Banking 2.0: Navigating the Chaos
Until recently, retail banking has been a comparatively stable, if complex, business. One might say it was a period of evolutionary rather than revolutionary change, with a relatively small number of incumbents dominating markets in which regulations and economic factors produced relatively few truly radical new initiatives. Change could be slow, innovations far apart.
As new digital technologies have gained mass adoption, the landscape has changed. Mobile apps, cashless systems, and many other advances have changed the stakes, relatively quickly — just look at the number of branches closing as more customers do their banking on-the-go in purely digital environments.
On the 13th January, the new Open Banking (OB) regulation in the United Kingdom came into force, mandating compliance with the second Payments Service Directive (PSD2). This is a significant development in the new period of rapid evolution in banking. As regulatory changes unroll alongside rapidly evolving technologies, the range of participants shaping financial services is likely to expand and the pace of disruption is likely to accelerate.
Specifically, the new OB/PSD2 regulations are encouraging new companies to enter the market by mandating that previously-closed banks provide system-to system-interfaces, i.e., application programming interfaces (APIs). These APIs enable companies vetted and approved by the Financial Conduct Authority (FCA) and permissioned by account holders to access transaction data and request or initiate payments.
Put another way, in the past, customers of a bank could only expect the bank and its immediate partners to offer useful financial services using a customer’s personal information. Now, those apps can come from a much wider range of developers, increasing the likelihood of new innovations to help people manage their finances.
Continue reading this article on Medium.com to learn about the challenges banks face and some steps they can take to move toward operating at Internet speed and competing with startups.