September 18, 2016 | Written by: Chae An
Categorized: Banking | Cloud | Payments & Transactions | Security
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Ask almost any banker about the adoption of the revised PSD2 directive and responses range from uncertainty to outright dismay. Many banks are concerned that PSD2 is a cost center that will compromise client relationships and security.
Setting the stage for open banking, PSD2 is meant to promote innovation, where new business models emerge and leaders are born.
Some forward-looking banks, – and even more third-party providers (TPPs) and financial services technology companies (FinTechs) are embracing the directive as an opportunity to gain a competitive edge, retaining and gaining customers through value-added services.
Value-Added Services = Profits for Banks. The revised directive PSD2 aims to build interconnections between traditional banks and TPPs, many of whom are FinTechs. Banks are concerned that they will lose the customer interactions and hence customer relationships. In order to thrive, many banks need to devise new business strategies for generating revenue and maintaining customer loyalty. Some banks are looking at ways to use customer data insights to orchestrate numerous value-added services and activities including targeted promotions and co-marketing initiatives with relevant ecosystem partners such as travel services or retailers. Other services could be on-line vehicle app purchases combining auto sales information with bank financing and loan calculators. Real-estate services could combine house purchase services with mortgages, especially digital access to credit reports and bank account information rather than more paperwork for processing. This approach allows banks to solidify their customer relationships – creating a system where banks better understand their entire client base, recognizing each person as an individual, while remaining compliant with the latest regulations with built-in security measures.
Services to Offset PSD2 IT Infrastructure Costs. Traditional banks are set to shoulder most of the IT infrastructure costs associated with PSD2. However, if done right, they may have the most to gain. Although the technical details of PSD2 have not been fully defined yet, the use of APIs for secure data exchanges that have compliance rules built-in are accelerating in many industries. (See my previous API blogs.) Banks with an agile IT environment will be able to accommodate the changing resource demands from registered, third-party providers. Other banks are looking for ways to grow their revenue streams by uncovering ways to capitalize on their IT infrastructure such as creating transaction hubs for consumers to pay bills or manage consumer loyalty programs. In other instances, banks are investigating ways to use cloud-based services to deliver corporate payment providers with the ability to view balances and transactions of accounts it holds with multiple banks, initiate and authorize payments. Online portals and applications can be used to make international payments and automate international accounts that typically have low margin foreign exchange rates.
New Services are Emerging Organically, Anyway. While PSD2 may be a catalyst for disruption, new payment and commerce services are becoming commonplace as a growing number of people use peer-to-peer payments and other digital banking conveniences outside of their traditional banks.
Paving the Road Ahead
European financial institutions and banks doing business in Europe will be the first impacted by PSD2’s mandates that are set to take effect in 2018. However, the transformation of payment and commerce services is a definitive step toward establishing an open banking infrastructure everywhere. (Find more information here.)
As a long-time technology and strategy partner, IBM is helping some of the world’s largest banks tackle some of the industry’s toughest challenges. IBM and the Banking Industry Architecture Network (BIAN), will continue to work across the industry to create open banking standards that will drive digital banking standards for years to come — keeping an eye on compliance and advancing new levels of security.
To learn about more about IBM activities at Sibos, visit ibm.com/Sibos.