The future of banking is becoming increasingly digitized. With regulatory measures already focussing on digital components banks need to search for ways how to create value for their customers, and stay relevant to customers. One regulation measure posed by the European Union is to shift the power balance in the financial services industry, letting third parties become a relevant player in the industry as well.
PSD2 allows third parties (without a traditional banking license) to compete for market share by letting them develop applications that: 1. Allow customers to aggregate account information from different providers to a new platform, 2. Allow these platforms to also initiate payments for their customers through using the bank accounts of their customers.
This will most likely cause for new entrants to develop applications that can do both, and better than banks. Due to the fact that banks have to deal with latency systems fully incorporated in their business, they will be slower to adapt to changing market demand.
Although it might seem far of now, banks are already going live with their APIs and implementing platforms to connect to those APIs. But will these APIs, the introduction of PSD2 and the further digitalization of the industry result in firms becoming dominant over other ones with these new technological opportunities?
Truly, there are two things that are likely to happen in my opinion. The first is that banks hold their positions, innovating on the applications that are now possible to develop and teach themselves new ways to look at their customers, and creating value for them. This is also supported by research indicating that although PDS2 is happening and fintech companies will rise, banks will still have the function of ‘trusted agent’ and will have so for the time to come.
The other thing that could happen is banks becoming something of a commodity, only needed for the original banking purpose of transforming liquidities to loans. The true interaction with the assets customers have will than only happen trough third parties, better at adding value to customers in the digital environment they view their banking accounts in.
One way of thinking about added value that is hard to imitate by banks would be a discount proposal for using a bank aggregation platform at a company that also sells products other than financial services. In other word, this would take the form of a company with the likes of CoolBlue developing a account aggregation platform, and offering customers discounts on their products when using it.
