PSD2, Part 3: The coming data deluge: Building a defensible competitive advantage

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By Jonathan Woods | 25 August 2016 | Part of Zafin’s Explainer Series


In Part I in our series on the EU’s revised Payment Services Directive (PSD2), we discussed how banks must adapt their reporting systems to comply with PSD2’s new rules on transparency. In Part II, we examined the new breakdown of the payments value chain, including the introduction of two new third party providers (TPPs) and the consequences for incumbent banks that don’t adapt to the new digital ecosystem. In Part III, we’ll step away from the edge of that abyss to explain opportunities that banks will have to shape and anchor that digital ecosystem – if they act today.

Bank management can perceive PSD2 as an intervention that threatens hard-earned market share or as a spark that lights a fire within the organization and spurs customer-facing innovation.

While the worst-case scenario for banks after PSD2 – relegation to a commodity capital provider – is scary, it is hardly inevitable. For bank management focused on innovating in the new digital ecosystem, improving customer satisfaction, and incorporating Payment Initiation (PISP) or Account Information Service Provider (AISP) capabilities to add value to current offerings, a window of opportunity exists in which they can not only compete with agile TPPs on innovative services, but actually attain an advantage.


Getting the data, anticipating payment behaviours, and winning at data-driven cross selling

As customers shift to digital financial services, agile incumbent banks with their large customer bases, branding, and distribution infrastructure can compete to become the hub of all of their customers’ account information – essentially the customer’s primary AISP.

But given the potential it promises, the AISP race promises to be a crowded one, with data aggregators and alternative lenders duking it out with the banks (traditional and digital) and fintech startups in the PISP space.

That said, the timing for the new structure couldn’t be better. While adoption of digital financial tools is not high yet, interest is.

According to a Gartner survey, approximately 40 percent of respondents in Poland and the UK and 30 percent in France agreed or strongly agreed that they would be interested in using digital tools. The digital tipping point at which consumers migrate en masse to digital channels and tools is coming, and incumbent financial institutions can position themselves to acquire these consumers – along with all of their payment data – unveiling a host of cross-selling and tailored offer opportunities.

Banks today have a key advantage over TPPs when it comes to servicing customers: they hold the majority of customer accounts. This means two things: banks will get the increased data coming from PISPs to the accounts, and banks don’t have the uphill customer acquisition battle that TPPs will need to fight in order to become the hub of all customer account information. Capitalizing on this advantage and creating the new services that will define the post-PSD2 ecosystem depend on competence in one domain above all: the collection and analysis of payments data.


More transactions through PISPs means more data

Banks will gain more payment information as more transactions go from a merchant through a PISP directly to the customer account instead of through other financial institutions like credit card companies. See Figure 1 to see the new process PSD2 will create.


Figure 1: The PSD2 payments model

Image for PSD2 Payments model for European banks

Source: Accenture, Welcoming a new phase of Everyday Payments in Europe.


Des Ferrell, Director, Advisory and Bid Management at Zafin, explains:The consumer ecosystem of transactions extends beyond the banks, obviously. If [consumers] are using credit cards with another financial institution, at this point in time the primary account holder doesn’t see those transactions, so they can only do purchasing behaviour analysis and customer engagement analysis using the data they have. With PSD2, if more and more transactions go directly through the bank account rather than the cards, then arguably that will give them even stronger insight and greater accuracy and understanding into what that behavioural activity profile is or what their customers are likely to need or want to do at a given point in future.”

The account holder is in a privileged position to receive this data. Receiving it, though, may not be enough to shore up a competitive advantage. Remember, with customer consent, AISPs can access all account data, so the payments data that goes to the account holder isn’t the bank’s alone – unless that bank can also become the customer’s AISP.


Banks must aggressively market their own subsidiary AISPs

If your bank can be the hub of customer accounts and attract a large customer base to its subsidiary AISP, it will have access to all account and payment behavior information, achieving an information advantage over other banks and TPPs.

In order to attain this, though, banks must use the data to deliver value-added services to the customer:

Budgeting tools. With a view of all accounts, the bank that serves as the customer’s primary AISP can use that account information to create budgeting tools that give real-time tailored advice on spending and payments, enabling customers to meet their financial goals. In addition to the brand equity this would build, the primary custodian of account information gains cross-selling opportunities that non-AISPs don’t have.

Figure 2 shows a screen shot of TD Bank’s newest budgeting tool, MySpend, created in collaboration with Moven. The app tracks a customer’s TD account (credit card, debit card) spending and helps him manage that spending relative to a budget. Imagine the power of offering the same tool but with data on every credit card, savings account, and loan – across all banks – of a given customer. The Account Information Service Providers (AISPs) in the post-PSD2 world will be the only ones who can do it.

Figure 2: TD and Moven collaboration: MySpend

TD MySpend



Peer behaviour benchmarks. A bank with a popular AISP can influence spending, budgeting, and payment behaviour through the display of peer benchmarks on its financial dashboard, allowing customers to gain insight into their own spending behaviours in relation to a broader community, and use increased information to improve financial health. Internally, banks can use peer benchmarks and predictive analytics to optimize the timing of nudges toward financial products at appropriate times in a customer’s lifecycle.


Four things banks can do today

Bank management must accept that participation in the digital ecosystem is mandatory, and start positioning their banks now. Here’s how banks can leverage their existing customer bases and established distribution channels to position themselves as hubs and superior service providers in the post-PSD2 financial world:

1. Prepare for cross-line-of-business selling opportunities. Banks will need to prepare automated systems that examine and derive actionable insights from the new rush of payments data. Siloed systems that feed aggregated data into other siloed systems will have to be rethought, so that data from multiple sources can be used to uncover new cross-selling opportunities on a customer-to-customer basis.

By using a solution such as miRevenue to first organize and understand the data they currently have, banks can prepare themselves to leverage the deluge of post-PSD2 account information that is to come. They can then better predict customer demand patterns and extend tailored offers in a scalable way.

2. Prepare customer-facing dashboards. The fight to become the customers’ AISP will likely be a zero-sum game, and customers will have high expectations from their primary account information aggregator, undoubtedly comparing it not only with other TPPs’ offerings, but with best-in-class digital experiences from service providers in other verticals.

In order to acquire and retain the privileged position of customer account hub, banks must communicate that they are making good use of the payment behaviour information being collected and deliver:

  • useful customer-facing data;
  • excellent user experience design; and
  • thoughtful notifications to customers.

3. Get up to speed on compliance. For both regulators and customers, be sure comply with customer authentication rules, and to bridge the gap between your current pricing and billing system and one that allows you to easily view, control, and provide full disclosure of each input to pricing.

4. Prepare for collaboration. In addition to setting up bank-owned PISPs and AISPs, financial institutions must be open to partnership with TPPs to ensure they aren’t outmaneuvered by agile innovators when it comes to customer service. A few examples of such collaborations include the TD-Moven partnership for MySpend, discussed above; CIBC’s adoption of Payfirma payment functionality; and the widespread incorporation of Apple Pay onto banking platforms. On the lending side, you see JPMorgan Chase teaming up with On Deck Capital and Scotiabank with Kabbage, to cite a few.


Depending on a bank’s actions today, PSD2 will either be a threat or a boon. What may seem at first to be the loss of an information advantage when PDS2’s “Access to Accounts” rules kick in, may in fact be an opportunity to gain greater insight into payment behaviour, sell more effectively, and shape the digital ecosystem that will become the new normal.

If there were a mantra to anchor preparation for 2018 and PSD2, it would be this: Get The Data.


About the author: A regular contributor to and Relationship Banker, Jonathan Woods is a technology journalist based in Vancouver, Canada.

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