The direct consequences of PSD2 will become rapidly clear once the new legislation enters into force on 14 September. In the first two blogs, we discussed what PSD2 really means and how it can get the financial department to play a more proactive part in the organization.
This is a guest blog written by Rik Coeckelbergs.
My recent series of ‘Open Banking Interviews’ with bankers from all over Europe confirmed the conclusions of these first two blogs. One way in which banks will benefit from from PSD2 is by aggregating transaction data from accounts with competitors.
These are services in which Isabel has excelled for years. New services such as those offered through Isabel Connect are an extension thereof.
The consequences of PSD2 are bound to have a greater impact on the financial world in the longer term.
Better lending thanks to PSD2
PSD2 stands for ‘Payment Services Directive 2’. Its impact will be felt in other areas too, however. Take lending, for instance: PSD2 will increase competition indirectly in the credit market.
All of a sudden, with your prior consent, Bank B has easy access to your account information with Bank A. In this way, Bank A, where you have been a client for years, loses an enormous competitive edge over its competitor, Bank B.
A structural customer relationship is no longer necessary for a decent credit score.
As is the case with many private individuals and companies, you are presumably a client of several banks. The account information is thus spread out. PSD2 can therefore help you get a more accurate score. In theory then, your bank can propose a fairer rate, without having to have all the payment services with that one particular bank.
We can take a look at the construction sector as a practical example, where work is typically carried out with advances. Such an aggregation has obvious advantages with regard to available repayment capacity for loans. We will see models such as these far more in the coming years.
How APIs make the life of companies easier
The advent of APIs and the new roles that the legislator has defined (account information service providers and payment initiation service providers) means that banks are confronted increasingly with more new competitors. But that also offers banks many more creative possibilities to expand their services.
New banks understood long ago that cooperating will be crucial if they are still to play a meaningful role in the future. APIs make this a lot simpler.
For instance, Starling Bank, which is also active in banking for entrepreneurs from the UK, has a very clear vision on the matter. Helen Bierton, Head of Banking at Starling Bank, had this to say in the Open Banking Interviews:
“We think it [open banking] is more about providing all the ingredients for someone else to make the cake. Exactly how you as a chef make that cake, what that cake is like, is completely up to you. We are not going to dictate that.”
The idea is that financial institutions will have to provide a wider range of services in the future from which the customer can choose to get started with them.
Starling Bank anticipates a Market place on this front where different partners can offer their services integrated with the banking services of Starling Bank. A concrete example from their corporate segment is the cooperation with Growth Street. As a client, you can link your profile with your profile at Growth Street. This is a marketplace where investors and lenders are brought in contact with each other. Their most important product is GrowthLine, a credit facility for SMEs faced with a temporary cash shortage. Starling Bank clients gain access to these products in their bank platform through these channels.
Or consider Penta, a German newcomer, which aspires to make the life of the entrepreneur easier through, among other things, a simple integration with accounting software packages such as lexoffice and Debitoor, in order to exchange transaction data in real time for an automatic reconciliation of issued invoices.
Furthermore, Penta makes it possible also to scan the expense reports of payments with credit card easily with the bank app. The details are kept in the app and are automatically forwarded to the accounting packages for reconciliation.
In Belgium, the Isabel Group uses a similar card to provide a number of new services. Their cooperation with IbanFirst offers clients an opportunity to obtain real-time and comparative, competitive FX rates in the Isabel platform. It makes it possible to link back office systems directly with Isabel 6 via the Isabel Connect APIs, in order to manage incoming and outgoing payments from their familiar ERP or Treasury Management System.
In addition to internet and mobile banking as a proprietary channel, banks must also be able to provide a commercial offer to third parties via APIs. Many more services will be provided in this way in the longer term. “Omni-channel” strategies will no longer suffice for banks: welcome to the new age of “overall banking.”
Open Banking will change the way that we, as consumer and professional client, look at financial services. More competition and simpler integrations will lead not only to lower prices, but also to a superior service.
The Banking Scene
Rik Coeckelbergs is the founder of The Banking Scene, a set on social media channels, and a yearly conference in Luxembourg and Belgium. He is passionate about banking and payments, conceptualizing ideas and enabling sustainable business models.
Prior to his current position, he was Payments and Management Consultant at Clear2Pay (now FIS), Business Controller at Colruyt and Senior Product Manager Daily Banking at bpost bank. In 2009, he created a Linkedin community “Innovation In Payments” which today has more than 24,000 active global members. This unique mix of multi-year experiences in Finance, Strategy and Marketing within Financial Services and Retail, has given Rik a holistic view of today’s challenging financial services market. At the same time, he has this hands-on approach that allows to tackle critical challenges and put dilemmas into the right context.