This headline sounds like a dystopian sci-fi movie, but there’s little doubt that the platform banks are among us – and their impact has the potential to deliver positive change. Many see the Revised Payment Service Directive (PSD2) as having unlocked platform thinking across Europe, but what is the real driver behind the legislation? In a word, it is the customer.
The first banking platforms started out small, offering customer’s savings and current accounts. For other financial products, such as loans or mortgages, firms would offer a marketplace, similar to Amazon or eBay, where customers could access a variety of third-party providers.
PSD2 is changing the way banks look to service their customers. Before PSD2, banks tended to focus on maximising their customer experience purely around their own institution and products. There was no need to share data and cooperate with your competitors.
Dr Pinar Ozcan, Professor of Strategic Management at Warwick Business School, is currently researching the move to open banking and the rise of platforms across the industry. She stresses that banks should try to understand their customers in a more holistic way, rather than in the silo of their own bank. “Think about the customer’s financial journey as a whole,” she advises.
Ozcan’s research indicates that entrepreneurial firms (e.g. fintechs) are interested in what is increasingly being called consumers’ ‘financial wellness’. These firms realise that the average person does not have a good sense of their financial situation, and most do not receive professional financial advice.
Challenger banks want to capitalise on this by offering simple, straightforward products and focusing on the user interface to make things as easy as possible for the customer. They also want to provide their customers with a good sense of their overall financial situation. New banks allow customers to “look at your accounts and mortgages, and different products across banks, and put them all into one user friendly platform,” explains Ozcan.
PSD2 is certainly catalysing this change. The regulation allows third parties to connect to banks and obtain customer data (with the permission of the customer). Banks are realising that they too can be receivers of data and so can offer similar solutions to customers. This is bound to encourage collaboration between traditional banks, challenger banks and fintechs.
Although traditional banks initially saw open banking and the rise of platforms as disruption in their market, Ozcan thinks they might actually have a head start over challengers and fintechs. In banking especially, gaining the trust of a customer as a new player is a significant challenge. “Big banks still have an advantage if they increase their level of innovation in the future.”
You can listen to Dr Ozcan discuss open banking and platforms in the podcast at the top of this page. Ozcan and her colleague Dr Markos Zachariadis are in the midst of researching open banking on behalf of the SWIFT Institute. Their research paper will be published here on our website in 2020, so make sure you register for updates to be notified when it’s available. You can get a sneak peak of their research, however, as Ozcan and Zachariadis will be presenting their interim results at Sibos London on Tuesday 24 September in a session entitled – The Rise of Banking Platforms and the Challenges Faced by Incumbents and New Entrants.