Anyone in the fintech world hoping for a relaxed start to 2018 has a shock coming this weekend, when the Second Payment Services Directive (PSD2) finally launches on Saturday, January 13th.
Victor Trokoudes, Co-Founder, PlumThe new EU legislation will revolutionise payments in the UK by giving merchants access to consumers’ account data from their bank, allowing them to bypass services like Visa or PayPal. The move will disrupt the monopoly that banks currently hold over payments, and promises more financial choice for consumers.
In the payments industry, 2018 will forever be known as the year of PSD2. But what happens next? The new legislation isn’t unanimously popular, and any financial revolution has the potential to damage the prospects of some businesses.
I spoke to two leaders in consumer-oriented fintech – Victor Trokoudes, CEO and Co-Founder of Plum, and Samantha Seaton, CEO of Moneyhub – for their thoughts on how Open Banking and PSD2 will affect the start-ups, the banks and the consumers in 2018.
How will Open Banking and PSD2 affect the financial lives of consumers in 2018?
VT: I think it will strengthen the consumer and make it less likely that they’ll be ripped off. The way the banking system has worked until now is that there were all these walls around the consumer – you stayed with the bank because they sold you their own products, even if they weren’t the best for you. Open Banking is basically making banks a utility provider, and delivering the best product to the consumer.
SS: The banks’ terms and conditions put the wind up a lot of consumers – there’s been a barrier for them until now. Open Banking is a lot more transparent – for the consumer, there are some genuine wins. It’s got quite a long way to run, and the banks are a little bit behind. It won’t happen overnight.
In light of the changes, what kind of behaviour do you expect from start-ups and challengers over the next year?
VT: Any fintech or startup can now use the transactional data in the consumer’s bank account to make them better off, to help them make a more informed and accurate decision. They’re going to become a lot more personalised.
SS: I think there are going to be some start-ups that are going to want to create viable businesses; others will build something to get bought. I think you can already see that a little bit – and both are good, both drive change. Products and services are going to be offered to you in a frictionless mode – as you need it, when you might be able to afford it. Ultimately, I think all these start-ups and what they’re bringing to the market are going to result in a financially better-off society in the long-run.
What challenges do more traditional banks and financial organisations now face? Do you think they will take on more of a utility provider role?
VT: They’re being challenged in the sense that right now you can use HSBC to spend money but use Plum to manage everything else in your financial life. The companies that will win are those that bring value to the consumer, and offer a nice user experience. Open Banking makes this easier. I think it puts a lot of pressure on incumbents to offer good services.
SS: The difficulty is their size. I feel for Santander, because there are so many people working for them who want to do so much for the consumer, but they have a 4000-strong compliance department. Testing things is quite scary for a bank, which is the mentality that the fintechs embrace. It’s hard to bring that into a big organisation that’s scared of getting something wrong. They’ve got quite a lot to do but at the end of the day we shouldn’t underestimate them, because what they will do is buy some of those start-ups. They won’t want to become a commodity quickly. Do I see them disappearing? Not easily. People still have a lot of trust in them, and brand awareness is still very important too.
Is there anything that still needs to change to further empower the financial lives of consumers?
VT: I’d like everyone to have a financial adviser. Everyone should have someone they can turn to – and that could be a machine for part of it – to help them better their financial lives. So, now that the government’s allowed the consumer to share their data, they could also require the consumer to ‘opt-out’ of good financial advice.
SS: I think the most immediate thing that needs to occur is the feeling that it’s safe to use Open Banking. Although the term is good, it’s also equally bad, because it sounds like banks are just opening their doors and letting everyone have access to their data. If you combine that with the ad campaigns now telling people to be careful with their data and not to share it with just anyone, it’s a bit confusing for the consumer. I don’t think it helps the consumer to embrace Open Banking in the way that’s needed.
What advice would you give to paytech and fintech start-ups, and consumers too, to make the most of Open Banking and PSD2?
VT: To consumers, I’d say: embrace these new services, they might make you better off. Trust them – they’ve been built in a way that means they’re secure and regulated. Fintechs and start-ups are always thinking ahead, and this is a new goldmine for data. I’d ask them: How can you incorporate that into your services to better the life of the consumer?
SS: Try it in a contained way – start small. If you can start with something small and specific with an on-target audience, and if you find that that is working, then that’s the way to take it forward. I’m a really big fan of the lean methodology for start-ups – if we do that in this mode with the consumer, it’ll help them to understand it. Say to them, why don’t you just start with a credit card? Whatever you do, try to contain it and isolate it. Definitely try it – just get on and do it!
New research by the Mercator Advisory Group, published in an e-book by Kount, reveals how dynamic fraud detection tools are combating e-commerce fraud.
Banco Maré uses Blockchain-based paytech to transform lives of forgotten communities in the favelas of Brazil.