PSD2 and open banking are forcing the banking sector to rethink their digital banking strategy. Banks and retailers are transitioning from being transaction-focused to becoming customer-centric. Now, instead of consumers having to interact separately with each entity they use to manage their banking needs (accessing application, making payments, transferring money, etc), they have the option to interact with one interface that will not only make direct e-commerce payments, but also provide comprehensive insights to help determine the best payment method.
While banks used to own and maintain the direct relationship with their customers, PSD2 is opening the doors for Third Party Providers (TPPs) – such as Fintechs, neobanks, social media platforms – to enter the banking space. Competing with traditional banks, TPPs are able to provide services that act as the primary interface when consumers are conducting their banking needs, forcing the bank to potentially be the behind-the-scene “admin” for payments.
By September of 2019, banks will need to comply with PSD2 regulations and have three doors to choose from:
Door A: Become a Banking Utility– Focus on providing liquidity, credit services and infrastructure. Most services would be offered through third parties who “own”the customer relationship. Requires only basic PSD2 compliance.
Door B: Partnership Model– Develop an advanced API model which allows you to directly provide selected services to consumers — and offer others through third-party partnerships. In this scenario, you could offer enough services to “own” the relationship. This requires compliance, plus monetized access to selected customer data.
Door C: Comprehensive Offering– Offer consumers a full range of financial services under your brand. This approach may require some private labeling of third-party offerings. But you can clearly “own” the consumer relationship. This requires compliance, open APIs and the development or re-selling of a broad portfolio of services.
The burning questions for banks? How are you going to stay competitive and which door will you choose? Banks cannot let PSD2 become a guessing game- where luck is determining your winnings. Banks are the only player in the space that can assume all roles in the new payment and banking models – maintaining the banking infrastructure but also ensuring the direct relationship with the consumer.
“Companies that are bold — building new products inhouse when possible, partnering when necessary, and even acquiring when feasible — in delivering innovation to the market will be rewarded.”
– PSD2 and Fintech: Delivering Innovation James West, IDC
And how do you be bold, without worrying about the risk?
Start by issuing trusted identities to your customers. Learn more and capitalize on PSD2 >>.
For advice, quotation and additional information on these products, feel free to contact us.