FinYear, France: Cognizant’s Vice President and Head of Banking and Financial Services in the UK & Ireland Says PSD2 is Among the Biggest Disruptions in Banking for Decades

“As regulators become increasingly concerned with consumer protection, new frameworks such as The Payments Services Directive 2 (PSD2) are forcing the existing payments players to re-think how they operate in a market that is opening up rapidly to new forms of competition,” explains Tony Virdi. “With the emergence of new digital payment methods, such as Apple Pay, combined with the growing number of fintech-led account aggregator businesses, this regulation, which is in the final negotiation stages, is going to cause disruption and pave the way for even greater change.” Excerpts:

“This regulation is set to increase the number of providers across the ecosystem to enhance the competitive environment with a view to providing greater choice, transparency for customers.

The Directive stipulates that any business that provides and maintains customer account information must make this information available to third parties, such as mobile payments providers, where it has been authorized by the customer. It will force banks to facilitate access to third parties via application programming interfaces (APIs) to their customer accounts.

This ultimately represents a significant disintermediation threat for traditional banks as new players have access to a much larger customer base. Banks will have to respond by reinventing the payments experience with innovative ways of gaining customer loyalty as a strategic imperative.

Although PSD2 aims to reduce barriers to entry for new market entrants, it will require third party providers offering payment services to be regulated. Just like banks, they would have to adhere to PSD2 requirements much like any other payment institution (licensed, registered and monitored). This means that they would be subject to their own information, transparency and payment security requirements.

It has been long debated if banks will exist in their current guise in 10 years’ time, particularly as emerging digital and related technologies and changing consumer preferences put pressure on traditional structures and ways of working. PSD2 has the ability to force banks into a metamorphosis or be left behind as other visionary providers innovate, create closer customer relationships and develop new revenue streams.

The banking industry is about to go through a monumental change as PSD2 opens up further competition and innovation in financial services. The only way in which traditional banks can ensure that third party aggregators do not steal market share is to create genuine, authentic and emotional relationships with their customers.

This means going back to basics to understand customer needs and create value propositions and services that make it easier for them to conduct their financial affairs.

Winning the hearts and minds of customers and turning them into true advocates is the only game in town.”

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