It’s less than a year until PSD2 legislation will be in force in much of Europe. Not everyone in retail banking is worried – they’ve had time to get used to the idea, and there’s a view in certain quarters that it’s merely the latest in a long line of bogeymen. Last year it was challengers, this year PSD2 – next year something else, but the big banks will endure regardless. In all likelihood, they will, but here’s why the retail banks who are most complacent about this particular legislation could find themselves winning a pyrrhic victory.
Mobile banking as we know it is dead
Once software services catch up to what PSD2 permits (which they will, and quickly – the one constant in the technology industry being that everything changes), the classic single bank app could begin to die off rather quickly. The key reason is aggregation – with banks compelled to allow their customers to use third party services to manage their money, users will be able to use an aggregator app to manage all of their bank accounts and financial products in one place.
There are already ‘screen scrapers’ such as Money Dashboard, which offer an ersatz form of this functionality. As these advance it could spell doom for apps that only work with individual banks. Their demise will be hastened even more if one of tech’s 800 pound gorillas enters the fray. It’s a big ‘if’ – but expect major shockwaves if Google or Facebook choose to make a push into the personal finance space.
Don’t expect any loyalty
With single-bank apps relegated to the minor leagues, the much vaunted ‘banking beyond the branch’ will be dominated by those who own the aggregators. It’ll not only be a serious erosion of touchpoints that generate significant ROI, but there will be a significant change in who and how the customers behaviour is influenced.
Aggregators will be collecting data about every bank account and financial product belonging to each user, so they’ll also be in an advantaged position in terms of persuading customers to switch or purchase new products. The long held ambition of many banks to cross-sell and upsell to their customer bases will be severely limited if the customers can cherry-pick services from multiple providers, but still enjoy a seamless experience. This could mean some banks being left with the expensive and low margin commodity business, whilst newer or smarter services grab the sexier and higher margin services.
Banks can do this the easy way, or the hard way
Whatever your view, there’s no getting out of PSD2 for banks – the legislation, and its UK equivalent the Open Banking Directive, states that banks must allow customer-permitted third parties to access as much account information as the customer themselves. Responses to it are varying across retail banking – some, seeing a lack of prescribed technology standards are under the assumption that the impact is being overhyped and 3rd parties will be unable to capitalise on access to a bank’s data. Some are taking a defensive position focused on how data not covered by PSD2 (e.g. credit checks) can be commoditised and sold to the aggregators.
That’s the easy way. Others who are arguable more long-sighted, will build their own aggregator capabilities. It’s these banks – those that choose to see PSD2 as an opportunity, not a hurdle, and who capitalise on that opportunity effectively – who will emerge as the real winners in the post-PSD2 era. Big banks are uniquely well positioned to become major players in aggregation – they have multi-channel access to millions of customers who already trust them, and they have more than enough resources to build and maintain extensive secure software platforms.
Banks who take this proactive stance won’t just be defending their existing touchpoints, but increasing them – as well as gaining a significant competitive advantage by gaining a direct view of how their customers are using the products of rivals. Fortune will favour the brave post PSD2 – those who own the aggregators will undoubtedly own the mobile banking of the future.