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PSD2: The honeymoon period

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PSD2 has been one of the most fiercely debated payments topics of recent times. Will this be the death of traditional banks? Will consumers get a better deal when it comes to financial services? Are FinTechs going to take over? We’ve already heard Starling Bank announce four new partnerships that will allow customers to apply for a mortgage and insurance using its in-app Marketplace facility.

However, to spend our time considering which FinTechs might survive, who will form the next partnership or how many customers the banks could lose, would be a fruitless task. The developments we’re already seeing are exciting for sure, but we should instead be looking at how the landscape will evolve beyond this honeymoon period – how will all participants need to adapt to operate in this new environment, and how will they get there?

Learnings from the dot-com era

The buzz around PSD2 reminds me of the dot-com boom. We were at an exciting milestone for the internet. Investment was flooding in to all different types of web-based companies, and there are strong parallels with today. Although I’m sure we won’t see the bubble burst quite so explosively as we did back then.

European banks are being compelled to open their APIs, allowing FinTechs and other tech companies to create their own solutions, which is an exciting prospect. There’s a certain dissatisfaction with the incumbent financial service providers, from getting a mortgage, making an international transfer, right through to customer service. As a result, there is an inevitable attraction to investing in those challengers that seek to improve the customer experience, add value and effect real change. We now have apps that make pensions easier to consolidate and manage, app-based banks that avoid the typical frustrations with branches and FinTechs aiming to help build credit histories for individuals who had previously struggled to acquire them. It’s clear to see why investment in the FinTech sector has been booming.

But we’re certainly in ‘bubble territory’ right now. There will obviously be FinTechs and other tech companies that will deliver innovative solutions that will appeal to consumers, and there inevitably will be those that fail. After all, there are only so many solutions that you can present to a customer, but how many will they actually end up adopting?

Bigger picture

It all comes down to considering PSD2 as part of the bigger picture. We cannot assume that, with the cornucopia of new financial service solutions, finance will become instantly fairer or easier, but it’s certainly a good start. It’s a multi-dimensional framework that moves towards greater transparency, competition and a richer customer experience. But it shouldn’t be viewed as a means to an end in itself.

Aside from cost, what consumers really want from their financial service providers is a great customer experience, trust in their providers and the ability to access the services they need conveniently and at a time to suit them. According to Accenture’s 2017 Global Banking Distribution Marketing Consumer Study, nearly half of respondents identified relevant, tailored advice, product information at their fingertips and high-quality customer service as key factors in customer retention and loyalty.

Categories aside, whether a FinTech or a bank, financial service providers need to be striving to meet customer needs, with PSD2 serving as an enabler for them to do so. No matter how established your business is, if your customer cannot contact you when they need you, there’s a good chance that the customer will consider going elsewhere. This is where the incumbent banks should be concerned – PSD2 will inevitably drive the adoption of other consumer options, such as enhanced digital banking apps which provide new tools that enable self-service. Starling Bank, with its recently announced partnerships, has shown exactly this – why put up with a less than satisfactory process to buy insurance, when you could look to a digital option that offers a hassle-free alternative?

However, on the flip side, some of the challenger banks are far less experienced in delivering responsive, high-quality customer service, meaning that automatic loyalty isn’t a given for them either. You might offer consumers a snazzy app, but if it’s not responsive and can’t offer the right information/product, at the right time, it simply won’t succeed.

Changing mind-sets

Financial service providers therefore must take an agile approach in this PSD2 world. They need to be able to test products and solutions quickly to learn whether they fit a customer’s needs and will prove complimentary in maintaining and growing their customer base. For example, data might show that customers contact their banks most frequently between the hours of 6pm and 7pm. It would then make sense to experiment with some form of chabot solution to manage increased communication. However, if customer complaints subsequently rise at this time, it’s clear that the solution didn’t quite work.

It’s all about innovating fast and failing fast in this new financial landscape, with PSD2 serving as an accelerator amongst banks and an enabler across the FinTech and banking ecosystem as whole.

Customer service has to be at the forefront of every decision that a financial service provider makes – we’ll likely see more partnerships and collaborations whereby banks work with tech companies to add value, for example, following in the footsteps of the likes of Starling Bank.

PSD2 is the regulatory catalyst designed to accelerate change in the financial services sector in Europe. Some might say that it is long overdue. Rather than thinking of it as a stand-alone directive, we need to think of it as the prompt to think more deeply about how we can improve service delivery, the customer’s experience and become more relevant and valuable to them.

Whatever the outcome of PSD2, firms that provide feature-rich products that their customers value, combined with responsive high-touch customer service are more likely to succeed in the battle for the hearts and minds of consumers under the new PSD2 regulations. 

Nick England, CEO of VFX Financial PLC (opens in new tab)
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Nick England is the CEO of VFX Financial PLC, operators of EasyFX. Before founding VFX, Nick co-founded Voltrex Limited in 2001 – an advanced corporate FX trading and treasury platforms.