PSD2 & Open Banking: the future of data sharing

| March 6, 2018 | By

As one of the first fintech companies to embrace PSD2 and Open Banking, Yoyo delves into the mechanics of PSD2 and Open Banking, the impact it’s going to have on traditional banking and the new opportunities and experiences that data sharing can bring to banks, retailers and their mutual customers…

What is PSD2 and Open Banking?

PSD2 and Open Banking are two related developments that aim to open up banking data and encourage 3rd parties to develop value added services on top of existing bank accounts.

PSD2 applies across the EU to all payment accounts, whereas Open Banking is a UK initiative for the so-called “CMA9” major banks, and at launch applies only to current accounts.

Both initiatives require that trusted third parties are able to access customer account information, including balances and transactions, and even make payments on behalf of an account holder.

The aim is to create more competition and innovation in the banking sector. If customers are prepared to share their personal financial information with trusted third parties, they will be much better placed to gain more value from their financial products, be in more control of their money and see new value models emerge to reward them for the use of their data.

The key technology that underpins both PSD2 and Open Banking are APIs, which give easy, but controlled, access to data through defined data structures and customer consent models.

Impacts for the Banking Sector

The challenges

Traditional banks risk becoming a utility layer in the financial services stack, providing the data and infrastructure for startups to build exciting new services and products on top of the established banks’ customer base.

Banks will need to behave more like startups – quickly building, testing and delivering new propositions.

The Opportunities

If banks build on the initial Open Banking APIs to provide more access to more data, there is a massive opportunity to build mutually beneficial collaborations between old and new financial services.

Fintechs will generate more innovation in the banking eco-system and the best ideas can then be taken in-house to be developed at scale.

The customer base of the banks and the speed of innovation of fintech companies will quickly result in the development of completely new financial services.

Retailers process millions of transactions a year, and some have been quick to realise the additional value these transactions can generate at the point-of-sale.

Major retailers like coffee giant Caffè Nero have been gaining access to customer basket data at the point of sale through a Yoyo-powered app.

Instantly turning anonymous shoppers into individuals with purchasing preferences and habits; this data insight leads to a more personalised experience for customers.

Open Banking starts to open up a whole new world of opportunity for banks, retailers and their mutual customers.

In November 2017, Yoyo became one of the first companies to tap into debit/credit card payment data when it partnered with Starling Bank, the first UK bank to be fully compliant in preparation for PSD2.

Through a Starling card transaction, we can now:

1. Instantly apply retailer-specific loyalty for relevant purchases
2. Send itemised digital receipts back into a card user’s associated banking app post-purchase

Yoyo now matches a Starling customer’s card transactions with a retailer’s till data; frictionlessly rewarding any accrued loyalty or offers, in seconds.

Any relevant offers or rewards, as well as a fully itemised digital receipt, can then be viewed within the Starling app -giving customers better insight into their transactions.

Through Open Banking, Yoyo can now securely and safely ID a shopper through their bank card transactions, leading to more personalised offers and rewards for a bank’s customers and the data insight to deliver targeted marketing communications for retailers.

This means banks can now act as a full-service provider, creating a highly-engaged marketplace interface through which banks, retailers and their mutual customers can interact!

The benefits for the customers?

Customers who give a retailer permission to connect with their bank account could find themselves instantly rewarded with offers and discounts at the point-of-sale based on their individual shopping behaviour – regardless of their card or mobile payment method, and without the need of a loyalty app or card.

The benefits for the retailers?

Retailers could have at their fingertips a mechanic that doesn’t just appeal to their most loyal customers, but a tool so frictionless it would broaden CRM activity to identify and segment customers, as well as set conditions that could really drive behaviour.

The benefits for the banks?

Banks have a unique opportunity to bring new and exciting products to market that we’ve never seen before. The whole banking experience could change for the better as customers are offered a platform that rewards them for how and where they spend their money.