The challenge of Open Banking

Extract from an interview by Economy.at:

The EU’s new PSD2 Directive requires financial service providers to now provide third-party access to their customers. Economy spoke with Oliver Dlugosch, CEO of ndgit, about Open Banking as a challenge to time-honoured financial institutions, current industry trends and his experience as FinTech entrepreneur.

ndgit stands for Next Digital Banking. Tell us what this means about your company and its business model?

Banks worldwide are already in the midst of digital transformation, making processes much more convenient for customers. In order to keep up with industry developments and not lose out to new FinTechs, banks and insurance companies have to reposition themselves and their services.

To help them, ndgit has developed a platform that provides a technological backbone for connected banking and insurance: Next Digital Banking. Our middleware provides a toolset that enables them to implement new use cases in less time and with greater user optimisation. Empowering everything from banking- or insurance-as-a-service, and the integration of FinTechs to the construction of own branded “app stores” for their customers. With ndgit, banks get the necessary infrastructure to efficiently integrate and manage their own and third-party APIs.

Typically, customers of our platform are banks and insurance companies, while FinTechs and other digital companies join as partners to supply highly optimised and specialised APIs.

Service sectors are particularly affected by digitisation and financial service providers also have to implement new PSD2 Directive requirements. What’s the current status as you see it and what must financial service providers do in order to remain competitive in the future?

PSD2 is an important catalyst for European banks to prepare for the future of connected banking. Digital transformation is forcing banks to question what their future-oriented business model should look like. We have already seen some of these radical changes, unfold in other industries (e.g. Facebook, Google).

From our point of view, digitisation ultimately means ‘networking’. In the future, banks must be present wherever digital business takes place. For the digital customer, banks should be the starting point for all types of financial services, transactions and payment feeds, even beyond classic financial products. Banks have two options to achieve this – as a strong customer interface service provider for digital partners; or as a navigator in an ecosystem of financial services.

Are financial services providers and banks in general well equipped for digital transformation and where do they need support?

Digital transformation has many faces – from culture to suitable future technologies. For a number of reasons, banks find it much more difficult than small agile FinTechs to become digital and move to Open Banking. We help banks implement the use cases that allow them to access the innovations of FinTechs and create real value for their clients. Some examples of our PSD2 expertise have already been in the press, such as our collaboration with BNI in Portugal, UBS in Switzerland and BAWAG in Austria.

Given the IT architecture of larger banks, what fundamental challenges need to be considered?

Banks’ legacy systems and monolithic environments are certainly among the biggest obstacles to the rapid development of new, digital processes. API technologies and micro-service architectures promote the innovative power of banks through their links with partners. With our platform, banks and insurance companies simply connect a wide variety of third-party partners to their infrastructure and let them access standardised interfaces. Our certified gateways provide access and role management for the highest level of security according to banking standards.

Let’s stay with the sensitive topic of data and security. What are the main challenges in the integration process and what role does the new GDPR play?

Both GDPR and PSD2 massively strengthen the consumers’ position because data profiles are no longer considered as the property of the bank but of the user, they are describing. This is a paradigm shift that many banks are unhappy with as it removes their long-standing competitive advantage. Irrespective of how they feel, it is now their duty to share authorised access for account information or payment initiation under the conditions of Strong Customer Authentication (SCA) and customer authorisation from 14 September this year.

Retail bank customers expect new and increasingly personalised services, companies expect new digital ecosystems and customised services; and legislators demand PSD2 compliance. Each of these on its own is a challenge, how will banks cope with them all at once?

In our view, it is by no means a burden to tackle them simultaneously. On the contrary, they are so intimately interwoven that implementing them together makes the most sense. For many banks, PSD2 is an obligatory entry into the new API banking or the ecosystem concept. Here we come back to the need for a flexible API middleware such as ndgit. With it, developers can also react in short cycles to the requirements of their customers and develop new applications or integrate third-party applications much faster.

Our API platform provides flexible access to FinTech innovations, such as account aggregation, personal finance management or automated referrals. Inventions like Data Enrichment and Interpretation and new “Data Insights” lift personalisation to the next level without extra work for a bank. So far, banks have been aware of ‘when’, ‘where’, ‘how’ and ‘how much’ their customers have paid. With APIs, they can also explore the ‘what’ and ‘why’. On this basis, user behaviour can be interpreted and predicted so much more accurate service recommendations can be made. ndgit is happy to introduce banks to FinTechs that provide these value-added services.
With our platform, banks can go even one step further and develop ecosystems for their customers transforming their experience. Imagine the customer initiating a service from their well-known online banking interface, then selecting from a range of partner applications, such as ETF-based asset management or a Robo-Advisor, and being able to use the service seamlessly and securely without re-authentication or re-logging in.

In 2017, together with Hypothekarbank Lenzburg (HBL), ndgit implemented Switzerland’s first Open Banking portal, then won UBS as a customer, as well as numerous banks in Germany. Using HBL as an example, can you explain the most important criteria and project steps for successful implementation?

Right from the start, the HBL project was driven by a strong vision driven by its CEO, Marianne Wildi, who had identified Open Banking as a strategic goal. To help it achieve this, the ndgit platform was connected to the bank’s core banking system to act as the basis for future use cases. This enabled the bank to use ndgit’s out-of-the-box APIs, as well as to develop its own APIs and provide them securely to third parties. Together, we were the first in Switzerland to create the basis for a banking-as-a-service offering.

To implement this, our account and payment APIs had to be adapted and made compatible for the Swiss market. The first beneficiaries were FinTechs like Neon, who got easy access to white-label accounts from the bank, and Sonect which can now access HBL’s customers and offer them their own cash withdrawal service via mobile devices.

ndgit has also won the BAWAG Group as a customer in Austria. What was needed from BAWAG, what is the current project status and what plans are there for the future?

In addition to well-known clients in Germany and Switzerland (e.g. UBS, Credit Suisse and Volkswagen Financial Services), we are delighted that Austria’s customer-friendly BAWAG also relies on ndgit technology. Within just a few weeks, we were able to connect them to our platform and provide PSD2 services and functions – starting with a developer portal for TPPs where they can design and launch new services. Each third-party vendor is checked for the necessary certificates when making their request to the bank and, if the result is positive, is given the approval to access the authorised account or payment services. All transactions are logged and automatically turned into a mandatory reporting for the supervisory authorities and of course, also prepared for the customer’s own view.

In addition to the presentation and installation of products and services, technology is also a decisive criterion for digital platforms. How do you respond to CTOs of large banks, who are anxious about complex integrations with their many different IT systems and SW applications?

In our opinion, our international customer base impressively demonstrates that our technology works for a wide variety of banking systems. It is equally suitable for large and small institutes and also for different degrees of innovation. It’s no surprise that API platforms, such as the one from ndgit, are currently the most popular option for system architects of banks to bring more flexibility to their IT systems. It facilitates thousands of small and highly specialised microservices for many developers simultaneously, thereby helping them to integrate efficiently into their infrastructure. With platforms like ours, banks are decoupling from the constraints of their back-end systems and opening themselves to third-party access.

ndgit was founded in 2016 by you and Florian Pahl in Munich. What was the initial spark for its creation and what experiences followed?

Right from the beginning, our company has been working on Connected Banking technology. From our previous roles in other companies, we knew that API-based middleware was the key to future banking technology and that traditional, monolithic platforms are finally coming to an end. We were particularly pleased that innovators such as Mobile.de (ebay motors in Germany) and Hypothekarbank Lenzburg jumped on the bandwagon in 2017, although it was not yet clear what the developments in Open Banking would mean for their company. Since then we have gone from strength to strength. Last year, we were able to win over twenty new banks for our technology. In 2019, ecosystems and ‘smart implementation’ with the ndgit platform are the innovations on everyone’s lips.

ndgit has also grown rapidly in international terms with new offices in London and Zurich with Warsaw, Paris and Madrid to follow. What are the critical success factors for growth?

Structurally, our agile way of working is very good and above all flexible. Therefore, it’s not difficult for us to adapt to new requirements. As Open Banking is now a worldwide movement (read about its global development in our new whitepaper) there is currently demand for the same talent worldwide. That’s why we, like other successful companies, sometimes have to artificially slow down our growth in order to have enough time for employee acquisition. It’s one of the reasons we are so happy and proud to have already gained so many API and banking experts, with more than 60 now working with us across our various locations.

ndgit is being funded by a prominent international group of investors including DvH-Ventures (D), Capnamic (D) or Profunders (UK). What are your plans for the future and does this include an IPO?

We are currently one of the fastest-growing B2B FinTechs in Europe and want to continue growing with the support of external investors. We want to develop from 60 to 300 employees and further expand our products for Open Banking. As you rightly say, we are already active in several locations and the majority of our sales are international. In the future, we want to open up further focus markets in Europe and also expand into the USA and Asia. Will we go public at the end? We will see!

Finally – you studied economics and social sciences and then worked primarily in communications, consulting and finance technology. What was the initial spark for your path to financial start-up?

For me, it was the role within Ray Sono’s board of directors: In the development of banking applications, my focus has always been on digital customer processes and delivering added value for the customer. With Crealogix in Germany, I had steered the way for a large FinTech where traditional technology led to innovations such as Personal Finance Management and Robo-Advisory for leading-edge banks. When modern API technologies became the new paradigm, it was clear to me that there was a ‘greenfield’ gap for a new company. I had no doubt that open APIs and platforms would be essential to enable banks to modernise bank architectures with faster time-to-market and real innovation. And that’s exactly where ndgit sits today.

Full interview (in German): part 1, part 2

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