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Banks and payment providers must change to stay relevant, say experts


John Salmon’s Financial Services blog

Financial services sector head John Salmon and the Pinsent Masons financial services sector team bring you insight and analysis on what really matters in the world of financial services.

Last month we hosted our second annual Global Payments Conference which connected London with Shanghai, Singapore, Munich and Paris.

While at our inaugural event last year many questions were asked about the direction of travel of payments regulation, this year's event focused more on who will take advantage of the opportunities now set out in regulation which will present themselves over the next two years.

Since last year's conference, the Payment Services Directive II (PSD2) has been agreed, the Payment Services Regulator is operational and the UK Government is about to set out its ideas on the sharing of bank data. All of these changes mean that banks and other financial services businesses must find a way to deal with change.

The feeling in the room at our conference was that making greater efforts to collaborate may be the most sensible way forward. As one speaker pointed out, Apple had 200 collaboration partners when creating the iPad and financial services businesses should be thinking along the same lines. Anti-money laundering, know your customer and other compliance checks can all be achieved with new technologies according to one speaker, but only if the expertise necessary to implement new technologies in a compliant way is available to the business.      

With PSD2 opening up the payments market to payment initiation service providers and account information service providers, existing financial services organisations are well placed to protect their existing customer relationships by providing these services themselves. But as over the next 18 months the European Banking Authority (EBA) will need to deliver on 18 mandates given to it under PSD2, the technical details necessary to implement these changes may still be some way off.     

The UK Government for its part is looking to show some leadership and pre-empt the standards to be put in place by the EBA, at least in so far as they relate to the ability of third parties to access banking data. It remains committed to bringing out a framework for a new open API banking standard by the end of 2015. In doing so, it will give UK financial services businesses the opportunity to take a lead in adjusting to the open data framework which PSD2 will require more broadly when implemented through the laws of EU member states.

As these developments take place financial service businesses will need to keep in mind that innovation in payments will only occur if consumers trust that new products and services in the market are secure. It is therefore up to existing businesses to clearly articulate how they are propositioning security to consumers so that they understand how their data is secured. Again, the final output of the EBA's work may determine what technically must be put in place.  

Security must not, however, be a barrier to innovation. Security together with convenience of use and relevance to consumers are key components that will make for successful new payment solutions. Data hacks, bad customer experience and a lack of relevance are major issues which a growing band of customers are no longer willing to accept.

Digital IDs

Digital IDs were also discussed at the conference, and as we have highlighted for some time now, identification and verification of customers in an online context is an essential component of digital maturity. More education continues to be needed if consumers are to understand the transformational impact that a digital ID could have on their ability to save, invest and understand their financial lives.

Our YouGov research revealed that a growing number of UK consumers would feel comfortable with using a digital ID for financial services. A significant number however remain unaware of how a digital ID could simplify their lives.

The Tax Incentivised Savings Association (TISA) is leading an industry-wide initiative to educate consumers about digital IDs, develop technical standards for the technology and review the regulatory framework in order to clarify the extent to which all businesses can innovate with it. 2016 will also see the EU Electronic Identification and Trust Services Regulation come into force which may lead to further discussions about a unified digital ID framework for the UK – building on the infrastructure already put in place for public services through verify.co.uk. 

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