What is Crippling the Whole Financial Industry?

PSD2 paves the way to open banking. While fintech companies adopt new policies, traditional banking struggles to innovate with new consumer use cases, and thereby, it might hold the industry back. One solution is banking as a service.

OSOM finance
5 min readMay 29, 2020

In the past couple of years, the banking and financial industry has faced some significant shifts. The economic recession a decade ago and changing consumer needs accelerated the process. People were tired of lengthy, questionable procedures and craving for fast and transparent services.

As a result, fintech companies established themselves in the market and opened a new era of digitized financial operations. Later on, a wind of change stormed the European banking scene as the European Union passed the PSD2 (“Second Payment Services Directive”). The new act enabled financial service providers to collect consumers’ accounts balances and transactions. With data aggregation, PSD2 brought the advanced approach to such an ancient sector as banking.

That’s the essence of PSD2 and what we are looking forward to building on. When well ran and well regulated, banks are great at helping savings flow to borrowers, make the economy grow, and guarantee financial stability. That’s a full-time job, and we are happy to see the EU offers opportunities for other players to come and add value to that strong foundation.

Despite the efforts and new companies entering the market every day, we can still see how traditional banks aren’t the first ones to innovate. You might say that they don’t need to rival with novice counterparts as they hold way more power over the market. Yet some significant mistakes to innovate backlashes against them and thereby stifle the whole industry.

Traditional Banks Fail to Innovate Fast Enough to Meet New Use Cases

Digitization is one of the key revolutions happening around the world. It’s even been called the 4th Industrial Revolution. It’s difficult to find an industry that stayed the same since the last decade. The banking sector is not an exception, fintech and neo-banking are on the rise; currently, there’re more than 12 000 fintech startups around the globe, and the number is rapidly growing. Governments worldwide also recognize changing consumer habits and work to meet demands. That’s what we see with the PSD2.

Yet, on the contrary, we have traditional banks that struggle to change or embrace digitization. The ease with which companies can talk to consumers through digital channels should have meant that banks brought private-banking like services to everyone, and considered each customer as truly one individual; giving totally custom offers. Yet we haven’t seen that and we still very much get a “one-size-fits-all” product.

Basically, what we had ten years ago is what we have now. It’s got more modern design choices, of course. It’s a little faster, sure, we can’t say established institutions don’t do a thing, they do. But they haven’t been able to match the speed of delivery of fintechs.

Instead of working solely on their own development, traditional banks often hedge their bets and invest in neo-banking companies. Since 2012, investments to fintech grew eight times and in 2018 reached 27.5 billion USD. Big players can’t let this one slip, can they?

Of course not, and they recognize the threat of the growing fintech sector, now 82% of traditional institutions are planning to increase their collaboration with financial technology companies. However, obtaining or investing in a more agile service can’t do all the work. We believe banks should pay more attention to enhancing regulations, conservative approach, and outdated legacy systems.

Why Does Traditional Banking Need to Change the Approach?

Innovation and digitization are key to evolve, along with growing consumer needs. Yet many traditional banking institutions see modernization as a peril to financial security and stability. We can’t deny that technological development comes at a price. Information becomes more sensitive to external attacks and data breaches increase. However, it’s not the reason to stop evolving what’s so ever.

One of the most significant modern threats to traditional banking was and is open banking. In the past years, the EU was working on passing the PSD2. The intent behind the idea is to make banking faster and more transparent to consumers. However, open banking rises competition and losing control over consumers’ data.

The banking sector could also take on adopting modern security policies to meet growing online and mobile banking influence. It would help to avoid misunderstandings and delays and bring better consumer satisfaction.

Embracing Modernization

As much as we are criticizing traditional banks, it’s not all black and white. Many financial institutions are working their way to a digitized future. A great example is Goldman Sachs. The organization is not only investing in fintech but also working their way to implement tokenization. Their project Circle was developed to meet the increasing influence of the crypto market and enable consumers to a universal banking experience.

Goldman Sachs wasn’t the only one to experiment with tokenization. However, not everyone was as successful. A Dutch bank Rabobank tried to introduce a service called Robobit, which had an intent to bridge the gap between virtual asset and fiat accounts. Their attempt failed, as they say, because of skeptical consumers and outdated governmental and banking regulations.

For the same reason, another Dutch bank, ABN AMRO, failed to introduce its crypto banking solution. The conclusion is baffling, whether traditional banks themselves don’t do much to evolve or the system and laws hinder them. However, we can all agree it has to change, otherwise, even investing in fintech companies won’t save their place in the market.

Traditional financial institutions work their way to modernization, but being a bank comes with its own problem. The creation of new independent players is needed to partner with customers and banks to connect both to who’s most relevant for them.

Modern Consumers Need an experience that goes Beyond Banking

While traditional banks are still searching for ways to maintain their influence, and fintech has a long way to go to find its path to a broader audience, we decided it’s time for improvement. Inspired by the same PSD2, OSOM aims to lead the way in reimagining consumer finance.

We want to help people ditch numerous financial apps and connect to one that has it all and helps them understand it all better. And we mean all: link your virtual asset exchanges or open one on within OSOM app, the same with virtual asset wallets. We also seek to incorporate fast and secure fiat payments, multiple accounts, balances, instant status updates, and many more options to make personal finance enjoyable.

Whether you are keen on something new or interested in trying enhanced banking, OSOM is here to lead the way.

We hope this article was useful for you!

Check out our website — https://osom.finance or follow us on social media, we share interesting content daily:

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Sincerely yours,

OSOM team

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OSOM finance

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