" class="no-js "lang="en-US"> PSD2: Driving Fintech Innovation by Giving Consumers Control of their Bank Data - Fintech Finance
Thursday, March 28, 2024

PSD2: Driving Fintech Innovation by Giving Consumers Control of their Bank Data

The UK banking sector has been undergoing a technology revolution in recent years as innovative start-ups look to take advantage of the industry’s failure to fully grasp the benefits of new tools and platforms.

As consumers continue to lose faith in traditional banks, regulators and governments have looked for ways to encourage new businesses to fill the technology gap left by the traditional establishment’s unwillingness to change.

The new EU wide Payment Service Directive (PSD2) which comes into force in January next year, is the latest change to face the banking industry and could prove the most beneficial for fintech companies looking to take on the established firms.

One of the biggest and most substantial changes in PSD2 will be the ability of consumers to allow third party companies to have access to their bank data. And these don’t have to be other banks, they could include technology businesses like Apple or Google.

This presents an exciting challenge for young fintech companies, which are being given the opportunity to create new financial products to rival existing banks, without the costs involved with traditional banking structures.

Personalising financial products through tech

There is no shortage of “personalised” products being promoted by banks. From savings accounts to credit cards all financial businesses claim to be offering services tailored specifically to their customers.

While some of these products may offer elements of personalisation they aren’t capable of adapting to real time changes to a person’s circumstances and, more significantly, are only applicable to an individual account.

The day to day management still has to be handled by the individual and even banking apps only manage individual accounts.

However, the changes in PSD2 open the opportunity to create a “one stop shop” for banking services if fintech businesses are granted access to a person’s entire banking data.

With the customer’s permission, technology businesses could create financial apps that could link to every account a person has, allowing them to manage their finances from a single point.

In turn, this opens up entirely new ways for people to bank and creates new possibilities for financial companies to help customers manage their money by implementing next generation technology into these single point apps.

“Smart” budgeting

When it comes to keeping an eye on our finances, there is no shortage of apps that can help us budget and keep track of our finances. However, the main problem with these apps is that they can only store information. The customer still needs to stay on top of their information and manage the accounts.

With access to a person’s banking history fintech businesses could create new budgeting tools that, far from just storing financial information – could actually help people avoid unwanted overdrafts by automatically making payments between banks when funds are running low.

These new products could monitor the outgoings across multiple accounts and, if a user has a bill due out of one account without the available funds, but has them available in another account, the app could notify the user and move the money automatically so they don’t incur charges for becoming overdrawn.

Having this type of personalised financial assistant would help millions of consumers avoid falling into unnecessary debt for simply failing to shift money into an account in time to pay a bill. Again, considering that many people have more than one active account, this kind of capability could prove invaluable.

Paying down debts

As well as helping to stop people falling into unwanted overdrafts, new banking apps could be created that offer real time advice to help people pay down debts they already have.

Given access to multiple accounts by the user, banking apps from technology companies could instantly assess an individual’s incomings and spending habits, suggesting ways they could save money, or even helping them find savings plans offered by traditional banks.

From our research, we know that a major frustration among consumers is that balance updates in traditional bank accounts are not immediate and sometimes a user is not being shown a fully accurate picture of their financial situation.

Innovative companies would be able to solve this problem by creating new financial products that could monitor activity in real time not just of one account, but every account owned by an individual.

As well as monitoring activity, these apps would be able to send alerts to unusual activity and when a person was in danger of going overdrawn or appeared to be falling into financial difficulty – like if their incomings suddenly reduced or stopped altogether.

The future of banking

PSD2 is going to be a game changer for the UK banking sector and as consumers become more accustomed to sharing their information with third party providers we will likely see a new wave of innovative fintech products coming onto the market.

While the traditional banking sector is in danger of being left behind by the speed of change in the industry, consumers are now benefiting from a raft of initiatives aimed at helping them better manage their money, and that isn’t likely to stop any time soon.

 Written by Craig James, CEO of Neopay

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