Banks – Does PSD2 really mean startups can compete with banks?

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 The banks are looking at PSD2 with mixed feelings. On the one hand, PSD2 could mean the chance to offer new services that their customers are clamouring for, and which could mean increased profitability in a changing world.
On the other hand, it will mean big changes to the market where they have had things their own way for generations. And one of the most worrying (for them) of these changes is the threat of competition from new businesses with the ability to innovate fast, simply because they don’t have to carry the burden of legacy systems.
So what is the likely future for banks? They need to view the PSD2 as an opportunity and not as a threat. If they try to ignore the changes it will bring, it will certainly be the startup companies who will be coming in and enjoying the benefits.
What are the changes that they can expect? Banks will be inundated with requests for API’s for each product of a client. This will be a problem with current bank systems. The surprising fact is that most banks cannot provide a single snapshot of all the products held by a single client. They will need to make changes to infrastructure simply to keep up with the changes PSD2 is bringing to the industry.
Banks will be looking at some significant costs to invest in new systems. They can also expect to lose at least a proportion of the Interchange revenue they have enjoyed for so long – and they can expect to lose out on interaction with customers who use an aggregator site.
So the future might actually look as bleak as banks may fear – until they remember they can play all three roles of Bank, PISP and AISP.
By moving to an open banking model and adopting APIs, banks can become a platform for financial innovation or banking as a platform.
Platformication – the Bank as a Platform – is the way for banks to turn PSD2 to their advantage. Put simply, it is an opportunity for those forward thinking banks to offer their own tailor made, high margin financial services to their competitors’ customers.
What’s more, they will be supported in doing this by a wealth of information – the customer account information that their competitors will be compelled to provide for free. By opening their own aggregating platform they can provide personal Financial Management services and cross sell value added offerings.
Banks simply need a digital platform to create the new experiences becoming possible. But of course, there is very little that is simple about providing a platform with the necessary versatility, reliability and capacity.
Building a new scalable API architecture, integrating it with legacy core banking systems, maintaining it and risk managing it to ensure there is no downtime for data hungry PSPs will be hugely complex.
The overhead of legacy banking systems and a risk averse corporate culture – and perhaps a lack of internal expertise and resources – will hinder any attempt to innovate either quickly or at low cost. banks need to see partnerships or acquisition as the way forward.
At Trusek we can provide a platform that will integrate with the bank’s existing infrastructure, and is ready to let them deliver the performance they need.
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