In a period of deep transformation of the financial services industry, Jacques Pütz, CEO of LUXHUB, advocates collaboration between banks and innovative startups. He tells us more about the first impacts of PSD2 on FinTechs and traditional players, and also gives us a glimpse of the financial industry of the future.

LUXHUB has been partnering with many financial institutions in the context of PSD2, building a bridge between Banks, E-money institutions and FinTechs. What is your view on the ecosystem post-September 14 th, 2019?

Let’s first start with the impact on the FinTechs. Some providers already successfully offered account aggregation or payment initiation services over the last years in several countries, notably in France, Germany and the Netherlands. Nevertheless, these providers were not always providing these services in a fully secured way. For instance, their screen scraping method required the end-clients to put their credentials at the providers’ disposal, usually in breach of their contractual obligations.

This is one of the reasons why the European legislator decided to legally frame such services and impose to institutions holding payment accounts to collaborate with these providers, through APIs, in a secure and standardized way. This collaboration obligation does not come alone. Strong Customer Authentication (SCA) also have to be implemented by banks to ensure a higher level of security in their relationship with the end-client. These SCA however represent a challenge for the already existing account aggregation providers who accessed all accounts data in the past, i.e. not only the payment account’s ones. The business model of these providers will thus also need to be adapted to the new regulatory framework.

And what about banks?

Many people thought that PSD2 was only relevant for retail banking. This is not the case. Private and corporate banks do also fall in the scope of PSD2 requirements and thus had to open up to third party providers. Over the last months, we have accompanied these financial institutions in their PSD2 compliance journey and see this investment as a great opportunity for their further development.

This is one of the reasons why we decided to launch «LUXHUB One» last September. This product is helping credit institutions and third-party providers to aggregate a large number of payment accounts through one standardized single API (without screen scraping). This service enables credit institutions and account information service providers to offer aggregation services to their end-clients in a simplified manner. The account aggregation is the first feature of our One API and new services will soon come.

You recently said during an event organized by Silicon Luxembourg that « the business model of banks is going to change » and that « it is going to be a cultural change ». We understand that PSD2 was a first step, what are the next ones?

Most of the financial institutions have been built in silos, year after year. Such constructions usually lead to difficult decision process and slow implementation of these decisions. Their IT systems are built on the same model, meaning that new projects usually have to face this IT legacy.

Therefore, innovation becomes difficult in this context. Several newcomers understood it well and the so-called neo-banks and neo-insurers have rapidly emerged and disrupted the industry codes. Lead by young entrepreneurs, these digital first companies offer a premium user experience to the current generation of digital natives.

Yet, trust and solid business models remain the biggest challenges faced by these newcomers. This is where established financial institutions can actually make the difference, provided that they accept to perform a cultural change and open their doors to new partnerships to build together tomorrow’s financial ecosystem.

PSD2 forced many financial institutions to open their eyes on the outside world. FinTechs and RegTechs wishing to collaborate are flourishing, but the selection, negotiation and connectivity aspects are braking potential collaborations. This is the reason why we are working on LUXHUB Marketplace which will answer these pain points and aim to become the European API one-stop-shop for the FINANCIAL ecosystem.

How do you see the coming months and years?

Given the size of Luxembourg, it is in our DNA to feel European and therefore quickly expand to other countries.

PSD2 is granting account aggregation and payment initiation providers (including credit institutions) the possibility to offer their services all over Europe. Everyone is speaking about the United States and its a huge market of 327 million inhabitants, but we should not forget that our European internal market actually represents more than 513 million inhabitants.

New players will keep on emerging in this European market. There will be room for both allies and competitors of banks, insurance companies and investment fund industry stakeholders. Innovation will be fostered within this ecosystem, to answer more appropriately to customers’ expectations and the always heavier regulatory burden.

There is no doubt that there will be huge changes in the coming months and years and we do believe, at LUXHUB, that collaboration will be the key of success.

« According to 2018 CSSF annual report, banks’ general expenses grow by 6% year-on-year, for an average of 7,3% since 2014. It therefore becomes urgent to build platforms allowing banks to achieve economies of scale via the mutualization and industrialization of regulatory and compliance activities. A great example of such platforms is LUXHUB, created by banks sharing a superior vision and joining forces to address a new regulatory obligation (PSD2). Likewise, ABBL is launching a call for partners to raise funds for the creation of a reporting hub for shared regulatory and prudential reporting services for banks. We at Grant Thornton, are involved in these RegTech initiatives, and we truly believe that relevant categories of service providers (in finance, advisory, IT…) must genuinely collaborate towards the highest value creation for the whole finance ecosystem »

LIONEL GENDARME, Advisory Partner, Grant Thornton Luxembourg

« With the advent of Open Banking, some players concentrate on distribution or product manufacturing, while others deal with onboarding and compliance: every single player therefore needs to find its own place in this new environment in order to help the community grow. There are numerous benefits to collaborating: better absorption of costs, medialization of tech and compliance knowledge, better understanding of customer expectations, improved time-to-market, etc. At EY, we advocate collaboration and we are eager to contribute to the development of the local Fintech ecosystem, which, by definition, mixes ICT and finance. In our opinion, collaborating is the way to go in today’s period of transition »

GAEL DENIS, Partner, TMT and Fintech Leader, EY Luxembourg

« The global economy is rapidly becoming the “platform economy” driven by the so-called GAFAM tech giants. New business models are emerging around platforms that provide many of the products normally associated with financial services (FS), from payments to insurance. To stay relevant, competitive and profitable in a market characterized by agility and low margins, traditional FS players need to integrate valuable ecosystem players on their own platforms especially in an open and dense environment like Luxembourg. We can overcome the “two-speed challenge” of competing with faster and more agile digital natives by investing in their own business agility and partnership capabilities to grow new revenue streams while working on digital decoupling and API first set-up to foster growth potential and faster time to market »

ADRIEN KIRSCHFINK, Managing Director, Banking Lead, Accenture Belgium & Luxembourg

«In a world of uncertainties, with a more and more complex financial environment, there is a need to find new solutions in order to stay relevant, find synergies and increase differentiating factors. Luxembourg has a tremendous expertise and a vibrant financial hub but needs to continue harvesting to progress. A strong collaboration with other actors such as Fintech but also other financial institutions could help in many different ways: mutualize effort and cost on non-core businesses and create new value streams for the various financial industries and especially in the asset and wealth management industries and banking sector. The proximity of actors in Luxembourg (private and public), its international setup are great assets to foster this collaboration. New actors such as “Financial service Hubs” are also entering the market and can play a key role to accelerate the access to technological innovations »

PATRICE WITZ, Partner, Digital Leader, PwC Luxembourg

« With the rapid shift toward open banking and platforms but also in a world marked by lower profitability in banking, it`s essential for banks to consider cooperation between them – sometimes called coopetition – to improve their efficiency and to support their digital transformation. In this space, LUXHUB has been extremely successful, being ranked – after only two years – the Top 3 Open Banking Platforms in Europe. It says a lot about the need to keep investing in those shared services. At Deloitte, we strongly believe in the power of open eco-systems and the collaboration between incumbents and Fintech. In this sense, we strongly believe that LUXHUB has a unique position to build a local champion serving the global market, not only by extending its current range of services but also by entering new innovative areas. This would once again position Luxembourg as one of the most innovative places in the field of Financial Services »

PATRICK LAURENT, Partner, Technology & Innovation Leader, Deloitte Luxembourg

« Collaboration is the new competition. Today’s competitive advantage isn’t driven by the resources you own or control — it lies in the talent, technology and information ecosystems available to you. Remaining agile and innovative in a fast-paced environment calls for new ways of working together, while at the same time differentiating on customer experience. For example, refrigerator manufacturer Refrigerants Naturally recently brought together PepsiCo, Coca-Cola and Red Bull — along with Greenpeace and UNEP — to develop more sustainable refrigeration technologies. However, there’s no room for improvisation when collaborating. Instead, clearly define what you can do together, track and publish your progress and openly share what you learn. The KPMG Hub for Entrepreneurship (KHUBE) brings the very best of Luxembourg’s financial services center’s ecosystem together. We believe that building alliances between Fintech and incumbents, for instance, is the bedrock of offering the right services in terms of innovation, quality and trustworthiness to clients »

PASCAL DENIS, Partner, Head of Advisory, KPMG Luxembourg