The banking industry is facing major changes at the moment. The younger generations of the social media era, especially Generation Z (born in the late 90s and early 2000s) are expecting and demanding advanced services from payment service providers and other financial actors, meaning that particularly the traditional high street banks are having to work harder to keep their young customers happy.
For example, services like banking applications are directly compared to social media applications, meaning that they are expected to be real-time and rich in content. New, more diverse fintech players, blockchain solutions and start-up banks are also creating all kinds of new expectations – and opportunities as well – that traditional players have to take into account.
Also, regulation is changing the banking world: the PSD2 Payment Services Directive, which comes into force in September 2019, obliges banks to open access through API’s for third parties to clients’ account data, if the customer so wishes. The purpose of this directive is to improve consumer rights and to enhance competition in the banking sector, thus diversifying the range of services offered to customers.
Pioneers in open banking
Even though open banking has not been discussed much in public in the Nordics, this region has been pioneers in Open Banking. Here, for example, many banking applications are much more advanced than elsewhere in the world: e.g. Danske Bank offers a banking app from which it is possible to operate several banks’ accounts.
Also, many major cloud providers are investing heavily in the Nordic countries, a clear indication of the rise of new services. It is also clear from discussions with several major financial players that the required co-operation capacity in the Nordic countries is particularly strong compared to other European markets.
According to the Finextra white paper “Interconnection and the Speed of Change in the Nordics” published earlier this year, traditional banking in the Nordics needs to quickly adapt and become more agile ahead of regulatory change and the new P27 initiative[i].
Owned by the major Nordic banks – Danske Bank, Handelsbanken, Nordea, OP Financial Group, SEB and Swedbank, P27 will replace existing infrastructures with a real-time and batch multi-currency platform – enabling a cross border instant payments system that individually each country would struggle to create.
Source: Interconnection and the Speed of Change in the Nordics, Finextra
Banks are moving to the cloud
The creators of the new open banking products and services typically turn to cloud applications to build and deliver new banking products and services. Clouds offer a low-cost entry point and a breadth of technology services for software developers to build their services on.
For example, the Microsoft Azure Marketplace already has more than 150 open banking applications, and Amazon Web Services and Google Cloud Platform are also already running hundreds of applications. Thanks to the technological advancement of cloud services, more and more open banking services are truly multicloud solutions.
In practice, this wide cloud utilization also means that traditional banks will need to make greater use of cloud technology in the future and build connections with cloud services and cloud partners and service providers. In this way, they can meet the expectations of new generations.
The Perfect Storm
In fact, according to the Global Interconnection Index (GXI) volume 3, a market study published by Equinix, Banking & Insurance is at the forefront of a perfect digital storm, as fintech, cybersecurity, data compliance and new competitive ecosystems created by Open Banking and initiatives such as P27 converge. A force multiplier effect results in interconnection installed bandwidth capacity forecast to grow in Europe from 53 Tbps in 2018 to 387 Tbps in 2022 – an increase of 63% CAGR, as the industry rapidly transforms.
Banks and financial services companies can use Equinix Cloud Exchange Fabric™ (ECX Fabric™), built on Platform Equinix®, to make their open APIs securely and easily accessible to partners worldwide, no matter how they connect, meeting a key PSD2 requirement. Fast, agile ECX Fabric interconnection with the ever-growing cloud-based open banking ecosystem speeds time to market and gives banks the competitive advantage they need.
Already, more than 1,250 financial services companies, from traditional banks to fintech, choose Equinix as their onboarding ramp to the major public clouds, including AWS, Azure and Google Cloud Platform, which all have a physical presence in Platform Equinix data centers. Our global data centers provide our customers and partners 99.9999% reliability for resilient multicloud access.
Read the ‘Interconnection and the speed of change in the Nordics’ whitepaper by Finextra and Equinix to find out more on the changing face of the Nordics Finance Industry and the P27 initiative.
 P27: Working together towards a Nordics payment area, Nordea, 2019