By Lucia-Florentina Ionescu, senior consultant at Capco
With less than three months to go before they must comply with revised Payment Services Directive (PSD2), banks need to think beyond the Directive’s mandatory requirements if they are to tap the full potential of the changes it brings
The PSD2 deadline in March 2019 required banks to provide a sandbox test environment for third parties and as such offered a useful perspective on the readiness of European institutions for the new open banking environment introduced by the Directive in September.
The average level of compliance across 10 markets was 59%, with significant variations between countries. Germany was way out ahead of the pack with 98% of banks meeting the deadline, and in markets such as Finland and Belgium over 80% of banks were ready; for the UK, however, that figure was just 64%. This means banks which did not meet the deadline will have to deliver the entire PSD2 scope within a shorter timeframe to achieve full compliance, while third party providers (TPPs) might struggle to reach the operational state required to connect to their APIs.
As the final PSD2 compliance deadline of September 14 draws ever closer, banks across Europe are still grappling with their preparations and changes to their overarching operating models and technical capabilities present the biggest challenges. The opportunity to establish partnerships with TPPs under the Directive will help banks drive innovative propositions and expand their customer base. This impacts technology – not least around the need for the APIs that will serve as a gateway between banks and TPPs – as well as risk management and staffing and skills within companies.
The cost of meeting the mandatory requirements of PSD2 means there’s been little capacity or budget left over for banks to prepare new products and services in advance of the deadline. But once the September deadline has passed, the industry will move into an exciting phase, where banks can leverage the new set up by launching propositions that maximise the enhanced level of customer insight PSD2 can deliver.
The banks that make best use of insights into spending behaviour and a customers’ profile to deliver more personalised services, recommendations and products will be the ones that come out on top. Successful propositions will be the ones that are based on financial data but go beyond banking and become embedded in the customers’ everyday lives. Helping customers save and invest in their future, build better credit profiles or travel smarter will make the bank a dedicated adviser with trust and loyalty significantly enhanced.
The banks that make best use of insights into spending behaviour and a customers’ profile to deliver more personalised services, recommendations and products will be the ones that come out on top.
Along with access to accounts (XS2A), secure customer authentication (SCA) is central to PSD2 and an important step forward in the industry’s ongoing battle against fraud. The FCA has announced it will give companies extra time to implement SCA. It won’t take enforcement action for non-compliance from 14 September, but we don’t yet know how long this reprieve will last and companies must continue with their preparations. With SCA, each customer journey needs to be carefully considered, and it’s a major technical challenge to implement, requiring additional fraud checks and proactive transaction analysis. The added protection for customers will be welcomed, and thinking beyond its mandatory implementation, the transaction analysis can also be used to better understand customers and underpin their risk profiles.
PSD2 has been a major workstream, with new technical capabilities having to be delivered in a compressed timeframe. Banks’ focus over the next three months will need to be on processes and governance to ensure their operating models as API-enabled banks are ready to go once the September deadline hits. Longer term, there is still much more innovation to come, from payment solutions through to aggregation services for commercial banking customers. If banks tackle these challenges strategically, keeping the potential business benefits front of mind, PSD2 promises to deliver valuable new revenue streams.