and therefore distress the banking
business model momentum.
Many institutions are reacting to these new challenges by adopting new strategies to compete
into this new open environment. Two most common open strategies to diversify income or
join new ecosystems are BaaP (Bank as a Platform) and BaaS (Bank as a Service).
- The BaaP model also called Platformization relies on the ability of banks to extend their offer
and thus propose a wider range of services (financial and non-financial services) through their
own systems. This strategy could give banks strategic advantages when it comes to innovation
as they do not bear innovation costs but rather invest into strategic partnerships.
- The BaaS model also called Servicization relies on the capacity of banks to become service
providers by industrializing their service access. The main strategic advantage of the model is
the potential of business expansion using third parties as levers to enter new ecosystems.
Observing the market, Pierre noticed that financial actors all face the same findings; on the
one hand, BaaS represents the lost of the direct customer relationship and on the other hand,
BaaP is seen as a great strategy to be agile in a fast changing market. But perhaps they lack
vision upon what could be tomorrow’s banking industry. To encourage this reflection we
could start by thinking ecosytems’ value instead of thinking customer centricity. The perceived
value of the bank could only improve in both models either the bank becomes the meeting
point to many services or it becomes a valuable actor in many different ecosystems.
We discussed the BaaP strategy of Carrefour (famous French mass retail group) offering
banking services and most recently integrated Lydia instant credit offer to its offer. And the
BaaS strategy of Société Générale providing Orange (French Telecom Group) consumers with a
credit offer via API. This helped Société Générale acquire new clients and collects premiums &
fees from Orange Bank branch.
Pierre Kollen then led us to a simple equation, opening our eyes about “the why” banks
should act now and be freed from their fear to lose money, market shares and/or NBI (Net
Banking Income).

He stated as follow:
NBI = (Operating Income + Commissions received) – (Operating Expenses + Commissions
Due)
If we break it down, the operating income is mainly driven by loans and credit rates but they
are both close to their all-time low.
Thus, in order to increase the result of the equation, either banks are able to cut costs and
negotiate with their partners reduced commissions; either they look for new ways to increase
their commissions received.
And so, change their revenue models from an operating revenue model to an API
monetization model. Commissions can be collected through Platformization (third parties pay
banks to appear in their ecosystems) or via Servicization (Third parties pay fees to consume
banks’ services and retribute part of income generated through bank services).
If it’s pretty new in the financial industry, it has been used for years from GAFAM in order to
reach clients outside of their natural ecosystem, lean the user experience and gather data.
Even if we do not work in data management it has been hard to miss the strong appeal for
data and the data driven climate in business. GAFAM and BATX took an edge over numerous
sectors using servicization to reach out to new ecosystems and gather heterogenous services.
Tech giants, such as Alibaba, Tencent, Baidu or Xiaomi have already integrated financial
services into their social networks. Google and Amazon launched their own payment services.
And Apple released earlier this year its latest creation: the Apple Card. These players have
open the path for new consumption standards and threaten historical financial actors.
But it would be a mistake thinking that they are playing this game alone. Numerous initiatives
have been launched in response of these new standards. Some players decided to join forces
to propose state-of-the-art solutions such as Zelle. Zelle is a US-based digital payment
network owned by Early Warning Services; itself owned by Bank of America, BB & T, Capital
One, JPMorgan Chase, PNC Bank, US Bank, Citibank and Wells Fargo.
Others decided to explore digital banking by their own; creating new entities dedicated to
digital banking. New comers also started to make breakthrough such as Starling Bank, Revolut
or N26.
All these initiatives have the ambition to catch up with these tech giants and to adapt to
constantly moving clients’ expectations, even if it means letting others “take care of your
clients”.
The baking model where banks are the “one-stop shop” for financial services should not be
taken for granted but rather earned through value creation for customers.

How Customer Centricity Killed your Innovation?
Olivier Brisac exposed Circle’s beliefs towards triggers of innovation within large
companies. According to their experience, innovation initiatives revolve around two main
themes: Cultural Transformation and Generation of additional Revenues. To support their
clients they decided to focus on the business side, and explore the following areas :
- challenge their current business model
- and identify / evaluate / test / launch new services or activities.
To explore new horizons, they use a methodology aiming at finding the Beyond Business
potential of each company and it always starts with the circle of legitimacy
As experienced entrepreneurs, the founders of Circle find that corporates do not enough
exploit the potential of their legitimacy to launch new businesses
Attention is too often focused on the market and the current customers while development
opportunities mostly rely on the assets and the “raison d'être” of the company.
In order to lead the most accurate analysis and invest in initiatives that are the most likely to
succeed, financial actors should investigate first on their own assets and unique values.
Circle defends that large companies are not taking full advantage of the opportunities offered
by the legitimacy they have built and could get lost in the process of running after customer
centricity.

Olivier offered to present two examples to illustrate the importance for corporation to focus
on their assets when seeking new growth opportunities.
Air France, (French airline company) tried to generate new revenues and attract a new
customer segment. The company noticed that young people were not using their services to
travel and thus Air France decided to create JOON in 2017.
One year later, Air France shut down its low-cost subsidiary due to poor market penetration.
The subsidiary’s target was young customer unable to afford regular flights with Air France.
But Air France “raisons d’être” are high standards offered during flights: high-end Airline, high
quality services, exclusive experience. And JOON was everything but that. The experience
proposed by the subsidiary was so disconnected to the true value of the parent company that
customers denied its legitimacy to offer such a service and furthermore Air France was unable
to offer the service in the correct way.
This too wide gap added to the fierce competition over low cost travels have brought the
company to give up on that market segment.
Whereas, when Amazon created AMS, a cloud service providing more than 90 modules such
as data computation, storage, database, mobile app management and even IoT monitoring;
they chose to leverage on their core business value. They developed a new service based on
their existing legitimacy.
Amazon was a clear global market leader in e-commerce, recognized as the most efficient and
user-friendly website. They entered the cloud market, that was already a “red ocean” by
promoting their cloud solution as the solution that made their success possible. This huge
asset gave Amazon the legitimacy to enter the market and compete with Microsoft, IBM or
Google.
Proof of its success: AWS represents 12% of Amazon’s revenues and 63% of its earnings.
So, yes customer centricity is key! But one should not forget that the customer base is one
among other assets.
Your assets and your “raison d’être” are the corner stones of your legitimacy and create strong
competitive advantages.
To boost your innovation, try “legitimacy centricity”!

And speaking of legitimacy, we moved to the journey Radu Popa, LUXHUB CTO, intended to
share with us.
Founded in 2018 by 4 major Luxembourgish banks (BCEE, BGL BNP Paribas, Banque Raiffeisen
and POST Luxembourg), LUXHUB has quickly become a leading European Open Banking API
Platform. He told us how LUXHUB is aiming at secure the relationship between banks and
Third Party Providers (TPPs) through a service offering that covers an end-to-end experience
for its customers.
In addition to PSD2 compliance, LUXHUB enables its customers to further develop in today's
digital world by notably connecting Fintechs and financial institutions through
powerful, robust and secure API connectivity.
They also did an extraordinary work and met PSD2 sandbox deadline and deployed an
infrastructure able to support 100 million transactions per day. When Radu have been asked
how they reached to respect deadlines, he replied smiling “agile discipline”.
LUXHUB adopted agility at its core, from technical layers to management, by being agile at the
technical level: state of the art development tools and software development lifecycle are
used to reduce time to market and provide adaptability to continuously evolving standards and
regulatory requirements.
The most remarkable was to hear LUXHUB CTO’s wish to export this agility to their partners
and to open the path for a scaled agility.
To bring LUXHIB Marketplace to a more tangible concept, Radu presented two use cases.
The first was abut a Fintech ready to provide their newest KYT (You’re your Transactions)
services to financial institutions, but which has no entry point to reach these institutions.
The Marketplace: An Unexpected Journey

LUXHUB Marketplace’s role is to provide a turnkey solution reducing time-to- market for the
Fintech and a secure environment for banks. LUXHUB is providing the following:
• Legal and regulatory standardization
• Highly secured environment
• 24x7 available and monitored IT infrastructure
• Visibility and promotion of its service
• Billing and Authorization Services
• Access to a large European client base
• Fintech can offer a “validated” integration
The second example shows how banks could turn into service provider using LUXHUB
marketplace to distribute their services and reach new clients through a disintermediated
process. The key of a successful market place is indeed to offer a friendly and effective
environment for all actors of the ecosystem.
In the above outline, financial Institutions are the sellers, they want to publish an Open
Banking API to collaborate with partners and Fintechs. In this case LUXHUB Marketplace is
providing the following :
• Easy and smooth publication of API
• Promotion of Banks’ services on LUXHUB Marketplace

• 24/7 supervision of the exposed services
• Possibility to aggregate services within LUXHUB
• Authorization services and billing
• Mutualizing of maintenance costs
• Collaboration with other banks or Fintechs
Financial institutions are provided with a fast, secure and standardized way to a wide variety
of services to enrich the digital experience of their customers and to find resolutions related
to regulatory and legal issues.
And Fintech find a place where they can publish services in secure technical environments to
be consumed by Financial Institutions and also benefit of dedicated spaces (Corporate
Identity) to actively promote their services.
By helping Fintechs reduce dramatically the time-to-market and giving financials corporations
reliable tools to monitor technical and regulatory requirements, LUXHUB plays a strategic role
for a mass adoption of Open Banking.

“Banking is necessary banks are
not”, Bill Gates, 1994.
Conclusion
Open Banking is not a trend but rather a reality pushed by a need for new profit
models. Neo-banks, online banks and GAFAM are changing the rules of banking business
models and ask the question of bank legitimacy to propose products that are not made out of
the financial economy.
Should banks keep their historical role? Or should they take new directions to offer more and
different services?
But how long will it take for new players or huge marketplaces such as Facebook or Alibaba to
take over and win the race of banking distribution?
If Open Banking is such a buzz word it is because it has the potential to transform not only
the financial market but rather because it comes from new consumption patterns.
Throughout our discussions we came to the conclusion that the key might be to be able to
provide clients with services when they need it. And it turns out that they need them outside
of banking ecosystems. And so, our vision should not be narrowed to Open Banking but
directed to new strategies allowing actors to survive in this changing environment.
Data management, security monitoring and exploded consumers paths are about a new
industrial journey even more than they are about customers journey. What will happen when
identity will only be digital? When PSD3 will set standards to open access about many
different kinds of data? And when neo-banks will have to comply with as strong regulation as
historical actors must?
These questions and the taste for challenges brought our 3 speakers to share their visions and
beliefs towards the future and made this Initio Breakfast special.
Financial services need visionary to open the path for never done before models and
obsessed professionals to execute them.

SPEAKERS
Senior Consultant - VIATYS – Square Group
PIERRE KOLLEN
Senior Consultant at VIATYS, member of Square group, I've been working for several years
with major companies dealing with strategic and transformation issues.
I have also built an expertise on Open Banking and Bank APIzation (Conferences and books
co-writing)
Founding Partner – CIRCLE – Square Group
OLIVIER BRISAC
Serial entrepreneur. Currently challenging the rules of strategy consulting.
Circle is a strategy consulting firm with a strong entrepreneurial DNA.
We help corporates in the challenge of their current business models as well as in the
identification, evaluation, test and launch of new legitimate activities
CTO - LUXHUB
RADU POPA
Works in software development for more than 20 years. Experienced development
professional with software design and solution architecture expertise. Provide executive
leadership as head of development. Telecommunication and financial industries experience
with corporation and start-up work environments exposure. Multi-tier, cloud native and
mobile applications development and operations, user experience design and architecture.
Currently Chief Technology Officer with LUXHUB, the leading European Open Banking API
Platform. LUXHUB enables its customers to further develop their digital presence by
connecting fintech and financial institutions through powerful, robust and secure API
connectivity.

Thank you
We hope you enjoyed your time
with the !

GROUPE
INTERNATIONAL
DE CONSEIL
Disclaimer
The information contained in these documents is confidential, privileged and only for the
information of the intended recipient and may not be used, published or redistributed
without the prior written consent of Initio. The opinions expressed are in good faith and
while every care has been taken in preparing these documents, Initio makes no
representations and gives no warranties of whatever nature in respect of these documents,
including but not limited to the accuracy or completeness of any information, facts and/or
opinions contained therein. Initio, as well as Square Management, its subsidiaries, the
partners, employees and speakers cannot be held liable for the use of and reliance of the
opinions, estimates, forecasts and findings in these documents.

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INTERNATIONAL
DE CONSEIL

Open Banking: Open Vision or Obsession ?

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