One of the sector’s most significant disruptions will take place in the EU when the second set of PSD (Payment Service Directive) regulations come in to effect in early 2018.
One of the strands of PSD2, known as Access to Accounts (or XS2A) will allow companies operating within the financial services industry to demand banks provide a software “toolkit” for accessing basic account information of retail banking customers. These application programming interfaces (APIs) will provide the building blocks on which a number of tech firms (even Facebook or Google) can create platforms that provide fully-featured and truly modern financial services.
For example, imagine if customers could see all their accounts on one dashboard and instantly make transfers between them. The customer wouldn’t need to have any direct interaction with the bank and would instead be seeing the brand of a third party, completely changing the dynamic between the bank and the customer. However, established banks and financial services firms should be wary of perceiving new fintech players as big threats. Instead, bosses should ask themselves how they ended up in this position and how to get out of it. To do this, they need to take a leaf from the book of the challengers.
It’s the outdated strategies, procedures and IT systems within established banks that are the real problem. Banks have been unwilling to put the customer first for too long –look at the opening hours of your local branch if you need evidence of that. Simply put, big banks have paid too little attention to the process of attracting and retaining customers, instead relying on a steady stream of new customers who are prepared to put up with inconvenient services because they have little choice.
Take just one element of a traditional retail bank’s offering as an example – transferring money from one country to another. Startups such as Transferwise compete directly with banks, offering lower fees and fairer exchange rates. If disruption and innovation continues outside of large financial institutions, such firms will lose revenue, customers and relevance. However, there are ways banks can hang on to customers.
Customer expectations are changing. A new breed of digital services have taken over in many areas of our lives, meaning that we have become used to greater convenience and immediacy. But with banking, customers are still forced to put up with slow, outdated, analogue processes. Banks need to put the customer at the front of everything being done in terms of how services are built. Only by anticipating customer behaviour and providing products that they need and will want to use can the banks continue to stay relevant. This is what fintech startups are doing – banks must follow.
Read more about customer loyalty:
- How to get and keep customers with gifts and rewards
- What can you learn from Waitrose’s “free hot drink” loyalty scheme
- Loyalty schemes can dramatically increase retailers’ basket value
And looking back into recent history, companies that once dominated sectors such as Nokia, Blackberry and Kodak, failed to accept the changes in the market and the inflexibility of the business models being used. No bank is too big to fail.
Read on to find out why banks should be challenging the old business model.