Regulatory change is coming, geared towards increasing competition and innovation in retail banking. This is good news for customers. In August this year, the Competition and Markets Authority (CMA) released recommendations arising from its investigation into the retail banking sector. Its report concluded that retail banking still isn’t as innovative or competitive as it needs to be. It subsequently issued a provisional order requiring major banks to adopt open application programming interfaces (APIs) and make banking data available to trusted third parties in an easy, safe, and secure way by early 2018.
This follows the approval of the Payments Service Directive 2 (PSD2), which will also come into effect from January 2018, by the European Commission last year. While the impact of this latter legislation on UK banks remains unclear while the medium- and long-term ramifications of the recent EU membership referendum are still unknown, it will be applicable to all banks operating in the EU.
Combined, the CMA recommendations and PSD2 will accelerate progress towards “open banking”. But while this has been welcomed by challengers and fintechs that compete with the bigger banks, there is concern amongst established players that these changes could threaten their relationships with their customers. However, if banks get their response right, this regulatory change could be a catalyst for increased loyalty and enhanced connection with their clients.
Customers could be ‘switching’ away from banks
Under open banking, it will no longer just be competitors within financial services that banks may worry about losing ownership of their customer relationships to. With banking data accessible through easy-to-consume APIs, companies outside of banking will be able to offer new products and services that enhance the way we interact with our finances.
This new threat is compounded by the fact that these very companies are the ones leading the way in terms of delivering the personalised experiences and engaging content we have all become used to.
From personalised recommendations across media and retail – what to watch, read, or buy next – to simple-to-use navigation tools that automatically update with information about traffic conditions or train delays and recommends alternative routes, or being connected to our home heating system or new car and interacting with a service that understands your usage and history, these services are delivered through an intuitive, engaging customer interface and are starting to build supportive relationships based on prediction and personalisation.
Read the original article: internationalbanker.com