PSD2 – Driving fintech innovation by giving consumers control of their bank data
To be by-lined to Craig James, CEO of Neopay
In recent years innovative fintech companies have been driving a technology revolution in the financial industry as the larger, more established players struggle to keep up with the rapid change of pace.
With consumer confidence in the “traditional” financial sector still diminished from the 2008 banking crisis, regulators and the government have been trying to encourage a new stream of fast moving companies to provide the kind of banking service customers increasingly demand.
In January next year, the new EU Payment Service Directive (PSD2) comes into force and could provide the last piece of the puzzle for technology companies trying to breach the walls of the banking establishment.
Perhaps the most significant proposal in PSD2 is that it opens the door for customers to share all their financial account information with third party, non-banking businesses, like technology companies.
For these smaller fintech companies, this is a substantial advantage to being able to create personalised tech based products tailored to specific customers that can truly transform how they engage with their finances.
A truly personalised bank product
When it comes to “personalisation” in the banking sector there is no shortage of products offering tailored services.
These products do go some way to offering a level of personalisation – whether it’s a type of saving account or a credit card – but they are not truly personal because they cannot adapt to changing circumstances and react to an individual’s needs.
The main hurdle to really personalising a banking product has, so far, been that the products can only link to a single account, whereas most people have more than one active bank account.
By allowing customers to give access to every account they have, PSD2 opens the door to a real one stop shop banking experience, with consumers able to access and manage every aspect of their banking from a single point.
Opening up the financial market to this kind of technology creates the prospect of a genuinely new way of banking, with intelligent products being able to analyse and react to real time events that will impact the customer’s finances.
From the major banks to finance advisor products, there is no shortage of products or applications that claim to help with budgeting and keeping track of our finances. The biggest issue with these apps is that they are either limited to a single bank or to a single account.
They still require the customer to manage several accounts and keep track of their money from multiple points.
Creating a single access point for personal finances, fintech businesses could provide new tools and products that could monitor the activity and real-time balances of every active account a person has.
Not only that, but these products could be created to react to personal circumstances and assist the consumer by carrying out tasks like transferring money between accounts to cover upcoming bills – to avoid overdrafts and arrears.
These “smart” finance assistant tools would be a benefit to millions of consumers and help them avoid falling into debt just because they couldn’t move money around their accounts in time, or weren’t fully on top of all their balances.
Tech based debt solutions
While smart finance apps could be beneficial for helping people stay out of debt, they could prove potentially even more beneficial for those who have already fallen into debt – and could even become a standard product offered by established banks in partnership with smaller fintech businesses.
Again, the biggest problem with current products is that they only link to single accounts or can’t react in real-time to changes in a person’s individual circumstances.
Under PSD2, products could be created that can access and analyse the activity of every account a person has and create instant recommendations on how to reduce outgoings or create realistic savings plans.
It would also be possible for these apps to react to new information – like an increase or decrease in incomings – and update the recommendations instantly.
Getting real-time account updates would be of particular interest for consumers according to our own research which found that a major frustration of consumers is that balance updates and account activity is not always updated in real-time.
Smart bank apps would also be able to send alerts to users when their account balance is running low, or when the user is in danger of not being able to cover the cost of outstanding bills.
Banking and technology in the future
For the most part, the UK banking sector has been slow to grasp the potential of technology when it comes to new products, but PSD2 is set to be a significant driver in this area and will force banks to put more effort into the technology they are using and how they are using it.
For fintech start-ups, PSD2 could be the final thing they need to truly compete with the established order, giving them access to the same customer information as banks with which to build products, without the significant infrastructure costs of traditional banks.
Technology will only play a bigger role in how consumers manage their money in the future and banks are running the risk of that future being managed without them.