Europe's PSD2 data-sharing standards are meant to foster cooperation in the market, but banks are getting more competitive as they seek to plug a revenue drain the new rules threaten.
In just the past couple of weeks, several U.K. financial institutions have launched initiatives to manage the new Payment Services Directive (PSD2), goes into effect this year. On Wednesday, HSBC became the latest bank entrant, launching Connected Money, which is designed to allow customers to view account information from all providers in a single location.
Connected Money provides a single view of accounts across 21 banks, including Santander, Lloyds and Barclays. An upcoming feature will provide the option to place unused account funds following monthly debit card purchases into a distinct account. HSBC also plans a tool to encourage more savings by tying payments to budgets. This makes HSBC's app one of the more robust products thus far in combining PFM with payments.
Even though it's designed to link to other banks, Connected Money is visible only from within an HSBC account.
"It’s still early days in the PSD2 and open banking revolution, and HSBC is among the first banks in Europe to offer such an app," said Zil Bareisis, a senior analyst at Celent. "Currently, it is only available to HSBC’s customers, so the 'early mover advantage' is more about reassuring and educating their own customers."
Banks stand to lose ample income from overdraft and payment fees due to PSD2's projected move of more enrolled payment accounts to non-banks. The losses could total more than $1.5 billion in profits over the next six years in the U.K. alone, according to the Bank of England, which notes that estimate is probably too low. U.K. banks in particular also face the peril of lost income due to Brexit and other regulations such as GDPR's new privacy rules.
Other banks are working on rival products enabled by PSD2. Lloyds has made an investment of about $4 billion to build out PSD2-compliant services and other open banking technologies over the next several years. ING recently launched Yolt, a free mobile app that is similar to a personal financial management tool that aggregates consumers' accounts and matches the data with spending patterns and scheduled payments.
Another large European bank, Santander, has made changes to its account structure while collaborating with blockchain provider Ripple to cut costs for some transactions. Santander is also lobbying for an ease in the PSD2 rules, which it sees as unfairly stacked against banks in favor of financial technology startups.
The bank plays are a response the perceived advantage PSD2 gives to fintechs. The rules require open data sharing, making it easier for fintechs that offer mobile payments and other services to aggregate data from multiple banks to feed their accounts.
PSD2's open banking and data-sharing models also make it easier for large digital retail companies like Amazon, Google and Facebook to enter European markets with products that take advantage of their existing user bases—such as Amazon Prime's 100 million members—to enroll more consumers and take payments directly from those consumers' accounts.
The U.K.'s Financial Conduct Authority reported dozens of applications for PSD2 licenses in the short time the standards have been in effect.
That's feeding bankers' impression that the standards will benefit technology companies the most. So far, much of the bank strategy on PSD2 has been a mix of defensive products such as HSBC's or a plea from bank technology industry consultants to view the mandate as a chance to update CRM, mobile payments and other tools to compete in a digital age.
Moves such as HSBC's are an early step in customer retention, since the spirit of open banking is to give consumers easier choice. By mandating data sharing through open development tools such as application programming interfaces, PSD2 makes it easier for consumers to engage with multiple companies for financial services, or to move from one company to another.
"[Connected Money] is about the benefits of open banking and enticing consumers to continue using HSBC apps rather than look for third-party alternatives," Bareisis said. "Eventually, the customers will have choice and decide which app they want to use."