The upcoming revised Payment Services Directive, recently adopted and set to take effect in the near future, along with all the other regulations and changes which are currently taking place in the financial sector, are a trigger for financial institutions to rethink the services they provide to their customers.
It is the beginning of a new chapter in banking history – a great moment to exploit new business opportunities, and a time of significant change in the current hierarchy within the sector, with all the pros and cons that this entails.
As a software house with considerable experience in the financial sector, we are well prepared to deal with the industry’s challenges and to meet our customers’ requirements.
Drawing on our extensive experience, we have been able to come to certain conclusions which take into consideration the most important factors affecting the success of financial service products in modern banking. Below, we present a few points that banks should focus on to build a bulletproof bank for the new era.
According to reports, mobile phones are the only type of device which has shown consistent growth for the last several years. The global number of users for 2017 is predicted to reach 4.77 billion and is expected to exceed 5 billion by 2019. Comparably, the percentage of people using online banking services is growing year by year. Nowadays, mobile devices are used to manage personal finances, transfer money and pay wherever we are. Therefore, it is extremely important for banks to focus on user needs, in order to create perfectly tailored solutions.
Unfortunately, in our experience of working with various companies, from finances through automotive and retail, we have noticed a common mistake - thinking about the final product with all technical details first, instead of focusing first on the user’s expectations. Typically, project teams begin to research the target user’s needs only after the product has been finally released on the market and has not attracted significant interest from potential users.
'If you don’t talk to your customers, how will you know how to talk to your customers?' Will Evans, Design Thinker in Residence @NYUStern
This is a common problem for banking applications. Instead of few, perfectly created and frequently used features, the bank app is overloaded with many irrelevant options which are never used. Not to mention poor user experience, non-intuitive architecture and bad visual design.
Nowadays, banking is not only for managing money. The times of a golden banking order ruling the world are definitely over. The aim of modern banking is to create unforgettable experiences and to build partnership relations with its clients. Tandem Bank is a great example of a customer-centric bank design.
Just a few years ago, while travelling or living abroad, we could only dream about unlimited, international money transfers that wouldn’t ruin our finances. Similar problems existed with the accessibility of accounts abroad ...
A few years ago, nobody was crazy enough to think about online banking available from every place in the world, transboundary remittances and online currency conversions. At that time, it was technology that created barriers; now, with fintechs and cutting edge technologies, banks can reach out to clients more and more.
Currently, when logging into your account or authorising purchases, you can use the VoicePIN system to eliminate the need to memorise logins and passwords. With Azimo, Revolut or Transferwise solutions, you can pay by card everywhere and transfer your money globally based on the real exchange rate and without additional fees. Moreover, the example of the collaboration between Zencard and PKO BP is a great example of business synergy – the bank has acquired technology that helps to assess the needs of their clients more accurately and strengthen relationships with customers, who don't have to carry all of those loyalty cards to enjoy benefits - everything is stored in a credit card.
In the face of upcoming regulatory changes, an open-minded and partnership approach will help banks stand out from the crowd and win new customers. Most traditional banks need fintechs to provide a ready source of innovation, and most fintechs need traditional banks to give them the market reach they need to be successful. The changes resulting from the revised directive will bring many benefits for users. The cooperation of banks with fintechs will help to create more valuable financial products better adapted to customers’ needs.
To take advantage of the revised directive, financial institutions should identify their core business, and start to liaise with fintechs to provide peripheral services and, address customer needs more precisely. The new realities represent a great chance to improve the existing banking system and meet new targets under PSD2 by becoming third party payment services providers (PSPs). Apart from this, open APIs give banks additional benefit such as valuable data about customers coming from third party providers, a larger partnership network, and new sales channel opportunities.
Undoubtedly, the openness of APIs generates some technical obstacles and problems with core banking system overload. A typical core banking system is a legacy monolithic application, designed in the 1980s and deployed to high-end or mid-range hardware, very often a mainframe computer. At that time, it was designed mainly as a transaction processing platform with a ratio of queries to transactions close to 1:1. When the Internet and mobile banking were introduced, the supporting APIs changed this ratio by a factor of 10 each.
The introduction of open APIs will change the ratio of queries to transactions to 1000:1 or even more. To reduce potential system overloads, prevent critical situations and problems with some key processes like the end of day on time, it is necessary to implement an efficient Open API Platform. The right solution may be crucial to growing your business, so it's incredibly important to focus on a few parameters like scalability, security and reporting possibilities.
With a reliable open banking platform, the PSD2 is no longer a danger but becomes a natural continuum in the European Union’s goal of modernising, unifying and opening up Europe’s payment systems and the financial landscape as a whole. For banks, it’s a big step toward customer-centred services.
Without doubt, the PSD2, with all its pros and cons, changes the current hierarchy and way of working in the finance business. From a technical point of view, it may entail some challenges with software and IT infrastructure, but it’s crucial to see this revolution as a positive change and a milestone for the financial world. As never before, the user will take centre stage in the financial world.