The financial world is set to change. When PSD2 regulations are introduced in 2018, UK financial institutions will be required to adopt open banking application programming interfaces (APIs) to enable the exchange of banking data and making of payments. The introduction of these new regulations provides consumers with the option to use non-financial-institution providers to manage their finances, and have access to their own data online. Financial institutions must navigate these changes whilst enriching current offerings and continuing to provide best-in-class products and services for consumers. That’s the challenge and opportunity of this new environment.
As these new regulations come into effect it will amplify the fact that financial institutions are no longer competing only with each other, but in fact with every company offering financial services. This includes the likes of Amazon and Google, which are looking at ways they can provide new financial services to consumers. For financial institutions to keep pace with these technology giants, start-ups and fintech challenger banks, they must define what new opportunities PSD2 can bring. This includes evaluating how these regulations can aid future efforts to collaborate, extend and diversify a new range of tailored value propositions in the form of services to customers. To do this, financial institutions should be aware of the benefits of transforming their services and also be open to cooperation with other financial institutions, non-financial-institution providers, technology suppliers, and regulators.
Unlocking the power of data
In today’s digital age, consumers expect access to their banking services wherever and whenever they want them, on a channel that suits them best. Larger financial institutions have huge amounts of customer data at their fingertips and therefore have access to valuable insights into what consumers want. These insights are vital to financial institutions when they are looking to validate and align new offerings and initiatives that tap into individual consumer preferences. With the move to open banking, including the PSD2 rule, a strategy that fully utilises mobile and digital solutions is needed for a true banking revolution.
With the PSD2 regulations being introduced, financial institutions can work with other providers in the industry to share data and insights to better understand customers. This will help financial institutions provide customers with a tailored value proposition, providing bespoke services to specific audiences who require a different experience compared to other customer groups.
Sharing customer data efficiently and successfully also means that financial institutions can launch new services that consumers are demanding. Technology like this helps provide customers with new banking experiences that fit seamlessly into everyday life. However, to ensure new services are well-received, financial institutions must guarantee the security of customer data. This includes details such as the ability to manage permissions. Financial institutions of all sizes, non-financial-institution providers, technology suppliers, and regulators must work together to maximise security and update regulations where appropriate.
Working together to share expertise
Financial institutions are accustomed to providing solutions in a strictly regulated environment. There is an opportunity in the wake of PSD2 for financial institutions to lead the way when it comes to regulatory compliance, and collaborate with non-financial-institution providers and challenger banks to provide support and guidance. Many new companies in this space will not be accustomed to navigating the regulatory environment, but financial institutions possess trust and knowledge that they can monetise as they guide others through the process.
While knowledge sharing and collaboration of this type may be new territory for financial institutions, fresh thinking and keeping an open mind about open banking can drive innovative changes. Being receptive to new ideas and partnerships with organisations they may have not have worked with previously can lead financial institutions to new ways of working and bring innovative services that customers will want to use on a daily basis. It also means that financial institutions can stay in step with the ever-changing needs and expectations of consumers.
Creating innovative services through collaboration
Collaboration is one of the most significant benefits of open banking. Working with others in the ecosystem ensures that innovative technology solutions can be cost-effectively addressed together. Cooperation also means all parties have input on how best to define and prioritise technology solutions and infrastructure, allowing them to not only navigate a safe route through these major changes, but also create a mutual understanding of the regulatory and market changes.
As PSD2 arrives and the constant stream of new technology entering the marketplace influences the lives of the modern day consumer, financial institutions can glean best practices from other fintech companies on how to be more flexible and agile. The ability to move quickly to test and validate new concepts, and ultimately move to a consumption-based model, will be vital for financial institutions to ensure a smooth rollout of new services to customers. Technological solutions identified by a collaborative approach will enable the industry to drive innovation and increase competitive edge.
PSD2 and the roll out of Open Banking in the UK is inevitable. The new regulations should be viewed by financial institutions as an opportunity and a catalyst to collaborate with others and maximise the assets they already have to provide new and better services to customers. Financial institutions that can collaborate across the industry and see opportunities to grow and develop services will win in the new environment. With the new PSD2 regulations financial institutions have the opportunity to move from a service provider to a financial partner to their customers.