In recent posts, we’ve (figuratively) pulled up a chair to discuss the way the financial services industry is changing, as technology opens the door for non-traditional players like Wal-Mart, Google, Apple and others to join the banking marketplace.
In one of the latest – and most intriguing – developments, the European Union has handed down PSD2, the Revised Payment Service Directive.
A post on the website Evry.com spelled out the new directive clearly and compellingly:
“As the PSD2 . . .becomes implemented, banks’ monopoly on their customer’s account information and payment services is about to disappear. The new EU directive opens the door to any company interested in eating a bank’s lunch.”
Wow. Bankers across the globe – even community bankers in the United States – ought to get a wake-up call from those two sentences. PSD2 means that any bank customer – personal or commercial –can use third-party providers for financial services.
What’s even bigger? Banks are obliged under the new rule to provide these third parties with access to customer accounts. It means in a nutshell that these new players can build their services on top of existing banks’ data and financial infrastructure, evry.com reported.
Read the entire article here:
There’s no understating the magnitude of the EU’s action. The goals of the new initiative, is to “improve innovation, reinforce customer protection and improve the security of internet payments and account access within the EU and EEA.”
How will this impact banking on this side of the pond? Before we consider that Goliath of a question, consider briefly what the new directive will mean in Europe:
- First, this is another sign that technology is moving faster than perhaps traditional bankers are willing to admit. Consider this: A survey cited in the evry.com story revealed that 37 percent of European customers say they would change banks if they were not offered up-to date technology. That’s almost two in every five customers. That alone should give traditional bankers a strong shove toward embracing cutting-edge fintech.
- Customers are gaining more trust in non-banking options like PayPal. In Scandinavia, similar services are getting a bigger bite of market share. The lesson is that customers more and more want speed, less formality, lower costs, more innovation and more personalized service. And too, one in every five European would use Google or Amazon for financial products.
- By knocking down barriers, it goes without saying that PSD2 will open a potential flood gate of new competitors. As consumers turn to these non-traditional players, customer trust may blossom in a big way.
Those are just a few potential impacts in Europe. But now to the $64K question: What about here at home?
According to an article on PYMNTS.com, a self-described “powerful B2B platform that is the #1 site for the payments industry by traffic, and the premier source for information about ‘What’s Next’ in payments and commerce,” the new regulations will cut out the middle man and allow third parties direct access to customer accounts, making online payments easier and cheaper to execute. And, it also offers greater transparency and easier transaction tracking.
For example, the PYMNTS.com piece said, it’s difficult to track transactions like wire transfers, taking days or weeks to complete. The new European directive streamlines the process.
Arshi Singh, the head of U.S. product for Cybercloud, used the online Domino’s Pizza delivery model as an example of true transactional transparency.
“Today, even if you order a pizza, you can get step-by-step updates on the stage of your pizza’s preparation,” Singh said. “But you don’t see that with wire payments and bank networks. In cross-border, once the transaction leaves the bank, there’s little to no visibility into its movements after that. If it’s stopped for any reason, it can take weeks or even months to find out if it was rejected and why.”
Read the entire PYMNTS.com article here: https://www.pymnts.com/bank-regulation/2017/psd2-currencycloud-international-payments-bank-regulation
Singh believes that if Domino’s can offer transparency, there’s a good chance that as competition expands from non-traditional players, customers will demand the same from their banks.
And while it’s a fair point that directives like the European PSD2 may take a while to make it to the United States, and it’s an equally cogent argument that globalization isn’t really an issue in places like my hometown of LaFayette, Ala., or Hot Coffee, Miss., the changing face of banking demands strong consideration and forward thinking about the future of financial services.
Consider these words from Bill Gates in 1994: “Banking is necessary; banks are not.” In order to stay relevant, banks need to innovate, embrace the digital revolution and completely re-imagine their processes to better serve their customers and prepare for a future where the only certainty is change. The problem is, at my age, I’m tired of change. How about you?
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