Michael Down, Head of Financial Services for Elastic, spoke to PaymentExpert about the impact of PSD2, as well as how pivotal fintech will be in post-Brexit Britain.
Payment Expert: Firstly, are you able to tell us a little bit about your role and what you do?
Michael Down: I am the Head of Financial Services, UK at Elastic. I spend most of my time helping customers in the retail and investment banking sector accelerate their innovation and meet their regulatory obligations, such as PSD2 and CSDR.
PE: It would be good to hear your thoughts on PSD2 and how it’s impacting the fintech industry, specifically when it comes to data?
MD: PSD2 has played a significant role in levelling the playing field across all financial services organisations. For example, since it was implemented, banks have been required to provide account information to third-party financial services providers when requested by the customer. This “open banking” approach was established to help strengthen consumer protection for online services and further the industry’s capacity to develop digital financial services that make it easier for consumers to manage their finances.
From a data perspective, though, this isn’t easy to make happen.
Technologically speaking, the challenge for financial institutions is serving up years’ worth of customer data in real-time to third parties, all while maintaining PSD2 compliance. That data must be accurate, comprehensive, secure, and easily accessible to third parties. The penalty for failure to comply with PSD2 could be regulatory fines, or potentially more damaging, lost competitive advantage.
The other major consideration is the customer. Consumers increasingly want seamless, high-quality, multi-channel experiences while having 100% control over how their data is used. This requires banks to focus on software development, API-led integration with third-party services and transitioning from high street branches to pared-down, digitally flexible operations. Failing to meet consumer expectations for intuitive digital services and airtight data protection increasingly means losing customers to rivals who can.
PE: How significant is the role of fintech in the post-covid cashless society?
MD: Fintech is set to play a pivotal role in our cashless post-COVID society. A study by UK Finance recorded a 35% drop in cash transactions in 2020 as the Covid crisis turbo-charged a change in spending habits. This translated to 13.7 million people leading a “cashless life” last year – almost double the 7.4 million figure in 2019.
As transactions and interactions with our financial lives are increasingly digital, there’s a greater expectation from customers and ability for financial firms to create personalised, innovative services.
These services can be informed by the additional insight gleaned from transactions taking place online. Firms can get insight into customers’ purchasing, such as what and where they typically buy. When accessible by the right teams, that information on demand can be used to recommend new services and products to the customers who would be most interested in them and help influence which new initiatives should be allocated investment.
That’s where fintech comes in. This technological innovation is happening both within start-up market entrants and established incumbents as the financial services industry embraces the shift from transaction-led to data-driven revenue models, which at the same time create convenience and utility for customers. This is causing a systemic shift in which financial services providers consumers have started using for their day to day banking and other peripheral services.
PE: What are the steps that UK governance could take to ensure that London continues to grow as a fintech hub?
MD: Earlier this year, the Kalifa Review set out a much-needed push from the UK government urging financial services firms to invest in innovation that helps improve customer experience. Supported by the government’s 130% tax deduction for business investment in new technology and equipment, the Kalifa Review is a clear call to action for firms to accelerate their digital business model innovation.
However, governments still need to show fintechs that the UK is the best place to do their business. Post-Brexit, Europe is becoming an increasingly interesting place for fintech innovation, so it is only by continuing to attract talent, funding and fostering innovation at the highest standard possible that the UK can continue to lead the way. There are two key aspects that, if addressed, would help maintain the UK’s position as a key player in the global financial services market:
First, we must ensure open data borders with Europe even after Brexit to ensure that doing business in the UK doesn’t feel like a choice to ring fence your ability to expand.
Second, regulatory requirements must become more accessible with clear guidance showing how different legislation interacts with each other.
At the moment, this can be hugely challenging with initiatives like GDPR asking businesses to tighten up on the security of customer data, while PSD2 asks that financial institutions make that data more widely available. As the Kailifa Review recommended, a more harmonious system between all regulatory bodies would be a huge step forward.