Over the past several years, the dynamics of the financial market have changed dramatically. With the introduction and implementation of PSD2 or Revised Payment Service Directive, the market is gaining higher momentum in terms of changing technology and evolving services.
Although the impact of the directive cannot be measured as off now, we can see some changes happening already as bigger market players are considering the impact the directive might have on the finance sector.
Newer opportunities, newer business models
PSD2 regulation is all about creating open banking in European countries, whereas providing safer online payment services and bringing innovation in the market. This directive authorizes customers to use services of third-party providers enabling them to manage their finances more conveniently with the wider choice of providers.
Bigger market – PSD2 offers to expand the market boundaries by attracting new players and startups in the market to leverage new rules of finance.
Innovation – The directive opens up new and fresh opportunities for banks, startups, and Fintech businesses while infusing greater transparency, competition, and continuous innovation.
Savvy Customers – As the financial data will become open, users will gain better control over their finances with a wide range of options.
How can banks turn compliance into competitive advantages?
We also see that PSD2 will offer plenty of benefits to the banking sector. For that, banks need to explore ways to convert compliance into a competitive advantage. For example, banks could partner with Fintech firms to create new financial services and attract customers to use them. Also, they could create their own AISPs and PISPs to retain their market share. Taking a more strategic view towards the directive could be a way for banks to adopt the open banking environment and make the most out of it.
Key for banks to leverage the PSD2 and open banking regulation:
Banks have always enjoyed a higher position with the vast amount of data they hold. PSD2 threatens to disrupt the exclusive benefits banks have by allowing AISPs to access and capitalize on the data. Banks can capture the opportunity by using the database effectively and offering value-added services to the customers. For instance, they could offer them with personalized suggestions in terms of loans, investments, and deposit accounts.
Such services will reduce the chances for Fintech companies to capture banks’ market share. Moreover, banks could also create a market for analytical services, data mining, and API offerings by using data.
Partner and collaborate
Rather than competing with the new players in the retail banking sector, banks have the opportunity to collaborate with Fintechs and offer truly enhanced customer experience. For banks, the collaboration will enable innovation and development of agile services. For Fintechs, banks will become the base with data and market position so to build financial services on top of them. Banks will offer a ready market to Fintech firms so they can focus on their core services rather than acquiring customers.
To ensure long-term survival and continued services, banks need to act now and develop their own digital ecosystem. There could be significant challenges from new players in delivering innovative services but using the position banks already hold in the market; they could be a real gamechanger.
One of Norway’s leading banks, DNB, has developed a unique mobile application, Vipps, that allows sending money to the receiver’s mobile number instead of the account number. Although the app has been developed by DNB, it is open for customers from any Norwegian bank. Vipps was launched in 2015 and managed to acquire 1 million users in just 6 months becoming Norway’s largest payment application.
Getting ready for PSD2 and open banking
PSD2 facilitates managing financial services and opens up the market for Fintech companies and startups. This open environment will offer substantial advantages like increased security, innovation, and fair competition.
To be successful and moving in this disruptive market, banks not only need to adopt the compliances but use them to create competitive advantage. By teaming and collaborating with Fintech firms, banks can take a step further to technological development. Employing the approaches as mentioned above, banks could completely revamp the way we used to manage our finances. However, it would be interesting to see how banks maximize the opportunity by acting now rather than later.