Two Speeds of Open Banking in Europe: Why Did the Baltics Embrace It? - Marijus Plančiūnas, Paysera

This talk explores the rise of open banking in Lithuania and its implications for Bulgaria's payment landscape. The speaker discusses why Lithuania has successfully adopted open banking, highlighting the importance of digitalization and the preconditions necessary for its growth, such as governmental support and market demand for cheaper payment solutions. They note the resistance faced from traditional banks and card networks, which can impede the acceptance of open banking. Additionally, the speaker emphasizes the significance of establishing a unified API standard to facilitate smoother financial transactions and encourages collaboration among stakeholders, including regulators and fintech companies, to advance open banking initiatives in Bulgaria.

Hello everybody. So good to go. Good to see you. I know that's a little bit of tricky to know for listen conversations at 4:00 in the evening. Everybody's a little bit of exhausted. I was asked to uh to tell the story about uh Lithuania and about open banking. Why it's so popular and why it's it became popular and how. So basically mostly because well Lethania is a

little bit of crazy country about the digitalization but also we had some preconditions which may exist or not in in Bulcon states. So first of all, I would say that Bulgaria as a country is ready for open banking per se because most of the most clever guys actually are saying that open banking is something which may become very popular in Bulgaria very soon. As we all well

aware, Bulgaria is coming to the Euro zone very quickly uh from the beginning of next year which means the habits of the payments will change and uh you know that will be a change for the for the customers to maybe move out of the cash move out of the card and become more addicted to new ways of payment. So that's what they say. I don't say that

will happen because it may be you know nuances why it's popular and why it's not. So is it working? Yeah. So if you'll take a look and try to decompose what open banking or payment initiation service is is actually a very simple method for the customers for the to pay for their goods and services. So they select a bank, they click to pay, they select an account

and pay for that. That's it. That's open banking. So for some reason that's a simple process is still not popular in Bulgaria. Next thing is that statistically wise at least in Baltic states this is a number one payment method uh compared to Bulgaria I would say the statistics would be other way around you know where you don't have a lot of open banking so I'll try to

very quickly no not taking much of your time to go through the reasons behind why is it so so first of all Pisara as a company is a sponsor of this event as well you all had badges and tickets through Pisa tickets and in general we were very lucky to be the one of the first AMIs even try to adopt open banking or give a little bit

of fresh overview what the payment to open banking is compared to traditional banks so that's pera inia in other countries can be a little bit slightly of different also uh there is a statistical research done then as bigger income for the customer is as more likely they will choose digital payments compared to traditional cash or credit card ones. So this this does apply actually in the regions

in the same country which means that digital is more popular between the either younger generations other highly income other just know that digital is a little bit of man fancy thing and while others still prefer cash. So that may be one of the one of the answers. Another thing is that the you know there is a resistance always for example uh cards mastercard who's a sponsor here

is a bit of tricky to to see actually why misa and mastercard exchanging being sponsors in different events so you know I guess next year will be visa but in general there's a huge resistance from the card network itself they are giving a really good revenues to the banks and also you know it's It's a big network and banks don't want to do that and uh you

know that payment falls exactly to the e-commerce not to the customer. So typical business pays from two to three somebody said it's 7% of a transaction not include the fixed fees. So it's a big amount of money also you know there has to be a precondition for example like government institutions would like to have cheaper payments because say payments may be small for example tickets and bosses

may cost I don't know 15 which means that a credit card transaction sometimes may be bigger than the price of a ticket itself. So there has to be a precondition for that also regulator has to be interested to change that. So these three things may not happen at the same time but if we do have a combination of these type of preconditions highly likely open banking will

start this movement. So that's what happened in Lithuania. So first of all the open banking is a standard but if you roll back 20 15 years ago actually what there was no API there was no banking an banking as per se itself at all. Finex when we invented it they used screen scraping which means basically emulating what user would do in a bank to make transfers clicking

the buttons with a robot. So that was partially illegal and banks complained to regulators saying that can you please forbid that and the regulator faced the fact that they have a choice either are going to kill the fintex which are doing somehow a legal thing or actually use a situation for the advantage and you know push forward the alternative view for the payments themselves. So that's exactly

what happened. So the key barriers is uh key barriers for any innovation to happen is a circle of stakeholders not working together. First of all there has to be a leadership who is doing that. Then it has to be less resistance from the market players which is banks in our case. There has to be like a demand from the business to have cheaper transactions and of course

there has to be unified implementation. So any technology any stand that follows these practices they have to be incon inconsistency then it will happen. So um you know I like cards they are going away from plastics. They are saying now Mastercards is digitalizing everything. I'm not against them. But if you'll take a look at open banking itself actually it's a competitor. The original idea is take away

cards and make payments faster, cheaper, more innovative, secure in that way. So that's the idea of lumping. Now can it be done? Well, that's been done in Lethania. First of all, the content I'm presenting in this presentation, I didn't invent it. I didn't that's not mine. Actually, that's a combination of interviews done with people which are working right now in central bank of Lithuania in a management

board. So, these are their thoughts what happened and why. So first of all they have invented so-called central linking is an intermediate system which allows different fintexs to open banking doors because the you know the sepa swift and other regulations are quite significant in terms of financial requirements. So central link simplifies that and also it actually encouraged uh tax authorities like revenue service to implement open banking

as a payment solution because they can do that. Bank of Lithuania pushed said how about you give that as a payment method to all the citizens of Lithuania. The third third thing actually that they did to shape the opinion of the open banking as a cool alternative method of payment. So they did a lot of talking and also they even invented the standardized approach for the utility

payment. So the bank of lethania was a leader in this particular case which has changed the opinion of other three participants in the network. And these are three guys which I took interview from. I said that's what happens the like that's a quote from them that the banks had a really big resistance on that and that's happening in Bulgaria as well. So if you'll take a look

at the open banking as a standard in every bank you know they'll you'll see that they implemented that just the theoretically it works for them on their computers not for the any fintech if you have one but in general from the history we can see that they resist at the beginning and then they start actually collaborate because the players which are encouraging backing start stealing clients from

them. So that's exactly what happens. So where's the slides? Yes. So this is a very hypothetical figures uh because if you'll take open banking as an alternative payment for the cards, you're talking just taking a fraction of card payments and you know making banks to earn less because the percentage per payment of on PA payment chain services is much smaller. But if you're taking that as a

change of the habits, let's say people instead of using cash and cards switched to open banking, then you're talking much bigger numbers. And that's what happened in Lithuania. So banks actually increased their revenue six times and Pera itself alone actually does bigger figures, much bigger figures than a small bank right now. So it's possible but has to be a little bit of different mathematical because right now

you know the market player says oh they're just getting less money I don't want it. So that's a habit change then the mathematical fundamentals and change. So an example I know that in Bulg in Bulgaria and in Baltic states and in Balkan states everywhere and certain point there's the very popular method of I want to buy something I order it I don't pay for it and return

it. So you know goods first payment later or buy now pay later. It's a typical approach saying that open banking doesn't allow that which is completely not true because in general all participants in the in the in the flow they do get the payment. However, if you'll take a look at the major networks which are encouraging sorry these type of payments, they do have buy now pay

later solutions based on open banking. So the habits will stay. This is an example where the biggest networks inia we're talking about billion companies actually banks like sweat bank like set bank are the biggest open banking providers for them. the ones which were the biggest resistance and you know PC also has one of the networks so that's possible that's possible and you know even the ones which

are against it and also when I was asking bank of lethania like a mangalists what would you change what was the biggest mistake when you're implementing open banking what would you change today so first of all we have to understand that from the European Union uh governance Open banking is not free. Actually, they don't put any charge at all. The cost of the open banking initiation service

is actually decided by country. So, Lithuania and many European countries went through the route that the payment initiation doesn't cost the customer anything. It's free. Now, what Bulgaria can do, they can actually say that will be three cents per transaction. This will bring up the revenue, the missing revenue for the banks, for the intermediate players to everybody. That's a route to go. This is official way. There's

an official program for that. That can be an option. The the way to do that obviously is not that interesting. But at the end, it's profitable. It's profitable for everybody if the old players will decide to go that route. Okay. sorry it's a little bit of slow. So uh Bulgaria as a country may not be suitable for that type of journey because it's kind of unique. Every

country is unique and what played well in Lithuania may not play in Bulgaria or anybody balkcon countries and you know you have to pick up the path which will which was suitable for you. So coming back to the initial thought there are four players which are deciding is the technology good to go or not or first of all is the people themselves are they going to adopt

it are they going to like it I don't second all is actually some kind of innovative companies which like Pacera is using open banking so we are pioneers or somebody said unicourse not exactly unicorns but like close to it maybe also there are there are businesses which would like to make the transactions cheaper because to be honest two or 3% is a lot and of course there

is the regulator. So four players would have to get the courage to work together. Now in reality that never happens. However, these are also a stakeholders. So from the simple project management theory if half of the audience wants something from the legal perspective there's a permission to do that. So we have to get 50% plus one. So you know take FinTex and the regulator and highly likely

you'll get the movement going make events for society you know encourage the businesses again this will get the traction and then others will follow that's a really common approach but that works so this is something we should everybody consider and of course the other combination and this is actually suggestion from the regulator in Baltic states and also from fintech fintech is the biggest fintech association in Lithuania.

One of the famous ones said there's no reason to think that the businesses of FinTech have to drive that forward. It can be an association. It can be a movement. It can be an event. It can be anybody who will take the courage and be a pioneer in the field. Like I said, ideally two stakeholders out of four and that will happen. So where do I point

this in there? Okay. So, one of the one of the ways to do that is actually to use a unified API standard. So, at some point, open banking has decided in Germany that the Berlin standard is the one to be used for the banks to be consistent. Now, BSD3 is coming later next year and highly likely the standard will also be invented. If the banks will agree

to use that standard that will be much more helpful for the open banking to to be possible. So that's that's the key criteria. I think uh I have a mandate from the Bank of Lethania to invite anybody who's interested especially Bank of Bulgaria for the discussion and for the collaboration and to talk about open banking and and share the share the thoughts and maybe exchange experience. An

example would be this event. Maybe next year it will be a double B. It will be Balkcon Baltics, you know, fintech days. Uh, which is possible because Baltic fintex days happened a month ago, which is a combination of Lithuania, Estonia and Latvia working together on a specific journey. So that's my suggestion. Otherwise, thank you very much. If anybody wants a little bit of deeper thought about banking

or questions, you can find me in Perand or after the speech right now or maybe you can ask question right now. So up to you.