This week sees the beginning of ‘open banking’ in the UK. Set to either be a banking revolution or an invasion of privacy, it has certainly divided opinion. Patrick Brusnahan speaks to experts on what open banking is set to bring to the market
Pieter van Heck, Manager EMEA, at Dynatrace
Open banking will change the way that consumers interact with their financial data in 2018, giving them greater flexibility and choice. This will usher in a whole new wave of financial service providers; offering better, more personalised deals to consumers in a bid to win market share from traditional banks. As a result, banks will have to re-evaluate how they differentiate themselves; creating new digital services of their own using the data being exposed by other financial services providers.
As they pursue this new type of innovation in the coming year, banks will need to remember that there won’t be any margin for error. Given the multitude of choice that didn’t exist before, the second that consumers become dissatisfied, they’ll simply switch to something else that offers a better experience.
Unfortunately, open banking will also add significant layers of complexity to an already complicated digital ecosystem. It will create a multitude of new IT dependencies, spanning internal applications and infrastructure, as well as those of other financial service providers that lie upstream or downstream in the delivery chain.
Kevin Freeguard, Managing Director Fintech Payments Commerce, Verifone Europe
As banks open their systems to more users, expect to see a growth in alternative and new ways of making payments – all because of PSD2. The Second Payment Services Directive (PSD2) is all about ‘levelling the playing field’ and introducing greater competition to the traditional banking sector, by sharing data more widely. It comes into effect in the UK on January 13, 2018.
It should herald an onset of a greater number, and more importantly, greater type of players in the payments ecosystem. By opening up properly controlled access to bank accounts, PSD2 should catalyse innovative products and services – from peer-to-peer payment platforms through to futuristic biometric-enabled payment methods. A bigger market with more choice is a good thing for firms which are able to adapt quickly.
So, expect to see a continued upward trend in payment innovations – from peer-to-peer payment platforms through to greater in-store acceptance of emerging technologies, including increasingly popular mobile wallets and wearable devices (such as the Apple watch), and biometric payments made with fingerprint and facial recognition technology.
Sophie Guibaud, VP of European Expansion at Fidor Bank
It has has been a long road to PSD2, given that it was approved in November 2015 by the Council of the European Union. However, it will finally be coming into force in January 2018 and that means that banks must open up their customer data to third parties on request – whether these third parties are their direct competitors, challenger banks or nascent fintech startups.
For everyday consumers, much will change next year due to this. We’ll see a huge increase in banks seeking to become a ‘one-stop shop’ for their customers. In reality this means that banks will provide wide access to a range of services, from the ability to pay from bank accounts at a touch of a finger to accessing integrated comparison tools to find the best banking deals.
Thanks to PSD2, banking as a whole will become much more personalised. The simple fact is that data is now as valuable as gold to financial organisations, and they need to treat it as such.
Ian Clark ,Vice President, API Management, CA Technologies
PSD2 updates the original Payment Services Directive and was proposed by the European Commission in 2013. But January 2018 is the date on everyone’s lips as 28 EU member states transpose the provisions of PDS2 into national law.
PSD2 will revolutionise the way we make digital payments by allowing consumers to have the option of using third-party providers to manage their financial assets. It will take us from a ‘monolithic model’, where consumers interact primarily with just a single bank to a ‘banking platform model’ where consumers have the option of leveraging multiple services from multiple financial service providers and banks.
The regulation looks to level the playing field, creating a single integrated payment services market with uniform approaches for both banks and the emerging payments and fintech companies. It will further free the market by removing barriers to entry for new operators. The regulation does this by strengthening uniform security for all stakeholders, unlocking the opportunity for new payment services, ensuring transparency and promoting market competition through innovation.
PSD2 has the potential to be hugely beneficial to consumers and therefore to businesses delivering those services. PSD2 allows for faster payments and makes strong customer authentication mandatory. With consumers demanding access to all their banking services across every digital channel, whenever and wherever they are, this regulation gives the financial services market the chance to properly respond and deliver on those expectations.
But with less than six months to go before it is enacted into law, 89% of consumers do not know what PSD2 actually means for them. Banks need to take the lead in educating the public on the potential implications that the new regulations will have for them, allaying their concerns around data protection. Without effective communication, banks risk losing the trust of their customer base. Those that get it right could gain a competitive advantage here.