Regulation is just the start: PSD2 and the journey
As PSD2 regulation looms into view, we have been considering the impact it will have on our banking customers: how will they manage the change, how will they stay competitive, how will they use this to their advantage. However, sometimes in our discussions, we have to remind ourselves that the real change will come from their customer - all of us - the consumer.
“We always overestimate the change that will occur in the next two years and underestimate the change that will occur in the next ten. Don't let yourself be lulled into inaction.” Bill Gates
This is a warning we should take heed of. PSD2 is having an impact on the industry right now. The PSD2 Directive provides a framework – including for security – that needs to be complied with by January. For most aspects detailed “Regulatory Technical Specifications have been published, but for Trusted Authentication – and thus the security that comes with it - discussions and resistance are expected to delay publication until far into 2018. For the industry this will mean, if you’re unlucky, you’ll have complied with the directive for January but need to make a second wave of security changes to follow the detailed specifications when published.
This is absolutely disruptive to the industry – complying with regulation change always will be.
But that wasn’t the premise behind PSD2
PSD2 was designed to disrupt the market, create competition in the banking sector, allowing the easy flow of data. But the journey is just beginning and the consumer is not yet involved.
I’m reminded of other industries – telecom and Energy – where regulatory change to create competition and give consumers more power to choose and switch providers came into force almost a decade ago. But still now, in countries such as the UK, consumers are not yet taking advantage of it in the way intended.
Behaviour change cannot be forced by regulation. It takes time, publicity and for there to be enough desire out there.
There is time
This means that banks have the time to get this right for their customers and will take a while to decide which role to play in an open banking market, choosing their tech wisely. The best strategy for them to adopt is to invest in their own RnD as well as keeping an eye on the market and forming partnerships with Fintechs.
It is becoming increasingly clear that Fintechs are more and more being considered as disruptive tools to compete with other incumbent players, not often as disruptors in their own right (although if a ground-breaking disruptor emerges, it could very become just that). Banks should look to Fintechs for the best solutions and innovation they can adopt and not be fearful of their impact.
Don’t underestimate the ten year change
In ten years technology will have changed everything and the likelihood is that the consumer will control the direction of this shift.
The global economy may run on a new axis, incumbent facilitators to traditional value chains will have disappeared and even some industries may be extinct, cash itself may have all but disappeared in some EU markets.
With the rapid change of technology, everything is up for debate. Regulation may be the catalyst for a change in this sector but we don’t yet know where we will end up.
Inaction is unwise
As the only thing we can rely on is change, we must work to futureproof. Transform your business to be more agile, invest in RnD and invest in technology partnerships. The future is uncertain. What consumers will want from their banks in ten years’ time is anyone’s guess, though the rise of technology and evolution of European demography is giving us some hints to work with. The next disruptor to the banking industry might not be Fintechs but it is out there – hidden in plain sight no doubt.