In January 2018, all banks in the European Union must open their systems and share customer data with third-party providers (on a permission basis, of course). This opens up access to key data for third party providers that will enable them to provide additional value-add services to customers, boost innovation and become more competitive in the traditional banking sector.
PSD2, the second Payment Services Directive, is a data and technology-driven directive aimed at forcing openness, transparency, competition, and innovation in the banking sector. With the introduction of PSD2, European regulators are hoping to breathe new life into a banking sector that is often seen as out of step with modern customer expectations.
Once banks comply with PSD2, the door opens for sweeping innovation that is designed to make customers’ lives easier. For example, a customer changing bank accounts today must go to great lengths to inform all his or her providers of the change in banking details. With the introduction of PSD2, a fintech start-up, for example, could access a customer’s profile and provide a consolidated view of their account. Through the use of an API, the fintech provider could find all the regular debit order payments on the customer’s account statement (once the required permissions from the customer have been received) and generate a suggested email to each provider to update the customer’s account details.
This could also make banks more competitive: a customer may be enticed by an offer from a rival bank, who can provide an additional incentive to switch by offering to change all the debit order details on the customer’s behalf.
African banks showing interest
Despite not being bound in any way to comply with PSD2, African banks have shown great interest as they can see the potential for increasing their competitiveness. And with no timeline restrictions, African banks are able to start adopting principles of PSD2 at a pace that is comfortable to them and does not negatively affect their standard business processes.
Discussions with customers in Africa have revealed they are likely to apply the principles of PSD2 in their business regardless of it not being binding outside of Europe. There are two main reasons for this:
1. Every regulation in Europe eventually finds its way down to Africa as well, so banks are keen to start investigating its implications.
2. African companies are identifying the benefits of PSD2 and want to get a head start on implementing some of the key principles to ensure they are positioned to take advantage of these benefits.
The core technology enabling innovation
Banks are currently investing significant time and resources in updating their core banking systems to undo centuries of siloed legacy systems. African banks are leveraging the power of SAP Cloud Platform and SAP Core Banking to digitize their processes and unlock the benefits of true digital transformation. This digital transformation journey is being fast-tracked with the entry of agile fast-moving fintech start-ups who are upending traditional banking practices and bringing new levels of customer-centric innovation to the banking sector.
SAP Cloud Platform can enable banks to improve their customer experience by offering a digital payment strategy and expanded product offerings. In addition, the data and product insights provides banks with a competitive edge as it fast-tracks the launch of innovative new products and services built on relevant and accurate customer insights. And by integrating with third-party providers, banks can tap into the innovative potential of fintechs to speed up the building of new business models, products and core banking functionality.
PSD2 forces banks to adopt a more customer-centric approach and can make them more competitive against fintech start-ups. In fact, any bank that fails to move with the times will find themselves sidelined and out of business in a matter of years. African banks have a golden opportunity to leapfrog their competition and take a first-mover advantage on developing more customer-centric banking practices.
SAP offers services that help our customers to deal with these new challenges. Get in touch to find out how you can leverage our technology to enable a more customer-centric approach.
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