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PSD2: the opportunities and pitfalls for your current banking relationship

Future banking
By Gareth Jones - Global Director of Information Security

The latest EU regulation, PSD2, offers third parties a shot at banks’ customer data and looks set to transform the commercial banking experience. Will your bank be able to keep up?

It’s not often that a piece of dry EU legislation catches the eye of corporate and consumer banking clients but the niftily named PSD2 has done just that. Having come into law in January 2018, it has the potential, quite simply, to revolutionise your banking.

In a way, PSD2 can be seen as regulation finally catching up with consumer demand. Banking has traditionally been an opaque, confusing yet inflexible environment. Consumers, whether personal or commercial, had a limited choice of products and were bound by a set of rigid processes that made managing transactions and keeping on top of financial efficiency difficult.

The transparency and user-friendliness that has emerged as a result of a now mobile-first, cloud-based society has been slow to filter through into that closed banking environment. PSD2 is going to shake it all up.

By integrating the role of new payment services into regulation as well as improving consumer protection and boosting security, PSD2 paves the way for innovative Fintechs to get involved in the sector. It’s anticipated that they are best placed to deliver a commercial banking experience that is far more intuitive, effective and ultimately profitable than traditional models.

They will be able to do this because PSD2 liberates customer data. Or rather, through a highly secure framework and open APIs, disruptors can access customer accounts and speed up any number of processes, from direct payments to account management.

The consumer impact

For the commercial client, much of the future experience will take its lead from consumer trends. Products such as account aggregators and analytics will move across to the company’s financial dashboards. Even before the regulation has taken effect, products such as Monese, Curve and SWIFT are shaking up the personal banking landscape.

From a commercial perspective, users will be able to see at a glance how various bank accounts are performing, use tools to analyse past and potential spend and receive automated suggestions about how money can be better managed.

Commercial users will be able to see how and when they are paying suppliers across multiple bank accounts; they will have access to information showing more favourable rates or service alternatives.

There are undeniable benefits from having better visibility of the company’s banking behaviours. On a macro level, being able to view payments and spend behaviour over time allows the company to revise its customer management, new business strategy and much more.

Perhaps there are seasonal lulls in activity that should put the onus on the sales team to generate more business. Spend may be particularly heavy in a single quarter and procurement teams may want to renegotiate terms to even out cashflow.

On a more micro level, it is possible to track where spend on individual items or by certain staff members is higher or lower than the norm, or where the company is paying cash where a payment card would have a more favourable impact on cashflow and borrowing.

With much of the account servicing done online or through automation and an expected rise in competition for your business, commercial banking charges are expected to self-regulate at an acceptable rate.

What this means for your current bank is that it will have to move fast to adapt to the challenges new service providers will bring. Customer expectations could - and should - rise rapidly as more and more user-friendly apps and dashboards come online. Commercial banking clients will no doubt strongly question their existing banking relationships, looking to find the added value in each one.

Check out other ways in which commercial banking is being influenced by consumer trends by downloading our free white paper - Business banking with a consumer touch