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PSD2 – Threat for European Banks is Also Bringing New Opportunities

European banks have been presented with a new directive from the EU dubbed PSD2 – so what threats, realities & new opportunities stand behind these 4 characters?

The PSD stands for “Payment Services Directive” and regulates the way payment services are provided and how payment service providers operate within the EU. Although you might not have heard of PSD, it is responsible for the introduction of SEPA (or the Single Euro Payments Area) which harmonized payments within the Euro area and dramatically decreased costs & increased speed of money transfer within the EEA. The PSD2 is a revision of the above mentioned directive with an aim to promote innovation in the financial sector (FinTech) and boost online & mobile payments.

How is it going to work?

This directive requires banks to open up their payment and bank account capabilities to authorized third party payment providers via standardized APIs (application programming interface) on an individual client level. It remains to be seen how this can be put to use by up & coming FinTech startups but in a simple practical example: A user will have one app which will be able to access bank accounts in 3 different banks. While this certainly has benefits for users, banks are threatened to become just infrastructure providers. With startups running the show, banks will lose contact with the customer and with it the opportunities to upsell products and services.

Risks: not just up-sell, data too

It’s not just missed upsell opportunities. Fintech startups will gain access to valuable market data from users’ transactions and because they will be able to increase the value of this data by combining sources from multiple banks, valuable market and industry insights will be in the hands of FinTech startups and the banks may just be bystanders.

Not just bystanders? Banks can build something better

With PSD2 aiming to modernize the industry, banks can also introduce new data-driven services. With the wealth of data they possess on the customer and money flow for goods & services they can provide invaluable insights for both the business sector and governments. Marketing consultancies and economic policy advisers are only a few of the many stakeholders that will benefit (and be willing to pay) from such insights.

Is there a precedent? From telcos to banks

In order to remain competitive in the new data-rich (sharing) banking era, banks should understand the need for combining multiple data sources in order to create comprehensive industry reports (after all, banks typically have a unified customer portfolio and thus insights from just one institution may be quite biased). This requires collaboration with other banks that would result in a central data hub with anonymized data ready to be purchased by 3rd parties. Although such a collaboration might seem difficult, a similar big data monetization initiative has been done in the telco industry with great results. Five major telco providers in the Czech Republic and Slovakia are now participating in Instarea’s project that aggregates and anonymizes data which is then monetized in the form of location intelligence, market insights & advertising. The first adopter to the platform – Slovak Telekom (part of Deutsche Telekom group) saw the return on investment within the first year.

The data monetization opportunity in banking

Success from the highly competitive telco industry proves that it can be done – from a technical, business & legal perspective. The ready-to-go IT solution from Instarea is the key to success and the way for banks to establish themselves in the FinTech market early and start monetizing their data in the form of valuable insights. There are several cases where banks can provide sought after insights such as:

  • Market intelligence. Uncovering buying behavior trends that aid business planning and market size forecasting. E.g. how large is the market for consumer electronics, what portion of wallet does it attract in various parts of the country, what have the recent developments been.
  • Benchmarking. Powerful reports within one specific industry can give businesses information about their competitors they otherwise wouldn’t be able to get. E.g. a coffee shop owner might want to understand what the revenue of the average player in the industry is, what is an average purchase there, what is their level of customer loyalty, what are complementary purchases.
  • Consumer trends. Used by the government to fine-tune policies related to consumer goods and welfare. E.g. what is the wallet size in different parts of the country, what is the spending behavior within the month, how does the regional cost of living differ and what are the trends.

These are just a few of the examples and opportunities locked away in the industry’s data warehouses. As in the telco industry, the market will show how the data can be put to work once it is put on display.

The solution – going to market without scaring the public

Keeping control of data internally and only monetizing anonymized and aggregated data is the key to success when creating a central data hub with other banks. The ready-made IT & business solution (Market Locator) from Instarea, proven in the telco industry in multiple countries, can enable banks to monetize their valuable data and deliver revenue shortly after launch. An additional benefit is that the data not only generates revenue externally but provides a powerful new platform for the internal customer as well.

Are you driving business services & innovation at a bank and looking for new opportunities? Download more info on how the solution works and get in touch with us to discuss the possibilities in your specific setting.

Matej Misik

Director Business Development at Instarea. Experienced data monetization consultant. Holds a MSc degree in Economics from the Tilburg University and a BA degree from the WU Wien.

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