The PSD2 Directive pushes the finance sector towards the era of Open Banking. It’s a response to the rapid digitalization of the market. Regulations concerning online payment services and electronic banking are mostly focused on the cyber protection of consumers. However, the contents of the Directive ask banks to do much more than just improve their online security, as highlighted in this open banking guide.
The Member States of the European Union are obligated to fully meet the open banking regulations defined in the 2nd Payment Services Directive (also known as PSD2) by the end of 2019. This is a catalyst for a major digital transformation in the traditional open banking landscape of Europe. It’s necessary given the current habits of consumers: the growing popularity of e-commerce, smartphones, and international mobility.
In the face of imminent changes, banks should address the demands of the Directive in a way that will benefit their customers. A few aspects have to be taken into consideration while working out a strategy of PSD2 and open banking compliance. Most of them revolve around two issues: one being the open API (Application Interface Programming) every bank will be obliged to have and two – the creation of Third Party Providers (TPPs) that will be in direct competition with traditional banking.
Establish new goals
The process of digitalization in financial institutions should become a priority. At this moment, a closer look at the profitability of analog channels is crucial. This isn’t to say that they should be eviscerated: open banking PSD2 pushes banks towards creating new tools, not replacing the well-established ways of running a business. However, the focus should shift towards online and electronic solutions.
Re-examine data volumes
The PSD2 API regulations are meant to introduce quicker, safer online communication between banks, TPPs, and consumers. API is a way of communicating with an application using a supported set of rules and parameters. Banks should determine how many elements are to be integrated under an open API, what data will be received by TPPs, and which elements should be limited only to the bank’s IT system. This is a good time for in-depth data analysis, which will later help in constructing the bank’s open API.
Audit of the IT structures
This is the key phase of the process. Creating open baking APIs will take a lot of workforce in order to be done properly. Banks should take the steps necessary to reconstruct their IT departments. This could mean a further expansion of an existing department or a move towards IT outsourcing. The pros and cons of hiring a remote team have to be taken into consideration; nonetheless having an experienced technological partner is rarely a disadvantage.
Reevaluate the offer
Competition in the finance market is going to become even fiercer than before. TPPs are mostly innovative fintech solutions that understand the needs of modern consumers. What is more, under PSD2 Directive regulations, there’s a possibility that new banking platforms will be created: for example, offer aggregators. Consumers will be able to easily compare products from various banks and pick the one that suits them best. This includes personal and business accounts, mortgages, loans, credit cards, insurance policies, investments, etc. Attractive offerings are now more relevant than ever.
Inform customers
Information about the PSD2 Directive is making the rounds in the media. Not everyone, which is understandable, has enough knowledge about financial law to fully understand what kind of changes the directive will bring. This can lead to consumers feeling uncertain and anxious about what’s going to happen to their bank accounts. By providing them with accurate information, banks can soothe their worries and establish themselves as trustworthy partners. That could be crucial to gain an advantage over the new competitors entering the finance sector.
To achieve this purpose, marketing, and PR departments should execute a proper strategy. The perfect solution would be an omnichannel campaign conducted throughout the entire transformation. A special message in the users’ interface is a good start. Later on, it would be beneficial to implement a dedicated landing page that could be a source of information not only to the current customers but also to every person researching the subject of open banking. Provided that the landing page is informative, approachable, and visually pleasing, it could gain the bank a new customer.
A blessing or a curse?
The general consensus in financial discourse seems to be that the PSD2 Directive could be a make-it-or-break-it scenario for banks. Those who don’t follow the new norms are going to fall behind. This shouldn’t be a reason for panic, but a call to close ranks and take a comprehensive approach. In the next few years, banks should put a special emphasis on developing a strong IT department. Early prognosis says that API channels will be responsible for the majority of the financial sector’s revenue – only time will tell if banks interpret this as good or bad news.
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January 25, 2021
