By Steve Lemon
Steve Lemon, VP of business development & co-founder of Currencycloud looks at the impact PSD2 could have on the banking industry, what collaboration between fintechs and banks could look like and likens the introduction of the regulation to the iPhone launch.
Do you remember the days when all you could do on your phone was, well, phone people? That all changed when the first iPhone launched in 2007, revolutionising not only the way people communicated but how they accessed information. We now have the world in the palm of our hands, with each model of the iPhone faster and packed with more features than its predecessor – need I say more than facial recognition and animojis?
Now imagine that kind of accessibility and innovation with your bank account – I know it may seem like a stretch now but open banking could have a similar effect on the finance industry. From January 2018, under PSD2 (EU regulation) and open banking (the UK counterpart), banks will be legally required to open up customer data to third parties through secured APIs (Application Programming Interfaces).
Even though the regulationaims to foster innovation, and provide greater transparency and choice for consumers, open banking could be a major challenge to banks. In fact, some have argued that the regulation will reduce banks to nothing more than wholesale service providers that have little to no contact with the end customer. This could leave many wondering if banks could be the next Blackberry.
Butpersonally, I just don’t see this happening – too many people are overlooking what I see as the main benefit of open banking: collaboration.
Closer relationships = more success
As with most things in life, we want more than what everyone else has – we want to be unique. Part of the iPhone’s appeal comes from the fact that it can be customised to individual needs and tastes. You can download the apps you like and need, update your phone’s appearance with covers, and even change external addons such as headphones to your specifications. But when it comes to banking, more often than not people are limited togeneric one-size fits allproducts and services, and might need multiple accounts to access different services depending on their needs. As our financial needs are all differentand we find ourselves in an increasingly technological enabledage, it’s no surprise that people want to be able to customise their banking options.
In this environment, where customers expect their banks to offer the same personalised and simplified services and interactions they enjoy with companies like Amazon and Google, innovating and creating closer relationships with customers is crucial to long-term success.
Following the financial crisis, banks, traditionally held back by legacy structures, have not innovated at the same pace as fintechs. So, rather than centring on what sort of threat open banking poses, focus should be shifted to how banks can collaborate with those companies that are not only innovating, but excelling in their fields. A World Retail Banking Report (WRBR) says that 91.3% of banks surveyed expect to partner with fintechs at some point in the future.
By working together, banks and fintech firms can take advantage of each other’s strengths and ultimately deliver a better customer service than either of them could on their own. This will also create opportunities for more growth within the banking and fintech industries.
APIs to open the door
But before any of this can become a reality, banks need a way in, and APIs have become their door. For those banks ready to embrace the opportunity, APIs are the most obvious and practical means to access and deliver these fintech innovations to their customers. By integrating various third-party services to create new products or enhance existing ones, APIs can help banks attract new customers whilst also strengthening their existing relationships.
APIs will also offer a chance to pursue new distribution channels and improve digital banking for customers. Having banks connect to fintechs via APIs allows the product development process to occur quicker, helping banks to respond to rapid changes in digital technology.
According to the WRBR,78.3% of banks are counting on APIs to help them improve the customer experience, with fintech firms agreeing. The report also highlights that the banks believe that this could lead to new revenue streams.
In this digitally-connected world, banks will need to learn to adapt in order to thrive. APIs can make it easier for banks and fintechs to learn from each other, and to develop new and innovate ways for their customers to access financial products. But whatever way open banking goes, it really could be the iPhone moment for those ready to embrace the opportunity.