Many industries have been shaken and disrupted by the digital revolution, but none so dramatically as banking and financial services.
Only a decade ago, many of us still thought in terms of having the same accounts with the same bank from the cradle to the grave. But now, thanks to the rise of online ‘challenger banks’ such as Atom and Monzo, we have myriad options. As a result, banks need to work harder to keep their account holders from splintering their services and loyalty.
At the same time, the current Bank of England base rate interest of just 0.50% leaves little margin for High Street banks to offer customers rewards for trusting them with their cash. Customers earn little interest by putting their savings into banks so the banks have to provide value in other ways.
An opportunity, not a threat
Against this backdrop, PSD2 is set to transform the European financial sector. Coming into force next year and created to ensure safer payments, the new rules aim to better protect consumers when they pay online by making cross-border European payment services more secure, while also promoting the development and use of innovative online and mobile payments. In doing so, PSD2 looks set to create a more effective and transparent payment ecosystem and also deliver an enhanced customer experience.
Yet so far, there’s been little positive reaction and much scaremongering. But perhaps those involved should turn the tables and start looking at PSD2 as doors opening instead of closing. As Jonathan Hill, the Commissioner responsible for the Financial Stability, Financial Services and Capital Markets Union, 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
Could it be that technology is partly to blame for this at best lukewarm reaction? The older, more established banks have their hands tied by a tangled web of disparate legacy technology solutions. These have led to a siloed approach to managing data and stopped the banks from delivering the seamless customer journey today’s consumer expects.
But contrary to popular belief, these banks won’t need a complete technology infrastructure overhaul. 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.
PSD2 will reassure customers that their banks will always play by the rules and banks will have an opportunity to realise tremendous value in terms of how they engage their customers.
However, they may require guidance on how to best utilise their data and applications to provide an optimised customer journey. The consumers of today are generally data savvy. 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. It will reassure customers that their banks will always play by the rules. And, in complying, banks will have an opportunity to realise tremendous value in terms of how they engage their customers.
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 the value of personalisation derived from the use of customer data. 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 and offer services that anticipate their customers’ needs. This could simply mean offering cheaper concert tickets or finding a way of optimising savings for a customer putting money away to buy their first property.
It is hoped that PSD2 will bring in a badly-needed era of trust between banks and their customers. Technology which orchestrates existing and future customer journeys will 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 them and generate new revenue streams.
About Julius Abensur
With a successful international track record of working closely with Financial Service Providers, Julius is responsible for expanding and working closely with Relay42's clients and partners to turn their strategic intent into reality. His focus lies on transforming business challenges into practical solutions that deliver customer outcomes enabled by smart data management technology.