Bank to the future: online banking set for big changes
In the past few weeks it’s likely that your bank, credit union or building society has been in touch to ensure that the contact details they have on file for you are correct. That’s so they can comply with new European rules, coming into force this weekend, that aim to make online transactions more secure.
The addition of ‘Strong Customer Authentication’ is part of the second Payment Services Directive (PSD2) and requires consumers to regularly verify their identity when banking and buying online.
That will most likely involve a code being sent to a user’s designated phone number each time they want to perform certain tasks – like transferring money or making a purchase over a certain value.
This added security measure will be the most instantly apparent change ushered in by PSD2 – but in the long term it probably won’t be the most significant.
That’s because another pillar of the rule changes forces banks to become more open – potentially upending the way people interact with their money online.
The current account
As it stands all Irish banks offer customers access to their accounts via online and mobile – with the features available to users largely the same from one brand to the next.
“All of the core functionalities are the all the same,” said Daragh Cassidy, head of communications and comparison site Bonkers.ie.
Where the big differences lie currently is around ease-of-use, he said.
“How the apps work and intuitive they are, I think there’s a difference.”
This may include the ability to apply for new products online – rather than having to deal with paperwork or branches. Differences can also be seen in the design of certain online banking sites or apps, with some including the ability to log-in with a fingerprint or check an account’s balance at a glance.
All relatively small things, but with the potential to have a big cumulative impact on a user’s day-to-day experience.
“For some banks you still need to type in all of your details [to log in], you then need to type in your personal access code,” Mr Cassidy said. “And it can be really, really time consuming and labourious for something that should really just take a second – if you’re just trying to quickly see how much you have left in your account before payday.”
Even amongst the banks that may be seen as laggards in the area, it is clear that the growing importance of online has not passed them by. Bank of Ireland, for example, has promised a completely new app later this year as part of its massive investment in IT.
But PSD2 represents a more significant shift for all banks in Ireland.
The API’s the limit
The open banking requirements introduced by Europe are technically challenging, however the idea behind them is relatively simple.
All EU-based banks now have to offer a doorway for other, authorised firms to link in to a customer’s account details. That may include other banks, financial services firms or even tech startups.
This doorway is known as an application programming interface – or API – and is the same concept used by Apple and Google to give app developers access to a smartphone’s features, like its microphone or GPS data.
Similar to the best practice there, it also requires customer approval – meaning the user will only share their details with the third parties of their choice.
The value of this may take some time to become clear – however early applications include being able to automatically feed your transactions into budgeting software, or being able to view accounts from multiple banks in one place.
“Perhaps they could be a company that’s involved in lending and rather than you having to give your data in a form, you give them permission to scrape the detail from your account and they can say ‘yep, we can see that that’s your income, it’s coming in every month and here’s where your outgoings are’,” said Peter Oakes, founder of FinTech Ireland.
There are currently just a handful of firms authorised by the Irish Central Bank to provide these kinds of added services, however many others that have approval from other European authorities will also be available here under ‘passporting’ rules.
That means there may be many new functions available to online banking customers in the near future.
“There’s likely to be quite a demand for these sort of things from consumers,” said Peter Oakes, founder of FinTech Ireland.
“Accenture did a study on this and it found that 50% of consumers said they would use one of these products provided it’s secure.”
Bank to the future
Open banking aims to give people more flexibility in how they handle their finances – and more control over their valuable data. That is a big risk to legacy players here, who have often benefited from customers’ reluctance to change providers.
However lenders do not have the luxury of blocking the incoming changes, nor can they afford to sit back and hope that customers do not engage third parties of their own accord.
Such an approach could leave them playing catch up with rivals that take a more proactive attitude. Meanwhile new entrants, like Germany-based N26 and British firm Revolut, are increasingly gaining traction in Ireland; eschewing physical branches for a purely digital-based service.
“For me, those two banks have really gone above and beyond what any of the other banks in Ireland do,” said Mr Cassidy.
As a result incumbent banks here may, somewhat ironically, become the strongest proponents of open banking.
In response to queries Bank of Ireland, AIB and Permanent TSB all said they were engaging with third parties with a view to integrating their services into their online platforms.
Such services are unlikely to suddenly appear on 14 September – but over time online users may be presented with new functions and services through their bank’s interface.
That should be good news for customers – as well as the Irish financial technology firms that are hoping to realise the potential of open banking.
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