FinTech Connect Live 2017: Spotlight on PSD2
Blog by Phil Ince, Lead Engineer at Travelex
I've attended a number of interesting sessions at FinTech Connect Live 2017 focusing on PSD2 and Open Banking and I've been convinced that as well as presenting many new business opportunities, both represent a major shift in the way we think about customer data.
One part of PSD2 talks about how banks can no longer jealously guard our personal and transactional data. They are now required to allow any reputable partner to have access to your data if you wish it. For example, you (as a bank customer) could allow an account aggregation tool like moneydashboard.com access to your bank account data so that they can display all your transactions across all of your bank accounts. With some notable exceptions (add in who is the exception), no bank has offered this. Instead aggregation services are forced to "scrape" data by pretending to be the customer and by looking at web pages (do you mean history/browsing behaviour?). This is against most banks’ Ts and Cs and is far from an ideal solution. Once PSD2 is implemented, moneydashboard.com can retrieve your information via an API call: a much safer way of sharing your transactions.
But this will just be the start. PSD2 also allow a partner to initiate payments from your account to pay for services. I recently produced a proof-of-concept of how Travelex could use this, whereby a Starling account holder can place an international money transfer order on Travelex Wire without having to enter any of their own data. When signing up for Travelex Wire, we requested permission from a potential customer to retrieve their information from Starling's APIs. Once the permission had been granted, we pulled back all the information required to create a new Travelex Wire account (name, email address, postal address etc). This meant they didn't have to enter their personal information onto yet another website. Then, when time came to pay for their transfer, we gave them the option to pay for it directly using their account rather than having to enter their credit card details. This is more data entry time saved and one less company that you have to share your card details with.
Needless to say, most banks already offer an international money transfer service. You don't have to enter your personal details on your own bank's website to do a money transfer. You don't have to go through a Know Your Customer (KYC) process. And you definitely don't have to enter your card details. However, the large banks’ offerings in the personal international transfer space tend to be expensive and use dated technology with very little thought put into user experience.
The data that can be retrieved from the banking APIs mandated by PSD2 allow FinTech companies to compete more effectively with the big banks. The retrieval of customer data removes a lot of the friction of signing up to a new service and the ability to initiate payments removes the friction of having to enter payment details. This boost to FinTech isn't just restricted to money transfer: lending, saving and funding & investment also look vulnerable to disruption.
How should banks react to this threat?
Ben Robinson from Tenemos has a possible answer. In his talk to the conference, he asserted that banks shouldn't shy away from the challenge. Banks still have large advantages over these FinTech competitors in a lot of categories. They still lead the way in customer trust, they have huge amounts of data to use and – most importantly – they are vertically integrated. With products in all the categories I mentioned above, they should be able to produce offerings that have a full insight into what a customer wants. The FinTech companies, by comparison, usually take on a small slice of what a bank offers, and therefore only have a small slice of information about their customers and their needs. He suggests that banks should stick to products in which they can harness this competitive advantage while opening their APIs for services that aren't at the core of their business model. In this way, your bank can offer a full suite of services, whether this is by offering great products themselves or via FinTech companies using their open APIs.