A short guide to the actual opportunities created by the PSD2-triggered big bang
PSD2 is the European directive which requires banks, upon customer request, to open their information safe and share financial data with third parties (whether they are players that initiate a payment — PISP — integrate balances or customer account movements — AISP — or deliver debit cards linked to accounts held at the account rooting bank — “fund checking”).
For the first time an exchange of information considered not transferable until yesterday is allowed in the banking sector. The practical consequence is an opening not just for traditional actors, but for anyone who is able to offer value-added services for final customers, building solutions based on those data.
The most immediate results of the implementation of this new model will be recorded in the space of payment systems and personal financial management tools (becoming more effective because they’ll be able to aggregate data from the whole financial life of a user, like it’s been happening in the United States for years with products like Mint). However, there is a huge layer of possibilities yet to be explored, especially outside of the banking space.
Cash flows represent tangible traces of behaviors, habits, tastes, opinions, emotions. On these tracks we can build meanings and value in apparently unrelated areas, such as energy, mobility, sustainability or job-matching, and build systems based on processing, crossing and enriching financial information.
Challenger or partner?
Big tech, car manufacturers, retailers, utilities — and the list goes on. Players coming from different industries, contributing to the building of a rapidly expanding ecosystem of services. While quite often the Open Banking paradigm still inspires banks in developing “first level” solutions that stay within the boundaries of financial products, someone has already moved further: we are in the Open X age (a definition introduced by the World FinTech Report 2019).
OpenX: paradigm for the fruitful collaboration between banks, fintechs and third parties. It is based on four pillars.
- Focus on customer experience;
- data as the main asset;
- partnerships between banks and third-party companies;
- sharing economy.
In a participatory scenario like the one just described, each player is highly specialized in a specific role. The competitive advantage is based on the “know-where”: the knowledge of the location of the actors capable of contributing to the bank’s value generation. Institutions must strategically select their partners, adopting a collaborative approach that keeps users at the center, their data as a currency and the satisfaction of their needs as a goal. The shift from a product-centric model to a customer-centric will help crossing the boundaries between primary markets, responding to different expectations and desires of customers.
What services will be enabled and introduced into the ecosystem to achieve this purpose?
Iren, the multi-utility based in Reggio Emilia, provides us with an interesting example from Italy. The company debuted in the world of payment, asking the Bank of Italy for authorization to operate as a payment institution. It will be able to carry out the main activity made possible by PSD2: access to customers’ account data — obviously with their consent— to directly charge and refund users without going through credit cards and direct debit. Once this pass is obtained, Iren will be able to directly manage the settlement of bills, also by limiting cases of arrears, and above all to use this precious tool (made available through mobile apps) to sell many other innovative and digital services to customers.
In the United States, a Capital One initiative shows the same approach in a different area: the bank has created an open API platform to improve the automated financing experience used by vroom.com, a platform that let users choose and buy a car online and get it delivered at home. The system allows buyers to get a loan for the vehicle directly during the check out process. A solution so light and transparent — and so radically different from the traditional personal loan request process — to encourage users to leave reviews like this: “financing was better through Vroom than my local bank”.
Beyond the paradigm
The key question is: once you have crossed the threshold of Open X, how far can innovation and service expansion of financial products go?
Iren’s example is a possible starting point for further reflections, beginning with the energy industry: will a new approach like this lead to liquifying the very concept of the electric bill? For example, by imagining a way to segment each payment into smaller installments, or by delegating to an AI. the task of identifying the best time to pay, perhaps when there is a spike in liquidity in the account? Introducing maybe an open deadline model to create a safe, reliable and customer-friendly tool? Potential and desirable futures begin today.
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