Since the beginning of the year, it has been mandatory to implement the second Payment Services Directive (PSD2) in Europe. Though it poses certain challenges for banks, it also opens up many new doors for them.
Numerous financial institutions are still in the process of implementing the compliance requirements, but new opportunities are opening up within the framework of open banking. Banks that react in a timely manner can use new business models to secure a place at the top of the banking value chain.
As a general rule, such models should aim to offer customers genuine added value through a wide range of products. The underlying idea of the European Commission has been clearly defined: PSD2 is all about users! Better customer protection, more innovation and a generally stronger competitiveness in the entire market were the driving forces behind the new directive.
Dirk Rudolf, founder of FinTecSystems, also sees the great potential that comes from focussing on the customer. In an interview with the online platform Horizont, he speaks about new opportunities for customer acquisition, which in addition to banking, lie in multi-banking apps, contact optimisation and, in particular, in the digitalisation of banking processes such as account switches or loan applications. However, it’s not only the new products that are supposed to revolutionise the financial world. Sales data analysis and the exploitation of existing customer data have played a much greater role since PSD2 came on the scene. For banks, the changes are best implemented in cooperation with innovative players from other areas. In this blog post we will deal with what this cooperation may look like.
From a Traditional Bank to a Digital Financial Services Provider
Today’s customers are used to being able to do everything online and wish they could do the same for their financial transactions. Financial institutions that don’t consider it a mere threat will be able to take advantage of their clients’ changing expectations.
XS2A – Differentiate your product range
Access to Account (XS2A) is still a challenging topic for large parts of the financial world. However, by using the new API that is actually a requirement of PSD2, the opening of the infrastructure can be cleverly used to the clear advantage of banks! With XS2A, forward-thinking banks are already integrating services developed by FinTechs in their online offering. On the other hand, FinTechs bring real added value through their experience and infrastructure for the development of such services and already have a number of elegant, user-friendly frontends. As aggregators, banks expand their own product range by working with FinTechs.
Thomas Teuber, Managing Director of SKG BANK, a second brand of DKB, talks in an interview about the concrete advantages that the bank already has by using the API:
“Via the API, interfaces of partners can be connected that offer us and our customers an experience that we probably wouldn’t be able to manage so quickly ourselves.”
This provides a massive business advantage for banks. Areas such as software development already earn significantly more from offering third-party services than from their actual core product.
In this way, banks can continue to focus on their strengths, and, in addition to their traditional functions, also have the opportunity to play a new, greater role for their customers.
Uncomplicated Account Switching
PSD2 has made it much easier to win new customers. Banks can directly convince customers with a fast and digital account switching service. In addition, they can learn more about a competitor’s users in order to provide a better service, higher-quality products and a more seamless customer experience.
Even with a decent product range, the switch often fails due to the bureaucracy that proves too annoying for the future customer. However, banks can simplify the account switch immensely by cooperating with companies such as Kontowechsel24 or Fino.digital. Thanks to greater transparency in contractual terms and uncomplicated processing, banks can attract young, digitally savvy customers. In an interview with the start-up Valley News, Oliver Haberstroh, Head of Direct Sales at Postbank, cites this as one of the reasons for working with Finreach: “We want to encounter our customers both digitally and personally.”
The Future of Loans
Stefan Krautkrämer, founder of FinTecSystems, has first-hand experience of how tedious it can be to apply for a loan or a credit card. The private credit bureau Schufa provides security for the institutions that grant loans, but often to the vexation of customers. Practically no one has the perfect Schufa file and therefore everyone faces difficulties when it comes to being granted a loan.
Thanks to the opening of banking infrastructure, customers can now overcome this hurdle with greater ease. With the Digital Account Check, there are already solutions for loan comparison and application that are in no way inferior to the convenience of price comparison websites. Check24 is one example of immediate, uncomplicated loan processing that greatly shortens the often nerve-racking application process. Since PSD2, these services are safer than ever before since only companies with a BaFin license are permitted to offer them. As a result, banks can now rely on the quality of the services that they offer.
In addition, banks can provide their customers with similar banking services in online banking. This is a classic win-win situation: banks don’t need to fear that their customers will all leave and the user is grateful for a secure, direct solution to their problem in a familiar digital environment.
Personal Finance Management – Standing Out Through Customisation
The basic idea behind personal finance management is to offer customers a centralised everyday banking experience. Far beyond the current functions of online banking, personal finance management can help users to manage and control their finances. The automatic categorisation of transactions as well as graphical evaluations are exemplary functions for an organised transaction overview.
As part of multi-banking, banks enable customers to manage their accounts in an online banking portal. This is an impressive offer for many customers, because it means fewer passwords and more time for other things! The possibilities of multi-banking are pretty much endless.
By analysing the needs of their customers in detail, banks can deliver tailor-made solutions. FinTecSystems offer state-of-the-art, effective data analysis through the use of artificial intelligence. By focusing on an optimised customer experience, banks intensify their relationships, tap new earnings potential and make their own business sustainable. A nice side effect of machine-driven data analysis is that bank managers gain time, understand customer needs better and sales can be managed with greater efficiency.
rom Theory to Practice
No bank can make the most of all the opportunities afforded by the new directive. However, there are concrete steps to actively address the new situation. First and foremost, it is crucial to better understand the wishes and demands of customers and to create new offerings for this target segment.
Are your customers young, digital natives or primarily older regular customers? Do you mainly serve the B2B market?
You should design your services accordingly. These steps will help you with the analysis:
Define the bank’s target group
Your customers will heavily shape your bank’s future offering. Based on the target group, you can decide which new services to integrate and can develop mechanisms to bring new products to market quickly.
Look at different use cases
A list of the necessary investments as well as the pros and cons of the business models enables you to calculate in advance which products are particularly attractive to customers. You can also calculate expenses and expected revenue and plan how to increase the bank’s market share. You should also consider how much you need to invest in new technology and employees.
Get an overview of your customer data
You can make greater use than ever before of the data already available to the bank in processed form. Thanks to data analysis, you can identify fraud cases at an early stage, improve customer relations and identify opportunities for monetization.
Define a strategy for API banking
The new interface must be created in accordance with the new regulation. The big question is “Who should create this interface?” Similar to the new services they integrate, you can have this interface developed by a FinTech. An API can be quickly and cheaply integrated into existing services – a developer can integrate the FinTecSystems banking API into their own platform in just a few hours. Then you decide how you want to use and monetize the API.
Find a technology partner
PSD2 requires a number of technical innovations, the cost of which frightens many banks. As a bank, you can exploit the potential of innovative FinTechs and established technology partners.
Tomorrow’s Friend and Advisor
According to a PwC study, 84 percent of bank managers anticipate the need for strategic change due to PSD2. In the coming years, everything will revolve around managing these changes skilfully. As part of an everyday banking service that is tailored to personal requirements, banks can use technology developed by FinTechs to offer customised services such as account switches, loans or multi-banking centrally on their platform.
Christian Meyer, Vice President and Risk & Compliance at FinTecSystems, highlights the fact that “banks and FinTechs now have a reliable framework” and that these services can reach completely new dimensions. In any case, banks will still be able to decide what fits their corporate culture, how many and which services they want to integrate and exactly what they want to offer their customers.
If the offer is right, there will be no reason for users to renounce banks in the future either. In fact, the opposite is true:
Thanks to their wealth of knowledge and experience, banks are predestined to serve as a platform for new technologies and products on the financial market. They will continue to play an important role as the first point of contact and as long-standing confidants.
Bank managers who not only see the PSD2 directive as an obligation, but who take action and introduce new business models clearly reap the benefits of these changes. They even have the opportunity to create an innovative financial system for the daily banking of their clients. Thomas Teuber puts it this way: “Our mission is to seamlessly integrate banking into this digital lifestyle. With API banking, we are well on the way to achieving this. We have completely different possibilities and can react quickly and flexibly. However, we are not at the end of the road quite yet.”