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).
WHY ARE PSD2 AND OPEN BANKING STANDARDS A CONCERN?
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.
WHAT CAN WE LEARN FROM OTHER INDUSTRIES?
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.
WHAT WILL PSD2 COST?
There are two types of spend associated with PSD2 implementation.
- Sunk Cost: This is spend on compliance and API integration, both of which are obligatory.
- 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).
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.
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.
HOW DO I TREAT APIS AS A PRODUCT?
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.
WHAT DO I LOOK OUT FOR IN API MANAGEMENT PLATFORM?
We suggest you consider the following key features when selecting an API Management Platform: