Open banking and the priceless freedom of financial services

The PSD2 - acronym for Payment Service Directive 2 - is a European statute that came into force on 14 September last year and has become famous for the high impact it has had on anyone with home banking. Even non-experts had to deal with new policies, new platforms, multi-factor authentication systems and the gradual farewell (without many regrets) of the physical token.

In reality, compliance is much more complicated. This law is part of the actions of the European Union to increase integration among member states (perhaps one of the steps of the complicated process of creating actual European citizenship). The PSD2 promotes an even more integrated digital payment system, supporting technological innovation and increasing the level of security of transactions.  The main aims of the standard are, on the one hand, a push for digitization and innovation and, on the other, an increase in competitive dynamism in a very sedimented industry.

Among the main objectives of the PSD2 is to increase transparency for both industry operators and users by standardizing the rights and obligations of individual payment services. Moreover, precisely with a view to integration between the Member States, it is intended to increase competition between operators and between national markets, ensuring a level playing field and expanding the range of opportunities for end-users. 

In the run-up to the deadline of 14 September 2019 - the date on which the legislation came into force - financial institutions have taken significant steps to open up to third parties, including competitors, adapting to the standards that will lead to the creation of a European digital single market. 

Security was the fundamental prerequisite for the regulation to be applied with all its advantages, forcing the entire banking system to be renewed, and proving to be a valuable opportunity to eradicate the limits of UX all too evident of the oldest Home Banking platforms.

The implications of Open Banking

The concept of Open Banking materializes as follows: the admission into the payment ecosystem of new entities, called Third Party Payment Service Provider (or TPP), allows the birth of new services and innovative user-centred products. Thanks to Open Banking, users will be able to have apps and dashboards that will enable them to manage different current accounts in a single user-friendly interface. The PSD2 requires banks and other financial institutions to open to third parties, subject to customer authorization, the "gates" of current accounts, payment cards and data in their possession, using technological standards such as defining an Open API gateway to relate with each other.

This openness to third parties is the forerunner of significant transformations not only for those who deal with financial services but also for all those subjects - such as insurance services and multi-utility - whose services affects the assets of users. 

In addition to the higher security and transparency due to shared standards, PSD2, together with GDPR, has given users back ownership of their bank data, along with the freedom to transfer them to services capable of aggregating and analyzing them. All in favour of a more aware financial education and greater control over one's financial condition. Besides, for savers/consumers has opened up the possibility of making digital, fast and secure payments without the obligation of intermediaries by banking institutions or payment circuits.

AISP

Account Information Service Providers offer customers, via an online platform, an aggregated view of one or more payment accounts in their ownership, even if held with different payment institutions and within different countries. They are commonly known as account aggregators. The purpose of these services is to allow clients to have a global view of their financial situation and to analyze their spending habits. Also, these services allow, if fully exploited, to provide new visions. 

PISP

The PSD2 directive allows certain Payment Initiation Service Providers to order a transaction from a payment service provider, once authorized by their customers, by directly accessing their account or card (whether debit, credit or prepaid) without the presence of any intermediary. The payer can then debit a transaction directly from his online account.

People's trust should be rewarded with valuable solutions

To take advantage of these new opportunities, people must grant permission to the various financial operators to know their data and, on certain occasions, to carry out transactions on their behalf. They must give their explicit consent, and not once and for all, but at least every 90 days. 

And the repeated confirmation of the customer's trust is the actual battlefield of the game of open banking. Not the aggregation one's accounts (each of us with a bit of time and expertise can set an excel document that does almost the same thing), not the choice between a multiplicity of financial solutions, not the intelligent and evolved automation of some operations. All these things are required, but they are secondary to the value of the experience perceived by the customer. 

The person must renew his loyalty to the service, from his point of view, and the value he receives back must be at least equal to what he gives: his data and his trust, which are worth a great deal. He cannot accept in exchange a pretentious service, but a companion with a unique value proposition that he will no longer want to do without, and that keeps the freedom he has just acquired.

For this reason, new banking services must be designed around the client, his needs, expectations and aspirations. Never as in this case, we can speak appropriately of customer-centric design and experience design. 

The questions we have to ask ourselves when faced with the opportunities of open banking, both as designers and financial operators, are not how much money we can get from our customers or how to offer them an aggregator, but these:

• How to create services whose the customer perceives added value, why do you repeatedly grant access to your data?
• How to adapt, manage and optimize processes and systems within the company so that it can offer this kind of services?
• How to exploit the data collected to evolve the offering and enhance the customer portfolio over time, offering them solutions focused on their needs?

Based on these questions, it is possible to develop a plurality of scenarios and applications that can go beyond the banking sector (and find use in insurance, multi-utility, healthcare...).

We realized the power and versatility to design services that meet regulatory requirements when we helped Flowe structure its service. 

Flowe is an ELMI (electronic money institution)and a benefit corporation that is part of the Mediolanum Banking Group. We have recently completed a design path to define a new user experience through a native app, which in addition to account and payment services within the PSD2 framework, could also offer a real ecosystem focused on improvement, sustainability and wellness.

The new realities, therefore, exploit the enabling power of technology to provide new services and novel experiences compared to traditional ones, starting from the latest customer needs. They do not replace conventional banks but force the financial system to a profound renewal: customer centrality, user experience, organizational evolution.

Driven by these challenges, the bank's future is to become a lifestyle company, an agent who knows the user and his needs, able to propose and plan future solutions, anticipate obstacles and at the same time allow these needs to be realized through financial transactions.

Precisely this type of paradigm shift - from bank to lifestyle companion - illustrates all the power and range of opportunities that can arise if you adopt a design-driven and customer-centric point of view in responding to the challenge of adapting to PSD2.