As banks that operate in the EU are required to provide third-party providers access the banks’ customer accounts through open APIs, the new space for collaboration with FinTech firms is torn wide open. Banks will no longer hold the monopoly on their customers’ data, and the implications are indeed far reaching.
With PSD2, banks and other financial institutions will have to open up their systems and, at the same time, nurture trust with their customers. While PSD2 comes with a certain degree of risks, banks have the opportunity to strengthen its relationship with its customers by improving the customer experience and security.
Hopefully, banks and FinTech companies will embrace this new regulation and view it as an opportunity to build a modern, customer centric, and secure ecosystem. PSD2 holds a special place in our hearts, as the directive incorporates the use of behavioral biometrics as an authentication tool. So we decided to take a deeper look into what the experts, whose industries are affected by this directive. Here is what we found out during our #AskTheExperts three-part interview series where we interviewed experts from different regions and backgrounds to get a well rounded view:
- Damian Richardson, The Royal Bank of Scotland. Damian is based in Britain and with Open Banking already in the works, PSD2 will not bring with it a huge change. However, the new regulation will open up new opportunities in the European markets and is therefore still significant for the UK banks.
- Savino Damico, Intesa Sanpaolo. While the directive did not come as a surprise, it is still not clear how PSD2 will be implemented in Europe. Savino sees this as the opportunity, rather than a constraint for the banks. He sees a great potential in using this new framework to offer additional services to the banks’ current customers as well as attract new ones.
- Avi Cohen, The Floor. Avi co-founded The Floor, an international innovation center, to act as a bridge between Fintech companies and international banks. PSD2 and Open Banking are neatly aligned with the hub’s vision and mission to bridge the divide between major banks and FinTech companies in order to spur innovation and cooperation.
PSD2 is a huge opportunity
The new regulations such as PSD2 and Open banking should be viewed as opportunities for banks for two major reasons: They encourage competition and they encourage innovation.
PSD2 is the done deal, so Banks are facing a choice between either partnering with FinTech firms or creating in-house innovation centers. Both options are conducive of rapid innovation in the banking sector.
Since FinTech companies will now have access to open APIs, customers have more choice when it comes to banking solutions. Incumbent banks need to change their attitudes towards the importance of customer experience, and this opens up tremendous opportunities to retain old customers as well as branch out into new demographics.
The directive is opening up to the whole new world of innovation. Banks rely on legacy, closed systems and are not used to opening up their systems, and the first item on the agenda is consumer trust and security. And there are definitely security concerns across the board - especially when it comes to mobile banking and fraud. In the context of PSD2, the banks’ main concerns are how to open up APIs without increasing the risks of fraud.
According to Savino “the safety and security of payments must always be front of mind. Opening up APIs is another channel that customers can use, but in common with other services, we have to ensure that our technologies keep customer data safe and payments secure.”
In addition, mobile banking is a relatively new channel for banks, and carries with it a long list of security concerns as is, PSD2 or not.
Banks will require solutions to tackle these issues and continuous authentication with behavioral biometrics becomes very attractive in this new environment. As Savino states: “"I think that many will turn to behavioural biometrics authentication, because it does not rely on only one factor, for example, the iris scan or the fingerprint. The combination of many different active physical factors makes the authentication capabilities stronger."
Importance of User Experience
Mostly, both PSD2 and Open Banking were well received by the industry stakeholders as tools for encouraging more competition and improve access to financial services at the customer's level.
The next step for banks is to distill the new role of the banking in this changing environment and what should banks do next. The biggest concern for banks is how to maintain the personal engagement with the customer; they don’t want an external entity to completely hijack this relationship.
The questions of security and data protection are definitely a priority, but so is the customer experience. Authentication needs to be smoothly and seamlessly integrated into the whole banking and financial experience. And here lies the main advantage of behavioral biometrics. According to Avi, “Behavioral biometrics is the future of the authentication space. It is the most non-invasive type of authentication process available today and is pretty much as seamless as possible for the user.”
The experts we interviewed had a very positive outlook on the potential this new regulation has for opening the market for innovation and driving competition in the space
Across the board, no-one has been caught off guard by the directive, but concerns such as privacy and security, the evolving role of banks in post-PSD2 world and the issue of security vs customer experience still remain.
In a world where fraud attempts and cyber-attacks happen almost on a daily basis, the ability to offer diverse banking services with the right balance of security and ease of use becomes a crucial competitive advantage.
With PSD2 incorporating the use of behavioral biometrics as one of key authentication tools, banks and FinTech companies can capture behavioral biometrics parameters to create an accurate user profile for authentication purposes. The best thing is that customers don't have to do anything to authenticate themselves – except being themselves.
For part 1 of this series, we interviewed Damian Richardson of RBS. Check it out here
For part 2 of this series, we interviewed Savino Damico of Intesa Sanpaolo. Check it out here
For part 3 of this series, we interviewed Avi Cohen of The Floor. Check it out here.