Let’s be honest, the banking industry has not been known for its rapid rate of innovation over the years. Instead, it’s focused on building trust from its customers, mainly through protecting the money they are given the responsibility to. This strategy has paid off in the past, with Brits trusting their banks more than their European counterparts. However, this has come at a price as confidence in banks operating in consumers’ interest is low at just 36%. The one thing banks have always had though to keep them ‘top of the tree’, is access to consumer’s personal financial data.
Now, with the introduction of the Second Payment Services Directive (PSD2), innovation is front of mind as the industry removes its barriers and enters the Open Banking era. This move has opened the door for non-traditional financial services companies to access this data and use their innovation to offer the personalised services that consumers are demanding. This can be through a broadband provider having access to a consumer’s spending habits and offering them a seamless and cheaper option to change to, therefore helping them save money.
The spark the banking industry needs
The hope with this new directive is that it will spark a new-found era of innovation by opening the industry to competition. However, before any banks think this could be the beginning of the end, nothing could be further from the truth. The key part to making all of this a success, is convincing consumers to allow their data to be used by the non-traditional companies. While the technology sector might be known for their innovation, banks are still the benchmark when it comes to trust. This is because of the security that banks put in place to protect consumer data. It’s rare to hear about a big bank being breached, but further afield, breaches are much more common.
This is where the opportunity for banks lies. If they can increase the rate of their innovation, then it will be much easier for them to keep customers on board, rather than see them go elsewhere. One way of doing this could be to partner with the fintech community and use their innovative prowess to offer the personalised services that consumers are looking for. It really is a win-win situation for consumers. They will get the best of both worlds as either partnerships happen, or each side will go their own way – driving up the rate of innovation purely through competition.
This era is putting down roots
With PSD2 now three months old, it will clearly change the way the whole financial industry operates. Juniper recently published its report into the global B2B money transfer industry, predicting that it will increase from $150 trillion to $218 trillion by 2022. This sector has long struggled with innovation and not been able to move on quickly – there are still many companies that pay suppliers through cheques! It’s Juniper’s prediction that PSD2 will help spark innovation in this area through partnerships or traditional banks will soon find themselves outmanoeuvred.
What is clear is this new era is certainly not going away and is setting up shop for the long haul. Banks face an incredible opportunity, rather than a perceived threat, if they can just embrace it in the right way. In any industry, it’s always about moving forward and giving the customers what they want, and the financial industry is no different. Banks will need to adapt, but this could be the start of their next great era.