Wealth & Finance International - January 2017

Wealth & Finance International 72 Banks of Tomorrow - Intelligent Data-Driven Experiences for a Consumer-Centric World he new European legislation coming into play, PSD2, is designed to stimulate competition and innovation across the banking world – but is also heralding huge changes to a very traditional industry. Big banking institutions have been built over years with a DNA of stability, security, and adversity to risk – they’re currently not set up to shift at the pace the world around them is. Open banking and APIs will instantly move the banking sector into the soft- ware sector – an industry that prides itself in creating dynamic customer experiences made possible by taking risks, of failing fast and iterating. Why banks need to open up to step up What at first might seem as doom and gloom, the new directive is in fact a great opportunity for the finance industry. The app revolution has led to instant gratification and spontaneous decision making for people, yet the current process of applying for a loan or a credit card involves many – often painful – steps spread out over time. Take PayPal as an example. Over the last ten years, PayPal has come from nowhere. You shop. You select PayPal. Log in and pay securely – with the knowledge that your goods are automatically insured. This is a much simpler way of buying goods and services, and it shows that people are ready and willing to change their habits for services that add value. Then you have the explosive growth and popularity of Uber and Airbnb, due in large part to their direct and simple experience. Whether it’s tapping a button to summon a taxi, or using a social app to find accom- modation in a new city, services like these offer easy, seamless ways of doing familiar, and often, mundane tasks. And yet, the financial industry is already struggling to see the potential of the PSD2 directive. Most banks’ heads are down, making sure they meet compliance but not thinking above and beyond what this change could – and will – mean to them. While this is happening, there’s a general industry perception of future widespread disintermediation and that competitors will poach custom- ers via their own APIs, both culminating in major revenue losses and reduced customer contact. It’s not a rosy picture. And it’s probably true for the banks that don’t embrace a new world of new opportunity. For those that do, we foresee a future world where the opposite happens. We foresee a world where banks atomise their services across the whole commerce ecosystem to create new data driven, real-time and fully per- sonalised services across any type of interaction – between consumers, retailers, banks and platforms simultaneously. These atomised services will increase banks’ brand visibility and potentially also increase revenues. Think back to the example of PayPal. PSD2 dictates a similar cus- tomer experience where people choose and login to their bank when accessing or paying for a service. The choice is in the hands of the consumer, and it creates a new relationship with banks that simply doesn’t exist today. This is why the financial industry – and banks in particular – need to take that next step in their evolution. Flexibility and adaptability allow software businesses to rapidly change their approach depending on consumer demand – transitioning from reactive to proactive, and then evolving to become predictive. This journey needs to happen in partnership with the retail industry, as the new services will allow consumers to forge closer relationships with brands they use on a daily basis – fuelling innovation in the way we purchase goods, lend money, and manage our finances. New business models fit for the modern consumer For consumers, this rise in APIs and sharing of information will revo- lutionise what we consider retail experiences and how we purchase goods. It allows customers the flexibility and control to make decisions that are in their best interest – or allow intelligent real-time API driven services to do it for them. Imagine a consumer who wants to make a large purchase but needs credit to do so. We’re at the cusp of one of the biggest shake-ups to hit the financial industry in modern times. By the end of 2017, 3,000+ banks across Europe will need to open up their APIs, giving third-party service providers access to their customers’ data. T “Take PayPal as an example. Over the last ten years, PayPal has come from nowhere.”