Open banking and PSD2 winners and losers

Compliance Banking Digital transformation
Open banking PSD2
With the Competition and Markets Authority (CMA) mandating UK retail banks to ‘open up’ and adopt the new principles of open banking, not to mention the impending introduction of the Payments Services Directive (PSD2) in January 2018, banks will soon be operating in a much more competitive environment than before. Without the right security to enable them to offer additional digital services, incumbent banks will struggle to compete against all the new entrants into their market.

Bank's key to success with PSD2

One of the key requirements of PSD2 is that banks must provide third-party providers (TPPs) access to their payment services, and to an account holder’s data if that account holder provides their consent, through open application programming interfaces (APIs). This will allow third parties to directly connect to customer accounts, creating increased liability for banks.

Under open banking, volumes of sensitive transactions are likely to grow significantly, and since the accompanying requests from third parties for data access and payments will provide a new opportunity for cybercriminals to commit fraud, security is already a major concern. Banks will have to change the way they interact with their customers, including by introducing strong customer authentication (SCA) in a way that is compliant with PSD2’s requirements. Entersekt’s solution not only ensures SCA compliance through our authentication technology, but also delivers a superior mobile user experience. Since open banking and PSD2 will enable so many new user interactions, the experience you offer will be key to your success.

Traditional banks need to innovate

In the post-PSD2 world, forward-thinking organizations will build customer-centric experiences that empower users to interact from anywhere, anytime, strengthening their trust relationship with their users with each interaction. This will be especially important in the environment that open banking will create, where many outside parties will interact with your users as well. You as the bank need to be more than just another service provider you need to become the trusted keeper of your customers’ digital assets.

The only way to do this is to put in place a secure channel to your customer that no other party can access. Once you have your customers’ trust, there’s no limit to the new digital services that you can start offering. Innovation will not only retain existing customers, but also attract new ones. And as the banking landscape continues to be disrupted, both by new digital-only banks and by non-bank service providers such as PayPal and Apple, this will be more important than ever.

Threats to banks in the open banking ecosystem

The introduction of TPPs will also expose banks to new competition, since the banks will no longer be the only ones who are allowed to make use of their valuable customer data assets. New mobile and digital competitors will use that very data to target banks’ most profitable functions. Recent research showed that PayPal is now more trusted by consumers than traditional retail banks, and we already know that millennials don’t care where they get their banking and payment services from, as long as these are slick and secure.

Furthermore, the threat from the likes of Amazon, Google and Alibaba will be significant, considering that these giants already have access to both payment and merchant data. This puts them in a prime position to have a massive impact on banking services. Any bank that underestimates these threats, and takes a complacent attitude to the new world of open banking that we are moving towards, is at risk of simply becoming irrelevant.

Want to find out how Entersekt’s Transakt product offers your organization a painless shortcut for dealing with PSD2? Click here to watch the on-demand replay of our complimentary webinar, The secret key to PSD2 compliance!