Wednesday, June 19, 2024

European Banks Must Adapt Now or Risk Becoming Infrastructure

A Nordic pioneer in mobile payments is launching today in the UK and across Europe.

The first fully licensed and regulated financial company to be run 100 per cent on the Google Cloud Platform, Auka builds and operates fully regulated and licensed end-to-end payments infrastructure that connect financial institutions, merchants and consumers. Banks can then license the infrastructure and applications and launch mobile payments products under its own brand, all within a few months.

The launch comes as the clock ticks on implementation of PSD2 (payment services directive) / XS2A (access to accounts). Approved by the European Parliament at the end of last year, the most significant change of this EU regulation is opening the payments system (currently run directly by the banks) to the open market, thereby increasing competition and, as a result, a wider (and more economic) choice for customers.

This isn’t just another piece of EU regulation requiring changes to operations and compliance. Banks and financial institutions are going to have to  offer up their API (application program interface) to third parties.

It is a digital revolution that will completely alter the current banking model and require financial institutions to adapt their business and operating mode. Failure to keep up will result in revenue, currently generated by the big financial institutions, being taken by innovative new players.


So banks are faced with one of three choices: do nothing and accept that challenger firms will leverage customers away from them, develop their own system in house, or buy a fully-functional off-the-shelf package that they can customise to their own needs.

But developing a secure mobile payments platform takes time: it has to be secure, stable, intuitive and something customers want to use. In less than two years, the doors will be thrown open and they will have to compete on the open market if they are to retain control of the transaction chain.

This is where Auka comes into its own. The company, which developed and perfected Norway’s mCASH system, now has 17 banks and several thousand merchants running live on it platform, deployed on a PaaS/SaaS (Platform as a Service / Software as a Service) model.


Its suite of applications can be customised to a bank’s needs, from branding and corporate identity through to real time P2P, Point of Sale (POS) and merchant services. What’s more, this can be turned around in three months; far less time than it would take a bank to create its own platform from scratch.


Auka relies on Google App Engine, a service of Google Cloud Platform, in the backend. Google has been working closely together with Auka from the beginning and together they now work to bring new, innovative payment solutions to the financial industry.

“I’m excited and privileged to work together with the Auka team. They introduce fresh ideas and services to what is considered a very traditional industry in terms of IT. I believe what Auka is doing is very disruptive and a great step forward for the financial industry,” said Otso Juntunen, Head of Google Cloud Platform in the Nordics.

Daniel Döderlein, CEO of Auka, says, “traditional banks are facing a massive change to the way they do business – and how they interact with their own customers – in the shape of the second iteration of the Payment Services Directive” (PSD2).

“Banks need to be prepared to use the Access to Accounts (XS2A) provision within the new regulations to its full extent. It’s not just about complying with requests to provide their API, but building the kind of sticky, high-frequency use services that they can then plug their rivals’ APIs into, ensuring that they are the brand that customers have facetime with,” Döderlein said.

PSD2/XS2A is going to disrupt the market. But with some forward planning, it can be an opportunity to stay relevant.

In Norway, the mCASH system has been deployed by 17 banks that will use the solution to future proof its position for when the changes come into effect. It’s harder to break into an established space than when you all start off at the same time. Banks across Europe need to do the same if they are to retain ‘ownership’ of their customers. The alternative will be costly to them in many ways.

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