Banks Beware: the Impact of PSD2 and XS2A — Accelerating Digital Disruption

Accelerating Digital Disruption

Posted by Antoine Hemon-Laurens October 13, 2015

McKinsey & Company recently warned banks that more than 12,000 fintech startups in the London area are challenging and disrupting traditional financial services with innovative products that are often cheaper for customers. McKinsey also writes in its “The Fight for the Customer — McKinsey Global Banking Annual Review 2015” report: “The fight to hold on to customer relationships will be a high-stakes struggle. We estimate that in five major retail banking businesses (consumer finance, mortgages, SME lending, retail payments and wealth management) from 10 to 40 percent of revenues (depending on the business) will be at risk by 2025, and between 20 and 60 percent of profits, with consumer finance the most vulnerable”.

These changes will be further driven by coming up EU directives and regulations such as PSD2 & XS2A and Bale III currently being discussed. PSD2 & XS2A regulations will accelerate technology disruption of incumbent banks by enabling agile and innovative Third Party Providers (TPPs). PSD2 & XS2A are not only about the payments but all aspects of the legacy banking model as customer account information is also in scope of this change. A set of Application Programming Interfaces (APIs) will allow all Payment Initiation Service Providers (PISPs) and Account Information Service Providers (AISPs) to connect to Account Servicing Payment Service Providers (AS PSP) in a secure and effective way.

Digital transformation is impacting a number of other industries such as taxis with Uber, hotels with AirBnB, music with Spotify or Apple, films with Netflix or Amazon Prime, etc. More than price, the 3 common denominators driving these changes are:

  • Technology enablement and mobile technology in particular
  • Customer experience
  • Personalised content

Banking is not shield from these trends. Already some banks like Société Générale report more than 50% of customer interactions happening from mobile devices. Some retail banks are consolidating their operations reorganising their branches to deliver a better customer service while saving on costs. Customers want more convenience. They look for faster and frictionless decision making processes enabling them to seamlessly start and complete their customer journey from any channel. Challenges for the banking industry are ahead. How will large organisations be able to adapt to new competitors that will be leaner and more agile? How will they manage years of legacy systems and company culture preventing them to adapt and move fast?

GMC Software is helping to implement the banking sector’s digital transformation. It addresses key finance industry challenges with regards to agile technology, customer experience and personalised content. At no risks for the banks and without a large IT involvement, GMC Inspire solutions are rapidly empowering business users to faster communicate to their customers on any channels.

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