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The customer is mightier than the bitcoin!

For payments and fintech, 2016 was the year for lining its ducks in a row that clearly spelt “customer”.    

In the last year a number of directives have emerged, some from Europe, some from central Government, with regard to the future of banking and payments. The one thing these directives have in common are their place as sector game changers. They are putting real, and long overdue, pressure on the finance community to up its game with relation to innovation, customer choice and most importantly, experience. From the Competition and Markets Authority ordering the high-street banks to ‘open-up’, through to the EU directive for PSD2 and the recommendation to consolidate payment system operators to be simpler and more responsive, the customer is very much king.

With the launch dates for all being due in the next two years, the industry has been bracing itself and very much gearing up to prepare for the change. Clearly 2017 is going to see more of that, but accelerated against a back-drop of nimble, tech savvy and customer-oriented market entrants.

PSD2 is shaking up the finance applecart

An overhaul of the Payment Services Directive (PSD), originally launched to modernise and standardise how the payments system operates across the EU, PSD2 is the shake up the industry has needed. 

It’s clear that corporates are under pressure to do more with less, and in 2017 finance professionals will have more options than ever, particularly given the direction of travel offered with PSD2 and the open API (application program interface) initiatives.

For the general public it means quicker, more transparent services, and access to money and digital apps which gives them a global view of their finance and more help to manage funds (with the added security that they should also be able to purchase more securely on mobile devices and better options to retrieve funds in the event of fraud). 

For providers – many of who struggle with outdated legacy systems that are dismally unequipped to support new functions - it means a much more competitive, innovative, regulated environment where each player needs to move with the times or get out of the race. 

With research showing only 14 per cent of these institutions are ready for PSD2, it will come as no surprise that 2017 will be a dash to embrace development and build scalable solutions to deal with the change, and the threat of new, more agile competition. 

With Payment Initiation Services – part of the long-term view - set to offer an alternative to cards and card providers by 'pushing' money from the buyer's account straight to the merchant, as opposed to a back and forth request, revenue streams for banks and card companies will undoubtedly fall. That is unless they act and act quickly. 

Data shows that banks could be poised to lose 43 per cent of retail payment revenue streams by 2020 if they don't act and make themselves more appealing to both merchants and customers. The threat is not an insignificant number and it’s certainly not an insignificant timescale to act.

Banks will be obligated to provide these third-party providers access to their customers’ accounts through open APIs. This will enable third-parties to build financial services on top of banks’ data and infrastructure.

Faster, slicker, safer 

Open Banking, a key project to be viewed in conjunction with PSD2, is an initiative that is driving financial institutions to securely and rapidly enhance their digital offerings using an ecosystem of third party applications and services, with financial platforms opened to provide greater customer choice and service. 

The CMA is implementing a wide-reaching package of reforms and central to this are measures that ensure customers benefit from technological advances and that new entrants to the financial market are able to compete more fairly. 

Open Banking will enable consumers and businesses to share their data securely with other banks and with third parties, enabling them to manage their accounts with multiple providers through a single digital ‘app’, to take more control of their funds (for example to avoid overdraft charges and manage cashflow) and to compare products on the basis of their own requirements.

With a requirement to implement Open Banking by early 2018, a betting person wouldn’t have to think too hard about where 2017 development budget and activities will be focused.

And who knows what lies beyond that? While PSD2 will enable bank customers, both consumers and businesses, to use third-party providers to manage their finances. It may later develop into using Facebook or Google to pay bills, making P2P transfers and analyse spending, while still having your money safely placed in your current bank account. 

Embedded financial services

If 2016 was hoping for an emotional send-off on December 31st, it can think again. 

Even the world of online payments succumbed to the wrath of 2016, besieged as it was with worries around fraud, security, and compliance issues. However, for payments at least, there are chinks of light at the end of this seemingly never-ending tunnel, and 2017 looks a bit more promising. 

With all roads leading to shared platforms, greater consumer choice and a removal of friction for the customer, a phrase that we are going to see used more and more is ‘embedded financial services’. 

As we enter the next generation of banking and finance, with pincer movements or legislative pressures versus fintech innovation and increasingly cloud and software-based solutions, 2017 is the year payments and banking will become embedded in business processes and no longer a standalone.

In real-life terms, I firmly believe one far reaching and visible change we will see is the demise and eventual disappearance of the online banking portal. 

A work-in-progress technology for the last five years, varying by institution and impacted by legacy banking processes and hardware, we will see the emergence of new, agile, technology platforms that allows banks and businesses to easily create new services and business processes around payments.

These changes will be enabled by technology platforms that don’t just allow the sending and receiving of money, they will be positioned to help businesses deliver better value, whether through innovation in services or the development of products that harness greater customer experience.

The implications will straddle banks, businesses and consumers, but one thing is for sure, the customer not the coin is becoming central to the future of the fintech world.

Anish Kapoor, CEO, AccessPay
Image Credit: Julia Tsokur / Shutterstock

Anish Kapoor is the CEO of AccessPay. A tech veteran, he co-founded of TeleCity in 1997, and has been involved in a number of ambitious tech start-ups, including web conferencing and screen sharing company Yuuguu, eventually sold to European telecoms giant Powwownow.