Our recent London-based industry event provided the perfect opportunity to discuss one of the key issues that is currently looming over the banking landscape: Payment Services Directive 2 (PSD2). It is well known that the industry has been facing increased pressure from digital challengers and it became apparent during the event’s talks how much the new regulation will revolutionise the sector even further.
The scale and speed of change that has taken place in banking technology in the last 5-10 years far exceeds the industry’s entire history. No one ever realised quite how much mobile payments would take off for example, and many banks have had to take unprecedented steps to keep up with the consumer demand for real-time, on-demand services and transactions. For many banks, getting their ducks in a row ahead of PSD2 is set to be just as tough.
PSD2 – in a nutshell
To put it simply, PSD2 enables banking customers, both consumers and businesses, to use third-party providers to manage their finances. So in the near future, people could use Facebook, Google or an emerging technology, for example, to pay their bills, while still having their money safely placed in their current accounts.
As PSD2 becomes implemented, banks’ ability to control their customer’s account information and payment services could diminish and the industry will have to be open to sharing. The result of the PSD2 is that it opens the door to any company to step on banks’ toes.
All doom and gloom?
Banks will have to decide whether they want to become a banking “utility” or an “Everyday Bank” playing a central role in customers’ daily lives. Intimidating as that may sound; it is an opportunity for banks too. At the London event, Aleksandar Milosevic from Asecco reminded us all that once banks have achieved a critical mass of APIs, innovation starts to happen in places many would not expect.
Michel Vaga from CapGemini stated how the PSD2 will be able to revolutionise digital banking, commenting that banks that used to have a closed API were only able to build one app a year compared to when they opened up, they could build 80 APIs and collaborate with FinTechs.
The overarching view is that while PSD2 is a challenge, if it is embraced properly, banks will really open the door to new opportunities.
What needs to be done?
In the words of Adizah Tejani from Token, when it comes to PSD2 offence really is the best defence and banks need to take a proactive approach. So what does that mean in practice?
Firstly, banks need to look to collaborate. PSD2 will impact all banks and banks that work together will be far stronger for it.
Secondly, they should take a proactive approach to making sense of all the data by streamlining messy IT architecture. Before banks think about how they can open up their systems to newcomers, they need to work with their peers – other banks. Along with IT experts, banks need to work together to identify a globally standardised IT infrastructure that suits the business requirements of their company. They need to identify what the core individual IT processes are that make up their bank and define the globally standardised core business functions that they support.
From there, they can then straighten out their tangled mess of IT architecture and remove any legacy systems that are adding unnecessary layers of complexity. Only once banks have developed this framework of business functions, will they be able to reap the benefits of PSD2.
PSD2 is coming in 2018 and there is no running away from it. The finance sector needs to concentrate on the opportunities and ensure they take the necessary action to make the most of the change.