A wealth of new financial services are on the way in 2018. The influence of PSD2 and Open Banking promises smash and grab atmosphere of fintechs vying for authority, or to establish partnerships with incumbents on the lookout for APIs which will enable then to weather the storm.
Many have predicted that the banks will be in hot water as a result of the new opportunities available to challengers and fintechs, but a bout of ‘finance fatigue’, argues Colin Swain, Global Head of Platform, Travelex, may see consumers returning to the incumbents for their financial services instead.
I spoke to Colin Swain about the role of traditional banks post-PSD2 and Open Banking, the race between challengers and incumbents, and who is going to come out on-top.
What is ‘finance fatigue’ and why is it affecting consumers now?
Over the last ten years or so we’ve seen a real explosion in the number of fintech startups that have done a fantastic job of improving customer experience and offering consumers better financial services. Many of them have pushed down pricing as well, which needed to happen. Overall, they’ve had an amazingly positive impact on financial services.
The stage we’re at is that consumers have multiple service providers for different jobs around managing their money – that might include using an eWallet for buying online, a money transfer service to send money abroad, alongside more traditional products like credit cards and bank accounts. With many different service providers all in that equation it can be hard for the consumer to manage their finances in a simple way.
What is ‘unbundling’, and why are the traditional banks in a race to ‘rebundle’?
It’s a combination of things. If you go back 15 years, essentially you’d go to the bank for all your financial needs – savings accounts, insurance, everything. Over the last 15 years, with the new players coming in to the market, this has fundamentally changed. Your bank is no longer the natural place for your financial services and products, if you can find a better one elsewhere you’ll go there instead. The research points to the fact that consumers are keen to start building their financial services into one single dashboard or portal, and while banks have a had a challenging time over the last 10-15 years, their financial services are still highly trusted, and most customers still see them as the natural place for all these financial services to dwell.
So the incumbents are at an advantage?
They’ve got a few advantages. They have the advantage of trust, but also of still having a large base of customers. We talk a lot about unbundling services, but things like current accounts and core transactional services are still widely held by banks, so they’re still the go-to starting point for financial services. Its just you’ve got these add on services like online payments or international money transfers that consumers look for elsewhere. In terms of rebundling these services together, I’d say they’re at an advantage.
What can challengers and fintechs do about this trust issue?
In a world of open banking and collaborative innovation, it’s not about going head to head, but about how fintechs can partner up to offer better services to the consumer. My advice to fintechs would be look for the right partnerships, with banks, to enable you to offer your better service and products to a wider range of consumers.
Are some incumbents in a better position than others?
There was this view, certainly about 12 months ago, that PSD2 and Open Banking was going to be a huge threat to banks, and that it would open the doors to banks being disintermediated. I don’t really sign up to that point of view – I think PSD2 and Open Banking will, in time, will allow the banks to maintain the position they already have, because the regulation has forced them to think differently about how they engage with consumers, and the tech they have as well. I think in a world where Open Banking didn’t exist, over time, banks could be further disintermediated, but with Open Banking they’re almost back in the game, because they now have a technology and platform that enables them to work with fintechs and other partners.
Given all of the legislative changes affecting the financial landscape this year, how do you predict the battle between incumbents and challengers/fintechs playing out in 2018?
I think that actually towards the end of this year, we’ll see some real-world user cases for Open Banking and PSD2. If you look at the second half of 2017, Open Banking and PSD2 were going through that stage of almost heightened expectation that, come January 13th, financial services were going to change forever – and inevitably that didn’t happen. It’s almost on a downward trend now. Some are saying that, because nothing happened, Open Banking and PSD2 haven’t worked, which isn’t the right answer. PSD2 and Open Banking were always going to take time for consumers to understand, for banks to get their head around, and for those third parties to realise what those services could be.
By the end of this year, I would love to see one of the major banks introduce a marketplace which actually allows them to fully embrace Open Banking – what I mean by that is that one of those big banks, within their mobile app or online experience, has a marketplace that allows their consumers to connect to those alternative payment methods or fintech providers. I think that’s where some banks heads are at, and it could happen.
I spoke to Garrett Cassidy, CEO and co-founder of Trezeo, about the gap in the financial market they aim to fill, and to get a better idea of how the agile mindset foresees the challenger vs. incumbent race to innovate playing out.
Bolt’s aim is to make the payment process easier for both consumers and merchants – consolidating every element of the payments process in one end-to-end platform, combining checkout, payment, and fraud detection systems.