Since the financial crash in 2008, we’ve been overcome with new regulations. Until now, that’s meant tighter control on banks. But the regulatory changes coming into focus in 2018 look set to help the financial industry evolve. By creating the freedom to innovate, these new regulations could unlock new opportunities for banks, if approached with the right mind-set.
My final observations for 2018 centre on the three most significant regulatory changes we’ll face this year, and how to use them to your advantage.
The proposed idea behind open banking is to encourage innovation in financial services, with the end goal of improved products that help people better manage their money. It’s great that the regulators are protecting customers, and there’s lots in the news about that side of the coin, but what does it mean for the big banks?
Well, allowing customers to share their financial information with other approved outfits opens space in the market for new products and services to be created. That means increased competition and, unless the banks adapt, that could be bad news.
The key is to treat open banking as an opportunity, rather than a threat. Forrester recommends that APIs, digital technology and sharing of financial data are opportunities to redefine business models. One thing is for sure - how banks react will shape the future of the market.
This year, we’re likely to see high street banks lose customers to start-ups with a better customer experience to offer. As mentioned in my last piece partnerships will be key to survival.
For specialist lenders, comparison sites pose both an opportunity and a threat. On one hand, their product or service will be seen by more people, but on the other it will need to be very competitive to get a look in.
Second Payment Services Directive (PSD2)
Coming into effect this month, PSD2 acknowledges the rise of new payment service fintechs and is a stepping stone towards full implementation of open banking. It aims to provide equal opportunities to payment service providers, whilst giving the consumer control and security over their personal data.
It requires banks to share their payments infrastructure and customer data with third parties. And this could have huge operational and technological implications to make happen.
In fact, this regulation does give banks who are agile enough a huge opportunity. They’ll be able to access new data, which they can use to offer personalised services to potential new customers.
Banks need to extract the value from their data now. Use customer and transaction data to anticipate customer needs. This strategic imperative should be their next step.
Front-end systems need to allow collaboration and offer the best consumer experience. As mentioned in my second trend prediction, banks need to be organised in a way that will allow quick change to keep up with the rapidly evolving marketplace.
Of course, the more open APIs, the higher the risk of a cyber-attack, service breach or reputational impact. Therefore, implementation that is built on security is critical.
EU General Data Privacy Rules (GDPR)
While the first two regulations promote industry innovation and disruption, GDPR demands more care over the protection of customer data and gives customers back the control. It’s the largest change in 20 years and comes with severe fines for non-compliance.
To survive this change, organisations will need the capabilities to immediately report on, move or entirely delete personal data when requested. A major challenge is the intricacy, with other third parties having access to personal data held by a company. And with the significant amount of data being generated, the entire supply chain needs to be compliant, otherwise everyone will be liable - both legally and financially.
The good news is that the technology to manage this is not new. But banks will need tighter controls and clearer processes. It’s a chance to become more operationally efficient by reducing the hurdles for employees accessing and processing data. In a GDPR world, all data should flow smoothly internally with quicker processing time that, as well as reducing cost, will increase productivity.
Banks which see GDPR as purely a compliance cost of doing business will miss out on an opportunity to improve customer engagement. Implementing GDPR should involve product, marketing and customer experience teams and data consent processes should be built in the same way customer journeys are.
If adopted in the right way, GDPR has the potential to allow banks to have a more holistic view of customers, and the opportunity to offer customers a tailored experience.
It’s clear we are entering a new era of regulations and if adopted in the right way, we can expect innovation, improved customer experience, much greater efficiency and the opportunity to diversify businesses and be the creators of the future marketplace.
If you’d like to speak to me or another member of the PEN team about how these trends might impact your business, don’t hesitate to get in touch for a chat.