A Future of Opportunity for Payment Services Driven by Changes to EU Payment Regulations (PSD2)
In this white paper, Mobica discusses the impact the Directive has on users following recent changes to the banking industry. Defining PSD2 and providing an overview of Mobica’s partnership with a FinTech innovator to develop a prototype solution inspired by the Legislation which won the 2016 Barclay’s Rise Hackathon. Followed by a discussion of how Mobica expects the open banking platform of PSD2 to grow and how new technologies present additional opportunities within this sector.
Mobica sees the biggest challenges as coming from three aspects: firstly, ensuring customer acceptance of this new marketplace with secure easier payment methods; secondly, how the open banking platform can benefit traditional banks, customers and Fintechs; lastly, what technologies in isolation or combination allow for Strong Customer Authentication (SCA), whilst improving the customer experience.
PSD2 (Payment Services Directive) is one of the biggest overhauls of the financial industry within the EU. With great change comes great opportunities and the financial institutions that engage and grasp the greatest vision will have the biggest impact. Banks will not just be competing with other banks but now also newer third party non-banks that are closer to consumers. With the opportunities that technology is providing the potential for growth within the FinTech market place is about to explode, with banks compelled to adopt PSD2 in 2018, allowing access to valuable data traditionally restricted within the bank itself.
Banks will have to make interfaces available for PSD2 to work by the end of 2018 through the use of software APIs that allow third parties to access consumer’s information (with their permission). Open APIs will attract non-authorised abuse of consumer data, which ultimately the banks will be responsible for. This means security will inevitably have to increase, adding to the cost of the banking infrastructure. Banks have an opportunity to seize the moment and create a whole new way of interacting with their customers or fail and risk becoming further dissociated from their customers. The potential to lose customers and brand loyalty is one that has to be addressed early before third party non-banks establish themselves, further inhibiting the bank to cross-sell their products. Banks will also be able to market their products to groups of customers that have been aggregated together through third parties.
PSD2 will allow consumers and merchants to benefit fully from the internal market, particularly in terms of e-commerce. The Directive aims to help develop the EU market for electronic payments, which will enable consumers, retailers and other market players to enjoy the full benefits of the EU internal market, in line with the digital single market. Such further integration is becoming increasingly important as the world moves beyond bricks-and-mortar trade towards a digital economy.
Traditionally the lender was limited to only analyse credit reference data to make lending decisions. Looking at how a customer had managed their loans / credit cards over the past few years. PSD2 would allow for a more accurate insight into a potential customer's financial affairs and assets, thus enabling them to offset the lending risk with up to date information. E.g., A person who has a spiralling increase in online gambling site payments, would present a greater risk to the lender than could have been previously exposed.
A consumer with no previous credit history also finds it difficult to get a loan. With their PSD2 data exposed a lender may be able to verify that their current account incomings and outgoings are suitably managed and so can offer them a competitive loan, thus increasing the lender's potential market size and enabling a consumer, who previously would have found it difficult, to get a competitive loan.
Mobica and Nevis teamed up at the Rise Hackathon to claim victory with their PSD2 App!
Mobica was approached by a startup company: “Nevis” to help design and build a prototype app for entrance into the Barclays Hackathon event (http://www.risehackathon.com). The event was divided into three worlds with Nevis participating in World 1, The Consumer Cosmos. Nevis’s vision was to create an app that offered a single platform for servicing all the financial needs of a consumer together with using PSD2 to offer tailored financial products and access to the latest FinTech applications.
Mobica assembled a team of three senior software engineers to aid the customer in developing their prototype in five weeks, ready for demonstration at the Hackathon event. With over 500 teams entering the event, split into the three different worlds, Nevis won the event and secured the further funding necessary to realise their end goal of a fully functional product.
With secure messaging at the heart of the app, we utilised the Twilio chat platform, Jumio for customer identification through facial recognition using a driver's licence and GupShup as an intermediate “Bot” to use as a natural language analyser. As Nevis utilises messaging, they are not limited by the API’s provided by the banks and thus have no restrictions on the functionality that can be accessed from using the App.
Essentially the app gathered all a users financial products using PSD2 and allowed then to:
1) Tender for a loan for all companies.
2) Inform their FI's of a change of address.
3) Aggregate all their transaction across all accounts to view in the one place
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“We have worked with Mobica over the past two to three years and found their engagement from scoping to software delivery as both professional and flexible to our business needs. They would certainly be a development partner we would be happy to engage with in the future.”