In the digital age, customers are increasingly particular about the services they use. If an online store can’t provide the same experience in terms of fast delivery and product range as Amazon, for example, then they will struggle to survive. If entertainment platforms can’t offer the personalised recommendations of Spotify, or the seamless multiple-device viewing of Netflix, then they’ll be history.
While traditional banks have struggled to keep up with the digital revolution, they are now waking up to the realities of customer expectations in the 21st century. Banks can no longer afford to ignore the needs of their customers. While in the past they could get away with closing branches at lunchtimes and weekends, banks now understand that customers will vote with their feet unless they get the best possible service. New banks built to be digital-first are winning fans for their convenient and efficient services, and the old guard needs to keep up or lose custom.
Additionally, the second iteration of Europe’s Payment Services Directive – aka PSD2 – is due to come into force early next year, and could cause massive disruption to the business model of existing banks. Whereas until now, a bank has been the sole guardian of a customer’s financial data, the new regulations mean that banks will be forced to open up their databases and give this data to any other organisation that demands it on the customer’s behalf – be it a competitor bank, a fintech start-up, a retailer or even an internet giant such as Google or Facebook.
Faced with this battle to continue to be front-of-mind for their existing customers, and with the never-ending quest to win over new ones, banks need to completely change their philosophy. Rather than becoming a dumb pipe, just a back end where numbers are crunched and data is served – a potential consequence of PSD2 – banks need to be the interface through which all a customer’s financial needs are met. However, banks do not need to do it all! They should rather focus on what they do best and partner up with fintechs, insurers and others for the rest.
Rethinking the model
Today’s banks need to become marketplaces, offering customers a range of services from insurance to emergency loans, from budgeting software and apps to mortgages. They need to do it all in one place and make it easy for customers to access via their smartphones, tablets and PCs. Fortunately, the PSD2 regulations that pose such a threat to their business model also offer them the opportunity to become the friendly face that the customer sees 100% of the time.
While PSD2 means that banks need to be building open application programming interfaces (APIs) to give others access to their customers’ information, they can also be requesting the APIs of their competitors and innovative fintech companies in order to build their own, fully functional platform. That way, if the customer needs a financial service that the bank doesn’t offer, it can refer the customer to a partner that does offer the service.
From this, it earns itself a commission and the partnering bank or fintech company gets a pre-qualified customer. The customer gets the service they need, without having to undertake any research or go through an application process – it has all been done for them. The primary bank has all these details already and has already carried out the necessary know-your-customer (KYC) checks and so on, so everything is good to go in a matter of moments, which is much more efficient than having to create a new profile, provide proof of ID and give their address every time they want to try out something new.
The experience for customers would be very much like using Apple’s App Store. The various services would be listed, and could appear with the provider’s branding on them or as white-labelled services. Those that the customer chooses to use are presented to them as widgets on a home screen, similar to that on an iOS or Android device. They can click or tap into each of these services whenever they need, but the underlying platform will remain that of the primary bank – the bank that still owns the customer relationship.
Furthermore, the primary bank can make sure that this marketplace is linked to a dashboard-like experience where the customer can see all their information in one place, also using widgets. Current account balance, recent payments, savings account, mortgage payments, budget plans and so on can all be seen at a glance, meaning an efficient experience for the customer where the primary bank’s brand is prominently displayed.
Expanding the service
While the experience should be like a marketplace for the customer, the bank could take it one step further, recommending relevant products to the customer when appropriate rather than simply waiting for the customer to pick and choose. For example, a customer who books a holiday may need an insurance policy or to exchange foreign currency.
Where the bank has a partner that provides these services, a push notification could be sent to the customer’s smartphone to make them an offer. If the customer is using their PC, a recommendation engine similar to that offered by Amazon could be used. Although the bank needs to be careful that it has permission to use the customer’s data in this way, this is the kind of service that shows that a bank is going above and beyond for its customers. It would be a marked contrast to the poor service offered by traditional banks in the past and would be bound to promote loyalty, as well as boosting revenues for the bank and its partners.
Ultimately, banks that meet all of the needs of their customers are going to be the ones that win out. By using new legislation to persuade competitor banks and innovative fintech providers to strike revenue-sharing partnerships in order to provide a comprehensive service set they can ensure that their brand remains strong and that they can retain and attract customers. Using the marketplace format with a simple and attractive user interface is the key to this. Banks that fail to do this are likely to lose out, with customers moving elsewhere, or keeping their accounts but losing sight of the brand – which could be an even worse outcome for the bank.
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The only way PSD2 will function effectively and securely, will be through the mobile banking application itself. However, the directive does not specify how secure this access will be, nor, what risks will arise, and for who.