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BANKING BANKING

PSD2 and banks: Data drain or insight opportunity?

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t is widely agreed that the introduction of the revised Payment Services Directive (PSD2) will substantially increase the competition from digital alternatives in the financial services space, as banks will no longer be able to rely on their vast customer data as their key competition point. Banks will soon be obliged to allow third-parties, such as tech enterprises and FinTech companies, to access their customers’ accounts through open Application Program Interfaces (APIs). As such, they will have to get smart at using this data to their own advantage, or risk being overtaken. Analysing data is not a new concept for banks. They’ve had to collect and manage customer data long before Big Data was a known term. Banks use a host of data to support with both customer insights and compliance – such as information on transactions, loans, branch visits, call logs, e-mails, and credit card histories The common link here is that these are all examples of structured data, however the best insights are often a little more disordered. Unstructured information, such as call centre recordings and customer care web chats can provide deep customer insights, but this is often ignored by banks, as it is more challenging to record and analyse. Even more opportunities are uncovered when this valuable information is combined with unstructured information from external sources, such as the information coming from social media, the smart grid, demographic

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statistics or even weather reports. Banks are used to neatly recording and analysing their own internal datasets, but they are often daunted at the prospect of this potentially infinite external data, which requires realtime analysis. Prioritise pricing alongside product Data insights provide valuable customisation opportunities, which are a key pillar in the quest to keep clients happy. By understanding customers, banks move away from the risk of becoming a ‘faceless service provider’ to start bringing genuine value to both sides of the relationship: happy customers spend more with their top bank, show loyalty and can even become advocates to attract more customers. If banks are to provide a service that truly matches the experience their customers expect, then the pricing of products needs to be prioritised alongside the product itself. Smart use of data should play a major role here, but a lot of this information is currently trapped or lost in complex core banking technology. Banks need to lift all the product and pricing information out of the bank’s core into a product and pricing middleware platform. The next stage is to consolidate it, and then apply smart analytics to accurately price, target, and deliver one-to-one personal product and pricing to end users, in order to optimise revenue.

Deep data analysis will also enable banks to expand beyond their traditional business models. We can expect to see the smartest banks offering solutions such as budgeting tools and peer behaviour benchmarks, which will enable customers to gain insight into their own spending behaviours in relation to a broader community. In addition to the brand equity this would build, this would also open up valuable cross-selling opportunities for banks. PSD2: The opportunity While PSD2 may appear to some as a burden for traditional banks, the revised legislation also presents a fantastic opportunity for banks to gather more data than ever before. The fact that banks hold the majority of customer accounts gives them a distinct advantage over third party payment service providers (TPPs), when it comes to servicing customers. This will provide banks with direct access to the increased data, set to come from innovative payment technology providers to the accounts, meaning they can become the hub of all customer information. What’s more, they can do this without tackling the long and trying customer acquisition battle that third parties face. The success with which banks capitalise on this advantage and create the new services that will define the post-PSD2 ecosystem, will depend on their ability to collect and analyse this payments data.

Finance Digest_Issue 1  

Finance Digest is a quarterly Print and Online Publication providing in-depth coverage and analysis of the global financial community coveri...

Finance Digest_Issue 1  

Finance Digest is a quarterly Print and Online Publication providing in-depth coverage and analysis of the global financial community coveri...