Opinion Digital Banking

PSD2 – What will happen in January 2018?

With the Payment Services Directive becoming a reality at the start of 2018, can we expect to see a panacea of connected services at users’ fingertips, offering best in class quotes for financial products based on actual information? Will we see firms position themselves as leaders beyond their previous borders and existence, in the digital realm with limitless data-driven possibilities? Or will we maybe see cross the board resistance and siloed architecture that prevents valuable use?

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If you are looking for the short answer, here it is: Yes.

If on the other hand you can accept the reality will be multidimensional and layered, well the answer is still “Yes”. In any new market, and let’s be very clear this is a new market, we will see behavior and approaches from each end of the spectrum searching for their preferred way to adapt and benefit from the new reality.

With the inception of financial digitalization, we’ve seen new firms such as Goldman Sachs adapt their strategy to cover retail and embrace fintech, firms such as Citi and BNY Mellon have ventured into open banking and finance APIs and Vanguard has created a digital behemoth of their robo-advisor.

Yet for each firm there are dozens that are still in 2017 evaluating their position and strategy, laying out plans that have yet to see the public and some still on the fence. Having started looking at the market in 2009, it was clear the market would not move in uniform fashion yet the complexity of the market and its adoption of new technologies and paradigms was still a surprise.

Open Banking is still a new concept and, as new concepts go, it will be refined by trial and error. Some banks are farther along than others, with e.g. BBVA already in commercial use with several APIs. Yet the roll out of new “API Markets”, as they are often called, will see a learning experience from both the bank providers as well as those looking to utilize them.

From our experience working alongside many of these Open Banking interfaces, there are areas that require more than just a technical understanding, such as client on-boarding and related requirements around KYC and AML, not just the requirements but how institutions like global banks actually deal with them; these impact behavior, use and ultimately the design of new products and services.

We’ve talked about opportunities with PSD2 before, including the Open Banking concept of how a full financial app ecosystem will emerge on top of the Open Banking platform with extensive business implications. One thing we are beginning to see is how the concept of Open Banking can fundamentally shape and transform mandates, where financial institutions may see their services and opportunities broaden beyond their traditional operations. And how would this happen? For one, it may happen organically by the very virtue of having an open platform and allowing the third party ecosystem to truly flourish. Banks may indeed find new customers that they did not consider previously, from places they are not active in – whether that be a geographical area or a market segment.

Whatever we foresee with PSD2 and Open Banking, we are likely going to be right. It’s going to be a direction we follow and a little bit of everything along the way. Yet as an industry as long as we are focused on ultimate client value, that direction should guide us along. 

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