Open Banking: it's going to change everything
In finance, great service is only available to the wealthy, whose money is actively managed by specialists. However, technology now has potential to empower and promote information equality for anyone with access to that technology.
A new payment services directive (PSD2) will be implemented in Europe in 2018 and bring big changes. It's likely to be good news for customers and present headaches for traditional financial services providers. With good, careful design and some breaking wave technology, PSD2 and Open Banking will make possible the kind of personalised banking experience only currently enjoyed by high net worth individuals. HM Treasury is keen to get things moving quicker than the prescribed PSD2 timeline, so UK business has a first-mover advantage.
PSD2 is a European initiative, so what about Brexit? Whatever the future holds, PSD2 will be implemented before any Brexit actually occurs. Unless we return to a barter economy, it's difficult to see how the UK could run a monolithic 'closed bank' in a continent of Open Banks. Arguably the urgency to get PSD2 adopted is now more pronounced.
So what will change?
Many of us hold products across multiple banks and payment enabled financial service providers, such as credit cards. Currently we have access to the silos that are providers' individual digital eco-system. PSD2 will introduce a whole new category of service provider called Account Information Service Providers (AISPs), which will join these silos up.
An AISP won't necessarily be a bank, it could be anyone who can securely authenticate the customer and gain permission to access financial services on their behalf. They will offer a service through which the consumer can view all of their multi-bank/financial service provider details in one place. AISPs will be able to consolidate account information in one place, interrogate the information, acquire insightful data about the customer and make payments – or move money - on their behalf.
The dominant AISPs will deliver value and convenience to the customer - consistent with the web-enabled service revolution that we are living through at the moment.
A pre-existing relationship with a customer will give wannabe AISPs a great start – so Facebook, Google, Apple, Paypal and other trusted sites will be well placed to capitalise on this opportunity. PSD2 will offer lucrative cross-selling for these new providers, and opportunities for banks to try to dis-intermediate others. Challenger banks such as Starling and fintech start-ups such as Oak have already made clear their intention of taking advantage of Open Banking and PSD2.
So what kind of service will leading AISPs offer?
Customer needs will lie at the heart of the service. AISPs will have to understand customers' needs, preferences and, for the first time, where the potential value lies in the previously untapped opportunity to aggregate and monitor multiple accounts. We know value doesn't solely lie in a bunch of pie-charts and histograms because the current pre-PSD2 aggregators have tried that, without great success. Instead, at the very least, it will have a natural language interface, predictive technologies and will be able to spot opportunities for the customer through their financial transactions.
Once the customer has agreed a bank can 'see' and access all their accounts, this puts that bank in a very powerful position. Suddenly statements such as "we notice you are paying £ to a competitor credit card provider, shall we move your balance interest free and guarantee our lower rate card?" or "you seem to be paying to a competitor ISA, we can do better than that for you" and more, are possible. This allows customers to benefit from the kind of proactive assistance and guidance that only high net worth individuals get today.
All financial service providers are keen to cut costs so the kind of proactive service I describe above is not delivered by people – but by smart technologies.
The dominant AISPs will be smart, vigilant, proactive assistants that make the best of whatever resources a customer has; they'll look for opportunities to do things the customer may not have considered; they'll check the customer's money is optimised to achieve their goals and watch for things going wrong; they'll suggest new behaviours and better ways to do things; they might be permitted to make certain decisions or payments; they won't nag customers or get in their face; in fact they will behave a bit like very focused personal advisers.
Working out how these systems should behave, look, feel and communicate is a topic engaging the minds of many experience design specialists across all sectors, not just financial services. The future is coming very fast, seize the day or regret you didn't!
Can you help us?
cxpartners have followed the emergence of the PSD2 initiative closely. We understand the disruptive impact this will have on banks, the strategy that banks and other third parties are likely to take to leverage the opportunity and to defend their very real vulnerabilities.
We also understand that innovation in digital customer experience is key to seizing opportunity and managing risk. cxpartners are defining, designing and developing the AISP experience that will enable our customers to hit the ground running before this becomes a legal necessity.
We would welcome your opinion and feedback on this topic to help us develop a wider picture of how organisations feel about PSD2, AISPs and the Open Banking Standard.
Please contact Mark at Mark.Hicks@cxpartners.co.uk or call +44 (0) 117 930 3530 for more information. You might also like this free PDF download exploring the impact and opportunities of open banking. Please help yourself.