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and time to market benefits, but often results in being a support nightmare, with potentially hundreds of different points of failure. Replacing one’s core system is a monumental task and gives rise to considerable risk, including around service levels and regulatory compliance. In some cases though, this is the only viable long-term option.”
Don’t fear the data
Without delving too deeply into the murky waters of API technology, there are three major types: internal, private and public. A culture of openness is what Amazon founder Jeff Bezos aimed for when he sent the (supposedly apocryphal) internal email telling all staff to get into APIs or face being kicked to the curb. Banks, argues Beaumont, do three things with data: “hide it, horde it and never, ever look at it”. In corporate psychology word association, when someone hears “data” they automatically think “breach”.
companies and not expecting to be pushed into the backseat of customer’s minds.
“The challenger banks possess the advantage of having developed their systems in a much more modern technology era, so do not suffer from the same legacy headaches that the incumbents do,” adds Blampied. “In terms of winning market share, the challengers will arguably find it easier to link their offering with other organisations and parties due to their intentionally open environments, potentially bringing more diversity to their offerings. However, again it is the incumbents who have the head start in terms of access to data and customer base, so they need to take full advantage to prevent erosion of market share.”
Too big to innovate
It’s paramount that a workable API layer be delivered and bolted onto a bank’s existing systems. Perhaps that’s all very well when you consider the Tier 1 institutions, but when banks are required to deploy APIs for both PSD2 and MiFIDII, that’s a fair amount of extra baggage to be placing upon infrastructure that could well be a few decades old. This early in the process of the PSD2 implementation, it’s difficult to tell what kind of performance problems APIs could cause, especially when utilising up-and- coming platforms.
Assume that a third-party app has, for some time, been interacting with a bank via around 500 users. These are manageable numbers. What if, following major exposure, that userbase suddenly skyrockets to 5,000 or 50,000 or even 500,000? A few dozen internal systems could be receiving data requests from multiple APIs across a sudden cascade of interaction.
“Data is undoubtedly the most valuable commodity banks possess,” says Martin Häring, chief marketing officer at Finastra. “Every effort must be made to get the strategy right when it comes to extracting the maximum value from information while remaining in compliance with legislation. In this context, it’s essential that CRM systems and marketing automation tools are tightly integrated with the banking platform and with regulatory requirements, allowing the bank to be as proactive and responsive as possible to customer needs, in full compliance with regulation.”
The data that banks have on hold is a degrading asset. There are now a number of services which can obfuscate what consumers are spending their money on: PayPal, the aforementioned Apple Pay, energy aggregators or challenger bank payments like Monzo. “They’ve accommodated all this without really noticing,” says Beaumont. “Now they’re accommodating the payments companies and on certain transactions they are losing money, losing insight, losing precious data.” Banks are sitting there, opening themselves up to innovation-hungry technology
With an audience that is rapidly becoming digital native, as well as an upcoming customer base in the form of Generation Z, banks can’t afford to be seen as digital laggards. The moment that interaction with the bank is identified as the root cause of a favoured financial app’s slowdown, it won’t be the app that gets the boot. At the moment, especially in the UK, we’re seeing a customer base that’s reticence to switch banks, despite the relatively easy processes in place. It’s not too hard to see a change occurring following the proper deployment of PSD2.
I want to Brex free
The British cat is amongst the EU pigeons following its people’s decision to leave the EU in mid-2016. The UK has been a major contributor to the establishment of PSD2, as well as its development in the European Commission. How will this legislation affect British- based institutions and customers once the UK departs from the EU? “The majority of the PSD2 provisions apply from 13 January 2018,” writes Payments UK in a report on the matter. “The exception is certain requirements around strong customer authentication and secure communication.
www.ibsintelligence.com | © IBS Intelligence 2018
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