February 08, 2018PSD2 Regulation Will Facilitate the EU’s “UBER” Moment in Banking


Often, I hear statements from traditional financial services institutions like, “We would like to adapt the concepts we see in other industries, but we can’t because of regulations” or “We need to get these regulatory requirements behind us before we focus on new business strategies.” But inertia, myopia, and excuses are hardly appropriate attitudes at a time when entire industries are transforming.

It’s true that regulations and customer experience have not always been best friends, but regulations have not been the main reason for poor customer experience. In fact, traditional business models, organizational cultures and structures, and unfit legacy systems have had a greater impact on customer experience.

While there are many opinions, soon enough we’ll learn more about the dynamics of customer experience in banking. With the updated payment regulation PSD2 (Payment Services Directive 2), the European Union will lay the foundations for fundamental changes in customer experience in digital banking.

With XSD2 (for “access to accounts”), PSD2 customers will have the right to secure and easy access to a full range of financial products and services through their chosen service provider. Data is shared securely between banks through a number of audited APIs.

The global research firm Gartner expects that PSD2 adoption will be slow before it builds to 10% of all retail banking customers by late 2020 (2016). The impact on customer experience and thus the future bank/customer relationships, however, will be transformational.

There will appear a new breed of players, or what Gartner (2016) calls “Aggregated Account Dashboards" (AAD). These AADs will deliver, among other things (see Gartner):

- World-class user experience (cross-channel, cross-device, cross-interaction modes)
- Transparency across account relationships, giving customers a full view of their financial situation
- Secure and user-friendly customer identification and verification (e.g. via biometrics)
- Useful analytics to help customers better manage their financial data and make better financial decisions
- Real-time account management and funds transfer across all accounts, no matter which institution holds the funds
- Full integration into existing e-banking and mobile banking applications

The only thing that customers need to do is give permission.

PSD2 will substantially change the competitive landscape in banking. Who will provide the AAD is largely open. Either established institutes or digital-only fintechs. So there it is—the UBER moment in banking. And it will lead to a clear segmentation of two different types of players:

- Institutions that have a value-adding and synergistic relationship with their customers, providing top-notch and highly secure customer experience (and securing the corresponding revenue streams)
- Commodity providers of products and some services defined mainly by price or functional capability, with little room for brand or service quality

Large traditional institutions that don’t provide excellent customer experience will have to be aware that they are destined to only provide commodities. While PSD2 will mostly affect retail banking, it’s highly probable that corporate and wealth management clients will also want to benefit from the transparency and functionality of the AADs.

Yet only providing an AAD will not mean that a bank will avoid becoming obsolete. Again, customer experience will decide. An AAD provider might be commoditized and become a simple dashboard or hub provider. It may be that customers retain their accounts and services with an incumbent bank, while profiting from the world-class mobile and digital user experience that a fintech offers, thereby transferring their principal relationship to the fintech that includes a smooth and secure onboarding service. This means that customers will have much more flexibility selecting services, which will have a major impact on their loyalty.

Purpose will only be created with great customer experience, and PSD2 will lay the foundations for fundamental changes in customer experience in digital banking. Trust in the financial services industry sectors is most evident in mobile banking. Trust and purpose: not a bad combination for digital leaders in a transforming industry. And customer experience is at the very root of both.

To dive deeper into the importance of customer experience in retail banking, explore our new Onboarding for Retail solution.

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Written byJürg TrunigerProduct Marketing Lead, Appway