Our banks tend to be our constant correspondents, but far from our closest confidants. That’s the finding of numerous studies of the relationship between customers and retail banks over the past year – with a 2016 report from Vision Critical showing that 49% of customers have merely ‘moderate’ trust in their primary financial institute. Among millennials, the figures get even worse, with 58% ready to consider abandoning traditional banks in favour of finance offerings from Google or Paypal.
Taken in aggregate, these study findings show that banks have a degree of exposure to non-bank competitors, and the arrival of PSD2 promises to accelerate this. Banks will lose the advantage of exclusive access to their customers’ data, and will be forced to share it with third parties – the same third parties that are consistently beating them in customer surveys regarding trust in financial services providers (a 2016 EY study showed that 29% of respondents viewed ‘Non-banks, e.g. Google or Walmart’ as a primary trusted source for financial advice, versus 21% who trusted traditional banks more).
Clearly, there’s work to be done in terms of rebuilding relationships with customers – and much as the danger of eroded relationships is magnified by PSD2, it’s PSD2 that could also present the potential solution. Following the implementation of the legislation, customers will begin to have access to financial products and services through a greater number of gateways. Managing your banking through your Google account could become a possibility, for example. There’s a significant opportunity for banks to become chief among these gateways – but they will need to differentiate themselves from non-bank competitors.
The key lies in how banks choose to present their customers with the greater functionality and connectivity to fintechs that the post-PSD2 era promises. Aggregating services and functions will be important, but more important still will be avoiding becoming just a clearinghouse – and aiming instead instead to become a curator.
The first step to achieving this will be increasing their adeptness in using customer data. By exploiting this extensive resource, they’ll be able to provide customers with genuinely useful advice. Instead of generic offers of loans, highly tailored ones can be made, perhaps with discounts to retailers relevant and important to that customer attached. Particular fintech tools might be recommended on the basis of the knowledge that that customer has children, or runs their own business.
The second will be to ensure that advice is not only highly tailored, but in that customer’s best interest. It’s interesting to note that the majority of digital banking interfaces currently offer few options for looking into the future of an individual’s finances – their features are focused almost exclusively on historic data. By providing advice on what a customer might do next – how they might efficiently save for a pension, for example, or how they could cut their spending on utilities – alongside statistical data showing how this could affect their future finances, banks could stand to increase their usefulness to customers significantly.
Post-PSD2, the pressure will be on banks to reach out to customers more effectively than ever before – but for those who manage to do so effectively, the potential increase in appeal to the crucial millennial market will be huge. If they can build relationships in the present, they’ll be able to protect their future.