The role that a bank plays in our lives today is much different than in the past. In the last 10 years, we’ve gone from having the same savings account with the same bank from birth until death, to an explosion of options for managing money digitally. We’re not all taking those options of course, but the choice is there and, as a result, banks need to work harder to keep their account holders from splintering their services and loyalty.
It’s not just the emergence of online-only banks such as Atom and Monzo that has caused traditional banks to face a crossroads. The current Bank of England base rate interest of just 0.25% has left no margin for high street banks to offer customers rewards for trusting them with their cash. Customers simply can’t earn any more interest with banks than if they were to stuff it under the proverbial mattress. Therefore, banks are having to provide value in other ways.
An opportunity, not a threat
Coming into force next year, PSD2 is set to transform the European financial sector. Created to ensure safer payments, the new rules aim to better protect consumers when they pay online, promote the development and use of innovative online and mobile payments and make cross-border European payment services safer. In doing so, the PSD2 not only creates a more effective and transparent payment ecosystem, but it also delivers an enhanced customer experience.
While much of the coverage thus far has been focused on scaremongering, the financial industry would be better served in looking at PSD2 as an opportunity, not a threat. As Jonathan Hill, the Commissioner responsible for the Financial Stability, Financial Services and Capital Markets Union, rightly said: “This legislation is a step towards a digital single market; [that] will benefit consumers and businesses, and help the economy grow.”
A changing marketplace
Today, more traditional banks are likely to have a tangled web of disparate technology solutions that have led to a siloed approach to managing data and delivering customer journeys. Yet, this is the antithesis of what is required to provide the consistent journey that customers are craving across a variety of channels. While these banks will likely not need a complete overhaul of their technology infrastructure, contrary to popular belief. What they need is something that sits as a layer on their existing infrastructure, making it easier to get started in orchestrating relevant marketing outreach based on this unified landscape. They may require some guidance on how to best utilise their data and applications to provide optimised customer journeys to their customers. The consumers of today are generally far more data savvy than we give them credit for. They are more open to organisations using their data than many might first assume, but only if it is used in the right way, with assurances of security, transparency and tangible benefits. This is where PSD2 can help, as it can help to reassure customers that their banks will always play by the rules. And, in playing by the rules, banks will have an opportunity to realise tremendous value in terms of how they engage and delight their customers throughout their lifecycle.
For a consumer to provide consent for a bank to use their data, they will need to see that there is a clear benefit for them in doing so. The effective use of spend data to provide offers on purchases that consumers are actually interested in, for example, can give banks the upper hand in the race for loyalty. For several years, supermarkets such as Tesco and Waitrose have used this technique successfully through their loyalty card schemes.
American Express is an example of a business that has realised personalisation should form the beating heart of the customer journey in banking as much as it does in traditional retail. Its card-linked offers for dining, entertainment, shopping or travel can be directly applied when a customer makes a qualifying purchase without the need for printing codes. This robust method of leveraging customer spending patterns ensures that American Express customers receive card-linked offers targeted on the things they actually want to buy. In turn, this builds deeper customer relationships that are differentiated by relevance, personalisation and lifestyle appeal.
Catalyst and enabler
Banks should see PSD2 as the catalyst and technology as the enabler to ensure they become more customer-centric, while also remaining agile and relevant to shifting consumer demands. In the same way that roaming charges for those using mobile phones have now been eradicated, sooner rather than later the fees for making card payments will also vanish, and so banks are being forced to change their business models. The world we live in has become firmly outcome-based, and banks need to continue to innovate to offer services that makes consumers care. This could simply mean offering cheaper concert tickets, or it could mean finding a way of optimising savings for a customer that is putting money away to buy their first property, so they can cut down the time it takes to purchase.
Brands must both preserve the values which they have built from the ground up, as well as deliver new spheres of value. To be effective though, trust needs to be a core undercurrent offered on both the technology side, and embedded by the banks themselves. Technology which orchestrates existing and future customer journeys can connect the dots and help to realise the customer-centric world of finance that PSD2 re-imagines, so that brands can empower customers, build new opportunities to engage with your customers – and generate new revenue streams, through stitching together the technologies and data banks already have.
By Julius Abensur, Industry Director – Finance, Relay42