Published on August 31, 2017
by Hans Tesselaar, BIAN Executive Director
The finance industry has always faced the challenge of complying to ever changing regulations. The sector is now focussing on the fast approaching regulation PSD2, which is set to be introduced in 2018. The pressure on IT professionals to be compliant in time is growing with every passing day. This message was received clearly at our recent industry event, where we discovered that 1/5 of banks don’t feel ready for PSD2.
What can banks do to prepare in the short time they have left — and how can they go even further and turn this compliance hurdle into an opportunity?
One of the most hotly discussed elements of the regulation requires banks to open up their data by providing “open APIs”. This could enable banking customers to use third party providers to manage their finances — creating a great business opportunity to those third parties, such as FinTech providers. With this in mind, it is understandable that Accenture states that PSD2 is “set to accelerate the digital disruption that is reshaping the financial services industry”. There will be increased opportunities for tech providers to provide digital services on top of traditional banks’ data, in a way that is in line with customer expectations. For example, consumers could use social media platforms to pay their household bills whilst still having the knowledge their money is still safely in their bank account.
Understandably, this notion of opening up and sharing data is worrying for a number of banks. There is fear that this will result in banks providing the means to be surpassed by their flexible, tech-savvy challengers.
However, PSD2 shouldn’t be viewed exclusively as a barrier for banks, as it presents significant opportunities to grow new revenue streams, capture customer ownership and progress toward an extended ecosystem. To realise these benefits, banks need to leverage API integration and their existing customer relationships to develop a customer value ecosystem centred on their own banking portals.
Getting the best from PSD2 won’t come through competition, but through collaboration — between their established bank peers, as well as tech and FinTech challengers.
Where to start?
In our recent spot-survey with banks, over 60% expressed concerns that banks will struggle to open up their APIs, as the regulation mandates, because of the “current state of banks’ core architecture”. This fear is one of the main reasons that banks are stalling when it comes to preparing for the regulation. But burying their heads in the sand isn’t the answer.
Before banks even think of opening up their systems to newcomers, they need to first untangle their archaic infrastructure and streamline their core banking processes. Each API should then be designed to sync up with the core architecture. The best move for the whole industry, is for banks and tech experts to work together on this. While PSD2 is an EU Directive, this collaboration should be embraced on a global level. Banks from all round the globe would benefit from defining a globally standardised core banking structure, with standardised APIs to sit on top. With a standardised framework in place, collaboration and interconnectivity across the tech and banking landscape on a global level would be simplified — enabling the emergence of new business models and accelerating speed of innovation.
The industry has to accept PSD2 is coming in 2018 and they need to prepare themselves for it. Banks should concentrate on the opportunities that are set to come and act now to reap the opportunities that are ahead.