Impact of Regulation on Customer Experience in European FinTech

KYC, XS2A, PSD2, AML, GDPR and so on, all make it more difficult for financial services companies to provide the type of user experiences customers have come to expect. The industry not only lives on acronyms but is also diverse and complex. This complexity makes it especially complicated for players who aim to deliver a better and easier user experience for their customers. Take PSD2 for example: a few years ago, the European Union started the open banking trend in Europe by implementing a legal directive that obligates banks to provide APIs to third-party providers. The goal was to allow these third-party providers to offer new services based on existing bank accounts. A new space developed in the last few years with many startups and existing players starting to build solutions on top of these new APIs.

Old Mindset but New Obstacles

A popular integration is a feature called multi-banking where a user is enabled to connect all of her bank accounts into a single service. According to an Oliver Wyman study, 75% of people who know about multi-banking services are using them. Ongoing access to the bank account to fetch new account transactions is crucial for such players. PSD2 was supposed to be the foundation for such new services, but many banks are implementing hurdles for their very own users. Unfortunately, banks are acting within their legal leeway. It will be the new normal for third-party apps to ask users for a second factor authentication, such as a one-time password sent via text message, in order to fetch new account transactions. This will not only decrease the user experience but might destroy full use cases, as banking apps can no longer inform users about new transactions until a second factor for authentication has been entered.

Another limiting factor will be the different ways a user must connect different bank account types and different banks. According to studies, over 62% of Germans currently use more than one bank. Banks will not only offer different user journeys via their APIs than some of their competitors, but they will also offer different user journeys for different kinds of bank accounts to their own customers. PSD2 was supposed to open banking silos, increase competition and deliver more value to users. However, as the deadline for banks to deliver their APIs approaches, it is becoming obvious that PSD2 will be a major challenge for third-party players to build new services.

What Can Third-Party Players Actually Do?

It is clear that this is not the perfect environment for providers that require access to their users’ bank accounts. Therefore, my personal recommendation is to engage in an open discussion with industry stakeholders and regulators to ensure that the mindset of PSD2 is met. That means use cases such as ongoing readouts of bank account transactions can happen without a second factor for every access. Banks themselves have started to provide services that access bank accounts from other banks and thus will face similar problems of a degradation in user experience. Additionally, service providers can and should try to reward good APIs. There will be banks that provide APIs with lesser friction and if they are able to gain momentum, other banks should follow.

The implementation of PSD2 APIs will affect every player in the market and users will face the results in many of their financial services. One can hope the users understand who is causing the change in the customer journey and raise their voice as well. If service providers are able to deliver such a message – the promises of open banking will be fulfilled and exceptional user experience can be delivered by these new players again.


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Lars Markull
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