By now, every reader will have heard about how PSD2 (the second Payment Services Directive) will change the face of banking as we know it. Certainly this piece of regulation will affect every single seat around the boardroom table when it forces institutions to open up their data. It is far bigger than just a tech challenge.
Despite its effects being no more than a year away, there remain some questions for which there is not yet, even among data and technology leaders, a clear answer.
What will PSD2 ask us to do? Fundamentally it will require transparency and open connectivity from point of sale to the bank’s vault. CIOs know that their technology will need to cope with a sea change in data management, plus their security will have to keep pace with the demands of open banking. Risk and compliance teams must have an eye on every portal and potential way in and out of their confidential information. Marketing teams will find themselves working out how to market products and track the options being offered by competitors, and product innovators will have to rethink pricing and differentiation.
The tech challenges have been discussed all over the industry, and will continue to be, but what about the product strategy?
Product strategy – which has historically revolved around retention of customers, keeping them engaged and loyal – will need to be totally re-engineered. This will affect every institution from the established high street banks to the challengers and fintechs.
Currently, banks and lenders can use all the data they hold on their customers to pre-approve and target them with relevant products before their competitors can. Being forced to share this data will blow this apart. This might be good news for the customer, who will now have clear visibility across the whole market, but it will make the loyalty between bank and customer a lot harder to maintain.
High street banks still have the benefit of the customer loyalty that comes with current accounts, where there remains a perception that changing banks is too much hassle. Challengers, meanwhile, need to identify channels to directly target that customer base with other – loan and deposit – products in order to grab market share.
The solutions for both these competing ends of the market, ironically, look very similar. The new battleground, where customer loyalty will be won or lost, will be in digital user experience. Even if the customer is less likely to buy your loan, you at least want them to buy it via your app. Wherever the customer chooses to go, it will be legally required that they have access to the whole market – so whoever succeeds in making that access seamless and engaging will retain the best chance of communicating their brand values, product offering and other differentiators with that customer.
The market does not just need a platform; it needs an ecosystem. No single tech “product” can offer the answer to all the requirements that the regulator, industry and customer will demand. Banks are not just looking at ways to open up their data while keeping everything protected, they are looking at how to bring together the best of all aspects to create something that is uniquely, competitively theirs; from security, identity and biometrics, through underwriting and origination, to the user experience at the front end. And if they already have some of their own tech infrastructure that is doing some of this well, they do not want to throw it out and have to start again. Whoever gets this right will maintain as much customer loyalty as possible in the new world of open banking.
Eric Crabtree is global head of financial services for Unisys