Over the past two years, the Covid-19 pandemic has forced everyone to go online, for everything from work meetings to doctors appointments.
But financial companies and their clients have faced some of the biggest changes.
The digitization of the financial sector was on the horizon long before the COVID-19 pandemic, but the outbreak in 2020, along with the push to make everything remote and the closure of physical spaces – from offices to bank branches – accelerated the process. Customers appreciate the speed, ease and convenience that comes with conducting their financial businesses from the comfort of their home computer or – in many cases – their cell phones.
And just before the pandemic, open banking came into force with the passing of the PSD2 directive, allowing companies to offer even more digitized offers. Now, the European Commission is inviting experts to consult on PSD3, and the new wave of online financial solutions means customers and companies have more options than ever before.
The groundwork for the digital banking revolution is already laid. It started years ago, with the introduction of Payment Services Directive in 2007, which intended to increase competition in financial sectors across Europe, and was then replaced with Payment Services Directive 2 in 2018. PSD2 is a directive passed by the European Parliament which requires banks to share customers’ financial information with third party providers (the so-called TPP) upon a customer’s request.
The financial sector loved the new directive, which allowed companies access to a much more comprehensive amount of customer information, banking history, financial habits and trend analysis. In the years that followed, more and more financial companies began using open banking solutions.
Customers also got used to the open banking system, and began to feel more comfortable sharing their data, until the process of allowing financial companies to review their banking history became natural.
Now that consumers and companies alike have had a taste of what open banking has to offer in terms of ease, speed and convenience in financial services, more companies are open to the idea.
No wonder, because sharing financial data with banks and other companies from the financial sector is a natural move for clients in this industry. Being able to take advantage of open banking and a few clicks, they eagerly use this possibility. The statistics provided by our clients offering financial services show that 65 to 80% of their clients choose open banking out of all available methods of identity or income verification’ - explains Dominik Wolski, VP of Business Development at Kontomatik.
While many companies in the financial sector have adopted open banking solutions, and their customers have felt more comfortable sharing their information, the same can’t be said for other industries. Many of their customers do not even know what this concept is.
And Kontomatik is here to help to introduce smoothly open banking to new sectors.
The next step for open banking is, simply, getting more people on board with the idea.
Many non-financial companies would benefit from using open banking solutions to help verify clients’ finances in order to rent out a property or piece of valuable equipment; provide accounting services; or sell and cross-sell goods and services online. But, largely because those companies are not as familiar with the financial industry, the move to open banking can be daunting. Many non-financial companies mistakenly perceive open banking solutions as difficult to implement and they do not know how to convince their clients to get on board.
Meanwhile, their clients also tend to be more wary of sharing their personal or financial data with the company, expecting simple and quick solutions from fintechs at the same time.
However, it’s safe to say that open banking is the future for many companies, especially in the Central-Eastern European region, so it’s likely that the act of sharing data will become less scary and more natural for customers with time.
That’s especially true if customers can recognize the value that comes with sharing their information. For instance, if a customer shares their financial history with a company when renting a piece of equipment, that company can use their information to offer better and more cost-effective services. Customers could receive a lower deposit or installment amount, or even better equipment, all because the company was able to verify their reliability using their financial data.
In a more long term sense, there are plenty of developments in artificial intelligence that are on the horizon and may change or improve the way open banking is handled.
Experts are already looking at the next iteration of the current regulations, which could be brought forth with PSD3 sometime in the near future. PSD3 could bring a number of improvements to the current regulations, possibly including stronger customer authentication and fraud detection, and more regulation surrounding APIs. Next week the European Commission plans to release a letter inviting consultants to help draft PSD3.
Whatever happens with PSD3, it’s already clear that the future is bright for open banking.
‘We have helped financial service providers make the switch to verifying their customers’ financial history using all-online open banking solutions, and we’ve helped strengthen the Central and Eastern European market through open banking methods. Now, we’re ready to help other sectors and industries recognize the value in open banking and make the transformation from traditional methods to online banking solutions’ - says Dominik Wolski
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