Mobile and open banking are relatively new terms compared to the history of banking. Perhaps, you’re more familiar with the first concept - the mobile. It would be difficult to find someone who doesn’t have at least one banking app on their phones. The surge of independent platforms began with the rise of fintech companies, transforming the industry to bring faster, more reliable, and user-oriented banking services. In Europe alone, the fintech sector was valued at 20.4 billion USD in the first quarter of 2018.
In 2015, the European Parliament passed the PSD2 directive. It came into effect in 2018, and since then shifted the European banking scene, while giving more power to consumers. Before the directive, traditional banks had monopolized consumer data. Yet, with the recent changes, users have power over their accounts and thereby, choices. People can choose where to put their money and which services to trust. Banks are becoming just an infrastructure for accumulated wealth instead of controlling consumers and their funds.
However, the hype around mobile apps, that can do regular financial procedures much faster than traditional banks caused some challenges. Not only consumers were fascinated by new possibilities, but emerging companies too. It resulted in hundreds of new startups entering the scene and flooding the market. Most of them weren’t much different from one another. They all offered fast and secure performance - competing only by increasing, for instance, withdrawal limit or designing a more intuitive dashboard.
As a result, consumers ended up jumping from one app to another, managing several different accounts. And juggling between profiles is not just discomfort. Having money on more than one app could develop a risk of losing funds due to unnoticed money “leaks.” On top of that, imagine if you have to pay monthly fees for all those providers. So, it was clear that something had to be done.
PSD2 Paves the New Era of Banking
The PSD2 directive opened banks for more user-friendly services. Now financial organizations have to give users account details to the qualified (meaning regulated) third parties if the user gives permission. The process works through open API’s (application programming interface). API ensures higher security standards as the data you share as a user is encrypted and monitored with certified security and data privacy regulations.
Therefore, the directive makes banking more convenient for consumers, as they don’t have to create additional accounts or to handle operations via bank, and more secure with enhanced security measures.
PSD2 also benefits new players by easing the way to enter the market. Services don’t need to struggle encouraging consumers to open an account on their platform as they can do that by linking the existing profiles.
And yes, recent regulations also inspired OSOM. New legislation empowered us for the aggregation of bank accounts to ease daily financial management. Under the strict regulation of the National Bank of Belgium, we are striving to bring an experience that takes you beyond banking and into true finance management.
PSD2 to increase the growth of fintech
Although the competition is already fierce, it most likely will change direction. Instead of new companies promoting yet another account, they will focus on improving the user experience and creating the perfect bouquet of service for each consumer so they can have what's most relevant to them and nothing more. As a result, we could see the growth of companies that provide a specific product, such as token integration. Instead of fishing for new accounts, they will master particular features, such as payments or withdrawal limits.
PSD2 to accelerate modernization
We all know that traditional banks fall behind when it comes to innovations. However, with recent changes in the sector, digitization is inevitable to maintain influence. Consumers treated with quick operations, excellent support, and comprehensive navigation, don’t bother to switch to a more convenient service provider.
John Hallsworth, open banking global network lead at KPMG, in his article “Open banking opens greater value” wrote, “Customers are looking for easier, more seamless and intuitive value-added banking experiences and there are a growing number of fintechs and ‘challenger banks’ seeking to capitalize on these developments.”
The roles won’t change in one night, but the opportunity for new kinds of financial institutions is here, and by building OSOM, we are taking it seriously to change the way you manage your money.
Open banking to produce higher data privacy standards
By all means, a data breach is a crime on the rise, and a troubling issue when it comes to information aggregation. However, the PSD2 directive encourages service providers to guarantee higher security checks and data protection. Regarding the regulation, security policies will evolve, and companies will be urged to adapt accordingly.
Traditional Banks in the Face of Open Banking
While startups and consumers are celebrating benefits, traditional banks aren’t as excited. Before the directive, they had monopolized consumers’ data, and once they obtained information, it meant that that person belongs to them and has fewer chances to choose another service provider. After PSD2, it doesn’t matter whether they landed a client or not; the same person can be using ten different services at the same time.
It’s better for consumers who won't have to think about the brand names of the underlying providers so much and will be able to switch faster, but the banks see it as a risk. The smart ones are already thinking about how to adapt. Either they figure out a way of building better customer experience, or they go the way of utilities and provide "banks as a service" services to other financial players, focusing on a good platform and excellent compliance.
Banks won’t be rivaling only with fintech startups. They will have to face a much broader spectrum of competition. For example, even Facebook, with its new Libra currency, or Amazon can become potential competitors.
Despite the influence over lobbying and the market, traditional banks can’t prevent changes and digitization. What we see now is how the financial sector is meeting consumer demands instead of pleasing big players.
Although the PSD2 directive was a recent change, we can already see new trends rising and challenging traditional banking. So, is open banking paving the new era of money management? Definitely. With a faster and more reliable service, we can achieve better user experience and bring more awareness of how we do finances.