The Revised Payment Services Directive and What It Means for Your Customer Experience, Part 1: Two Types of Service Providers
The last few years, the financial services industry has been defined by ever-accelerating change. Changes in customer behaviour and advances in technology, such as mobile wallets, biometric authentication, and Big Data, have transformed the way consumers interact and engage with banks—while disruptive new competitors like Atom Bank and Mondo have challenged traditional players by providing more agile digital-first banking experiences.
Now, a new set of EU regulations is set to disrupt the industry like never before. The revised Payment Services Directive (PSD2) mandates that all banks must open up their core banking systems and share certain types of customer data with third parties—including potential competitors.
Frantic discussion has erupted over the IT and technical hurdles involved in these changes, along with PSD2’s implications in terms of security, operating model, and organisational change. These are all of fundamental importance, but at Adobe, we believe there is one more critical hurdle to overcome: these new regulations will force every bank to differentiate through their customer experience, and it will make that experience more important than ever before.
Over the next few months, banks will begin to face customer experience challenges from newly empowered service providers—especially those known as PISPs and ADASPs. To compete and to succeed, they will need to start addressing these customer experience challenges now.
The first type of challenger to emerge in the PSD2 world will be the third-party payment initiation provider (PISP). These companies will empower new payment solutions for customers by linking bank accounts with their own user-friendly technology. They’ll achieve this by accessing each bank’s application programming interface (API)—which will be required to be open access under PSD2—authenticating the user, and enabling that user to make a payment online or from a phone or other connected devices.
This API approach poses a significant and real threat to the revenue driven from card-based transactions, as, in theory, all fees currently received by the issuing and acquiring bank could be supplanted, as could the fees for the processor and card network.
Aggregators and recommendations
The second major challengers to emerge under PSD2 will be account data aggregation service providers (ADASPs). These companies will access data from customers’ bank accounts to provide spending breakdowns, savings recommendations, and other personalised services. And the competition is not necessarily going to be who you think.
It is highly conceivable that Apple will develop a finance framework (similar to its HealthKit framework) that will allow easy and secure data connection and storage through Account Information Services (AIS). This would allow any developer to build highly engaging, professional user interfaces for personal financial applications, whose aggregated data could present customers with one simple view of all their current savings and credit accounts from multiple retail banks. This would therefore bypass the need for customers to access their own banks online and mobile banking tools, reducing the opportunity for them to cross-sell and up-sell other products.
Another service we envisage coming from these ADASPs is recommendations. By being granted access to a customer’s personal transaction data, and developing their own algorithms, these new competitors can recommend better financial services and products. That said, there is nothing stopping you from building great experiences and recommendations for your customers.
These new startups won’t need to create any core banking infrastructure to provide these services. All aggregation service providers will have to do is deliver a great customer experience to customers using their app or website—while gathering their own first-party customer data, which they can then leverage to produce even more revenue streams.
For both types of disruptors—PISPs and ADASPs—customer experience will sit at the core of their mission and functionality. This aligns precisely with the message we emphasise at Adobe: the customer experience must be absolutely central for any financial company that aims to succeed in the coming year.
In the second blog of this series, we’ll explore what PSD2 actually means for your organisation’s customer experience—and we’ll examine one crucial choice you’re going to have to make in order to get ahead of your competition. See you there!