PSD2 & APIs : Banking on a cool new relationship?
Put simply, PSD2 is a reformulation of a 2007 European directive that aims to open up the payment services market to new competition and innovation.
The cold hard facts are that third party access to bank accounts (XS2A), along with the use of Application Programming Interfaces (APIs) – to connect the merchant you’re buying from directly with your bank account – plus the ability to consolidate information from multiple accounts in one portal, will enable agile, disruptive players into the consumer finance space. How long before your telco - or the brands you love most - replace your bank?
The key benefit to the consumer is that retailers will be able to transact directly with the bank, cutting out third party intermediaries and reducing transaction costs. The relationship will feel more like it’s with the retailer. The bank’s role could drift away into the shadows. Could banks even lose contact with their customers?
Armed with insight to all your accounts, a retailer could be offering you a loan with tailored interest rate. So, the challenge for the banking industry is new entrants, like the FinTech companies and trusted high street brands, who will disrupt the consumer finance model, creating relationships that are more transparent, and more empathetic – more direct. The immediate necessity for the banks is to be more nimble, innovative and consumer friendly.
The struggle will be over who takes on the management of the customer’s money. Who teaches consumers how to spend their money or organise their finances in ways that are wiser? The conversation will need to be about smart consumption, not just smart investment nor enabling transactions. PSD2 is about making consumption an easier, better experience. As a result, the bank services and customer rapport will need to be service driven, rather than process driven. They will need to adapt to compete, even pushing the boundaries – re-thinking the bank’s raison d’être by becoming a platform for innovative new services geared around real time spending and holistic money management.
Banks have been used to operating in a closed eco-system – ok, often for good reasons – having security in mind. However, the new technology protocols will offer security too. Hence banks may wind up being more like platforms than service providers, requiring a more open culture and engagement with third parties.
So that’s how PSD2 will change the consumer’s life. Or at least make it a little easier. The disruption will undoubtedly come because all kinds of innovative, challenging, forward looking companies will be eager to occupy this space. They’ll be particularly eager to respond to consumers’ frustrations with existing providers. However, the dilemma will be whether the savvy newbies can satisfy consumers without falling foul of regulatory bodies. Safe and secure is still the preserve of the long-established banks.
Meanwhile, the challenge for the banks is to become more open and transparent. To be more flexible and approachable. To explore ways of helping customers to become smarter consumers. To embrace innovative ways of taking the story to their staff. And to get in touch with the truly holistic nature of banking and smart consumption.
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