PSD2: Regulation, Strategy, and Innovation: PART II
Market Research and PSD2 New Strategic Opportunities (Continued)
Nevertheless, at the same time such positive responses can also be contrasted with the responses elicited from 400 senior decision-makers in retail banks based in Australia, France, Poland, and the UK which were surveyed by US retail banking technology provider Fiserv (Touchtech Payments, 2019). The results from this survey showed that most (54%) bankers felt that they had insufficient information in order to become compliant with PSD2 and other open banking requirements by the forthcoming deadlines (Touchtech Payments, 2019).
In addition, most of those who had already implemented some form of open banking disagreed that they had enough information to remain compliant, and only 8% believed that they had enough people and the right skill sets to comply (Touchtech Payments, 2019). Furthermore, regarding monetisation opportunities around open banking, 44% of retail bankers believed it offered monetisation opportunities while 19% believed that open banking did not (Touchtech Payments, 2019). The results of these types of surveys highlight the real and pressing need for these types of firms and individuals to obtain much more extensive and comprehensive training, not only in the forthcoming PSD2 and Open Banking regulatory frameworks, but in fully understanding the monetisation opportunities and commercial strategies open to banks, Financial Technology (FinTech) firms, Regulatory Technology (RegTech) firms, and new TPPs.
Another market survey undertaken in Sweden by the analytics software firm ‘FICO’ which was executed by ‘SIFO’, showed that few Swedes were prepared to share their banking information with a third party, and that nearly half of the respondents (46%) did not want to share information with any third party (FICO, 2018). In addition, the survey showed that there were mixed views on whether PSD2 would lead to an increase or decrease in fraud (FICO, 2018). Again, these types of findings shows how crucial it is for PSD2 firms to truly understand the markets which they wish to develop and operate in, and the problems, obstacles, and challenges they must overcome in order to successfully develop PSD2 offerings. The survey showed that only 36% of respondents knew about PSD2, with the lowest awareness among those younger people aged 16-24, where only 29% knew about it (FICO, 2018). Dylan Jones from the Nordics, FICO commented that:
“Our survey shows though that few consumers know about the directive, which suggests that it will take some time before customers are ready to give third parties the necessary access in order to be able to take advantage of the new services that will launch” (FICO, 2018).
Another survey undertaken by FICO on 500 UK consumers found similar findings (FICO, 2019). It was found that only half (53%) of UK customers would give their bank their mobile number to comply with new fraud rules, and that this number dropped to 47% for consumers aged 18-24 (FICO, 2019). Moreover, one in four respondents noted that they would complain if asked, either to the bank, on social media, or to a consumer association or newspaper (FICO, 2019). These findings also coincided with a report by UK consumer advice firm ‘Which?’, which reported that 92% of the public was unaware of the PSD2 initiative which officially launched on 13thJanuary 2018 (Dhami, 2018). It can be surmised that strategic educational marketing initiatives must form a crucial part of marketing and business development strategies in order to achieve effective PSD2 market penetration in the long term.
PSD2 Strategic Challenges
The PSD2 and Open Banking frameworks have brought forth a host of strategic challenges which FinTech firms, RegTech firms, and TPPs must address and successfully overcome, if they are to strategically leverage the new opportunities available under the PSD2 framework. For example, it has been identified that the absence of common standards for APIs to be used for dedicated communications interfaces is causing fragmentation in the market (Deloitte, 2018). Deloitte (2018) observes that:
“There is no EU-wide and sometimes not even national, consensus on which industry-issued standard (e.g. the Berlin Group, the UK Open Banking, PRETA, etc) to adopt; and some ASPSPs have chosen to develop bespoke APIs, either on their own or in partnership with others.
We believe that the lack of common standards will lower the level of interoperability and, at least in the short to medium term, present an obstacle to the development of PSD2-enabled services and products, particularly across borders.”
This lack of a common standards framework across UK and EU markets is said to have the effect of stalling innovation, as banks can define their own interface, resulting in diverging standards and a sub-optimal level of API capabilities generally (Dunlop, n.d.).
Another major stumbling block for firms is that consumer awareness of Open Banking products and services remains low (Deloitte, 2018). Consequently, it is envisaged that this fact, combined with the high frequency of cyber-attacks and data privacy breaches in the news, will act together to constrain take-up, interest, and trust in new PSD2 services because of a latent suspicion of new products and services based on the sharing of personal and sensitive data, especially by less known brands (Deloitte, 2018). Deloitte (2018) comments that “This suggests that a major effort by firms may be required to improve consumers’ awareness, interest, and trust in this space.”
In fact, a survey of 4,000 customers across France, Germany, Spain, and the UK undertaken by GoCardless found strong evidence to substantiate such views. The survey asked customers questions on feelings about certain specific elements of the new PSD2 SCA requirements, and also how increased security at checkout would influence their buying behaviour (GoCardless, 2019). The research had a range of interesting and relevant findings. The respondents were first asked about their previous shopping habits and many reported that they had abandoned a complex payment process in the past (France, n=33%; Germany, n=48%; Spain, n=40%; UK, n=40%) (GoCardless, 2019).
In addition, it was found that some customers would consider shopping less at their favourite brand if they were faced with a more complex checkout process (France, n=23%; Germany, n=26%; Spain, n=24%; UK, n=23%; would shop less at their favourite brand if security measures at checkout increased) (GoCardless, 2019). It was also found that likelihood of purchase abandonment was even higher when shopping with brands that are new to the shopper, especially in markets such as Germany where 36% of respondents would cancel a purchase if a new brand had a lengthy (but still secure) payment process (GoCardless, 2019).
[TO BE CONTINUED]
Deloitte (2018). Baby steps, but no giant leap: PSD2 at six months old. Deloitte LLP.
Dhami, I. (2018). Open Banking and PSD2: Disruption or Confusion? (31stJanuary), Security Intelligence, [Online], Available at: https://securityintelligence.com/open-banking-and-psd2-disruption-confusion/.
Dunlop, A. (n.d.). Open Banking and PSD2: A confused roadmap to innovation. PaysafeGroup.
FICO (2018). Risk & Compliance. (5thJune), [Online], Available at: https://www.fico.com/en/newsroom/swedes-confused-about-psd2-changes-to-payments.
FICO (2019). FICO Survey: UK Consumers Could Thwart Strong Customer Authentication. (31stJanuary), [Online], Available at: https://www.fico.com/en/newsroom/fico-survey-uk-consumers-could-thwart-strong-customer-authentication.
Finextra (2019a). 41% of banks missed PSD2 deadline says survey. (21stMarch), [Online], Available at: https://www.finextra.com/newsarticle/33569/41-of-banks-missed-psd2-deadline-says-survey.
Finextra (2019b). Sweden's Tink aims for pan-European coverage with €56 million in funding. (7thFebruary), [Online], Available at: https://www.finextra.com/newsarticle/33334/swedens-tink-aims-for-pan-european-coverage-with-56-million-in-funding/retail.
GoCardless (2019). Security vs. convenience in the payment experience. What matters most to online shoppers.
Koić, M (2019). Breaking the bank: how financial institutions can embrace disruption. (5thMarch), The New Economy, [Online], Available at: https://www.theneweconomy.com/strategy/breaking-the-bank-how-financial-institutions-can-embrace-disruption
Tink (2019). What a missed PSD2 deadline says about the challenge of implementation. (21stMarch), [Online], Available at: https://tink.com/blog/2019/3/20/psd2-sandbox-status.
Touchtech Payments (2019). European citizens and banks still unclear over PSD2 provisions. (8thFebruary), [Online], Available at: https://medium.com/@touchtech/european-citizens-and-banks-still-unclear-over-psd2-provisions-f62daeb4220a.
Virdi, T. (2016). PSD2: One of the biggest disruptions in banking for decades. (26thJanuary), Global Banking & Finance Review, [Online], Available at: https://www.globalbankingandfinance.com/psd2-one-of-the-biggest-disruptions-in-banking-for-decades/.