The European Union’s Revised Payment Services Directive or PSD2, due to be implemented in 2018, is touted as the answer to all our banking ills, shifting power into the hands of consumers. Here are five ways it will affect our lives
01 AGGREGATED SERVICES
The ability to see all our financial life in one place is one of the top five most valued fintech concepts, according to a survey last year from CGI, the IT and business process services company, which found that 61 per cent of global consumers identified personal financial management as a highly valued service.
That will be music to the ears of some already providing these services, such as Moneyhub, which brings current accounts, investments, assets and borrowings altogether into one place. But the concept will grow with the arrival of PSD2 and open banking. Apps that can show your net position at a glance – the digital equivalent of a spreadsheet, but without the need for you to update it – will be supplemented by apps offering digital comparison tools. No more laboriously entering your age, gender and speeding fines several times over to compare car insurance, for instance.
Couple that with algorithmic artificial intelligence and it won’t be long before there’ll be an app constantly looking for products right for you, such as a cheaper credit card or a better energy deal. Add in a few parameters of your choice and you’ll soon be getting a notification that your shares have reached the right price for a sale. Such services are already available, but not all in one place.
02 BANKS AS RETAILERS
“Banking,” said Bill Gates way back in 1994, “is necessary. Banks are not.” His words are about to come true. Whatever goes on behind the screens in terms of the regulation, consumers will no longer separate their financial services from the rest of their life.
Facebook, which launched Facebook Payments a couple of years ago, is not the only disruptor that knows which way the wind is blowing. Research from MuleSoft, an application network company, found that nearly a third of UK consumers would consider using Amazon, Google or Apple as well as Facebook for banking services.
“There are a lot of consumers out there who aren’t happy with their experience of banking, especially on the digital side,” says Danny Healy, MuleSoft’s fintech expert. “They are changing the way they think about their finances and don’t think a bank has to be in the middle of a transaction.”
Instead, consumers will access financial services from whoever and wherever is most convenient, blurring the lines between different industries. This could prove a goldmine for retail, which could end up with unprecedented access to the financial details of its customers, making it easier to create appealing products and services.
03 PERSONALISED SELLING
Open banking works both ways and a company that can see everything you do can design highly personalised offerings. For some people, this might provide wider access to financial products. Credit scoring, for example, can currently be a very blunt tool, but the better the intelligence, the more refined the service and the more options a bank can offer.
According to Neil Tomlinson, head of UK banking at Deloitte: “Banks have the potential to create new sources of revenue and new, highly tailored products, services and solutions. It is this personalisation that will create a deeper and more engaged customer relationship that banks hold the key to. Incumbents are starting from a position of strength with their established household brands, existing access to current customers and expertise.”
A more personalised experience was cited by 47 per cent of respondents in a CGI survey as a valued concept. No one bats an eyelid when Amazon uses our buying history to suggest a book we might like and why should financial services be any different?
But it could be a double-edged sword. Let’s face it, companies have to turn a profit and cross-selling more products to consumers has long been an easy way to do that. Open banking could make it a whole lot more effective.
04 DIFFICULTY OF REDRESS
Open banking adds a new layer of complexity to services that are already buckling under the weight of legacy systems and creaking infrastructure. Most banks will be looking to form partnerships with sassy young fintech companies or experienced retailers, but the regulation around financial services is failing to keep pace with the blurring of boundaries between industries.
What consumer protection is in place to cover an aggregator who misrepresents an individual’s financial position and so limits that person’s financial options? Whose responsibility is it if your financial data is exposed? What happens if there is a conflict of interest? How about IT glitches or indeed system crashes?
“I would question whether the banks are ready for that,” says Pieter van Heck, solutions director for Europe, the Middle East and Africa at IT company Dynatrace. “This could be a lot of extra investment for banks and they will need to find a way to get that investment back.”
With a plethora of different regulators covering different aspects of the financial services industry, it can already be difficult for consumers to find redress. Partners that are not subject to any kind of regulation will only muddy the waters further.
Finally, there are the unknown unknowns – the changes that we can’t even see yet. Open banking will bring about an unprecedented level of competition in the financial world and banks are going to have to fight hard to keep their customers loyal. That means new products, new ways of managing money and new tie-ups with unlikely bedfellows.
According to Perry Krug, principal architect, strategic accounts, at database company Couchbase: “Banks will be forced to put customers first; customers can easily take their business elsewhere. To avoid having a sizeable proportion of their customer base lured away with a better offer from elsewhere, banks need to provide the sort of digital experiences customers now expect as standard, from access to all their accounts in a single app, to the information and alerts they need, when they need them, to giving a service that can’t be found anywhere else.”
The battleground is likely to be the mobile phone, but it is worth remembering that up to a quarter of us don’t have smartphones and mobile reception can be patchy in many places. Perhaps the most innovative of financial services providers will be those that find a way to address that.