How can banks benefit from PSD2 implementation?

We discuss what banks can learn from the disruption of telco; how to turn cost into growth by investing in innovation; the importance of API management and how to choose an API Management Platform.

 (N.B. This article has been recently updated to provide additional insight into this topic).

Find out how Ammeon can help

Revised Payments Services Directive (PSD2) and Open Banking Standard require European banks to share customer-related data. The idea behind the regulation, is that third-parties (e.g. ASIPs and PISPs) will use the data to build useful services, which will in turn increase competition, widen choice and improve people’s banking experience. Complying with these requirements means that banks face a long list of possible threats including:

  • Erosion of customer loyalty.
  • Reduction of customer lifetime value.
  • Fewer customer touch-points for cross-sell and upsell.
  • Fragmented customer servicing.
  • Loss of customer ownership.

This disruption may be new to European banks, but other sectors have encountered similar levels of threat. As many of our early customers come from the telco sector, we understand the lessons that can be learnt from the disruption of the mobile operator, around 10 years ago.

Although not driven by changes in legislation, mobile operators’ business models were disrupted by new technology – namely the launch of the smartphone and the growth in high-speed mobile broadband.

Operators had traditionally adopted ‘walled garden’ strategies which restricted the services their subscribers could use on their phones. And they were slow to get new experiences into the hands of users. After the introduction of the smartphone and app store, customers could download exciting new services which were delivered ‘over-the-top’ (OTT) of the operators’ own broadband infrastructure. These services, such as Facebook Messenger, WhatsApp (SMS) and Viber (voice) plus the ultimate explosion of free WIFI (data), captured subscribers’ cash and eyeballs. Essentially operators began to look like utilities. Their pace of change was simply too slow to counter seismic changes in market forces and customer demand.

Of course, today’s operators have left these challenging times behind and are embracing innovation around IoT, 5G and network functions virtualization (NFV). However, this story uncovers some valuable advice for incumbents, such as:

  • Don’t get swept along with the tide of change. Acknowledge the likely scale of disruption and be ready to adapt.
  • Adopt an open approach and use technology to your advantage.
  • Collaborate with challengers in servicing the customer need.
  • Effectively manage your partner relationships to maximise the value from your assets and infrastructure.
  • Accelerate the pace of innovation.

There are two types of spend associated with PSD2 implementation.

  1. Sunk Cost: This is spend on compliance and API integration, both of which are obligatory.
  2. Investment: The only way to turn sunk cost into growth is to uncover new revenue streams and to improve the customer experience through innovation.

An API strategy has the potential to fuel this innovation, both inside-out (internal) and outside-in (external).

Inside-Out

By employing an API management strategy, in-house developer teams can access a centralised and standardised set of data sources which saves time when developing new or enhanced services. This supports experimentation and helps get valued services to customers quicker.

Outside-In

By sharing data with external parties, an API management strategy can support service and business model innovation. For example:

  • Collaboration with selected external partners.
  • Monetising data by providing access to third-parties.
  • Monetising data insights, analysis and other services.
  • Creation of a partner programme to widen the distribution of banking apps and services.
  • Building an ecosystem of partners that work together to multiply value for all.
  • Launching a Bank-as-a-Platform.

At its most mature, an API management strategy will treat your APIs as products with dedicated resources, roadmap, lifecycle management, business and marketing support. By adopting this approach, you’ll be better able to control and protect your data assets and you could also capitalise on your API investment. An API Management Platform is a technology cornerstone of this approach.

We suggest you consider the following key features when selecting an API Management Platform:

Developer Portal

Brandable interface to your partners’ or in-house development teams.

Partner Management

Automated on-boarding and management of partners; evolves with the business need.

Usage Management

Automated control of API services (e.g. rate limitation on API calls to protect infrastructure from spikes in traffic).

Security

Authorisation, authentication and access control to ensure that only API calls with valid authenticated credentials gain access.

Monitoring & Alarming

Detect and block suspicious usage.

Analytics

Rate, measure and charge for API usage.

Integration with backend systems

 Should expose only what’s needed. This insulates the end customer from changes and allows for backend service innovation.

How can Ammeon help?

Ammeon helps organisations make the most of emerging technologies. Members of the Ammeon team have years of experience designing and building API Management Platforms for Travel, Telecoms and IOT. Our experience is now enabling financial institutions to make the most of this opportunity.

We can help you:

  • Understand how to manage your APIs as a product
  • Find out how APIs integrate with applications
  • Discover how this technology fits within a digital transformation
  • Select and integrate the right API Management Platforms for your organisation
  • Ensure your technology and processes can keep up with the pace of your partners

Schedule an obligation-free call with one of our consultants to learn more.

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