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Directions (91–95) : Read the following passage carefully and answer the given questions in the context of the passage.
In Britain alone millions of people make formal complaints each year about their banks. For them,new European rules, will open thedoor to a host of innovative servicesthat analyse transactions, so anapp could tell you there’s a cheapermortgage available and start theswitching process for you. Appscould warn account-holders if theyspend more than a predeterminedamount or are about to becomeoverdrawn, or even nudge them tosave more. Customers need barelyever interact with their bank.
To date, despite dire warnings,European retail banking has beenremarkably unscathed by technology-driven disruption. Customers stayloyal, and banks still do the most ofthe lending. Financial-technology(“fintech”) companies are beginningto mount a challenge, most conspicuouslyin the online-payments industryin northern Europe : Sofort,iDEAL and other fintech firms conductover half of online transactionsin Germany and the Netherlands, forexample. But their reach is more limitedelsewhere in Europe. Physicalpayments are still overwhelminglymade with cash or bank cards.
One reason incumbents haveproved so resilient is that fintechfirms lack the customer-transactioninformation they need to providemany financial services. Banks canbe slow to respond to requests foraccess to such data, or may blockthem altogether for security reasons.It is often either cumbersome or insecurefor customers to share theirown information. Banks, on the otherhand, have easy access to transactiondata, which they can use tosell their customers other services.Regulators, however, are about totransform the landscape. The PaymentsServices Directive 2 (PSD2),due to be implemented by EU membersin January 2018, aims to kickstartcompetition while making paymentsmore secure. Provided thecustomer has given explicit consent,banks will be forced to share customer-account information with licensedfinancial-services providers.
None of this is good news forestablished banks. Profitability isalready threatened by rock-bottominterest rates. In a survey conductedlast year by Strategy &, a professional -services firm, 68% of respondingbanks believed that PDS2 wouldleave them in a weaker position. Thesame proportion feared that theywould lose control of interactionswith customers. Perhaps predictably,resistance is manifested as aconcern about data protection: morethan half of respondents to the PwCsurvey voiced concerns about securityand liability. Such concerns arelegitimate but also, argue fintechsupporters, offer a convenient excusefor banks to block competition.Newcomers will be regulated, afterall, and will have to convince theauthorities that their data-protectionsystems are robust. As they arealso required to be insured againstfosses from fraud, they will need toconvince insurers, too. They will notbe subject to the same capital andstress-testing requirements banksface: but nor will they be licensedto undertake the riskier business oflending.
So PSD2 is “perfect on paper”.But as implementation approaches,the rules will be watered down.Banks could also interpret themsubjectively: they might delay sharingdata or make them too confusingto be useful. But regulators havealready bared their teeth: last yearGerman competition authorities,citing the changes proposed inPSD2, ruled that banks were illegallyrestricting customers’ onlinebankingactivities. Banks will haveto improve, in other words.Santander’s British arm, for instance,has teamed up with Kabbage,an American startup, to offersmall companies working-capitalloans; BBVA, a Spanish bank, acquiredHolvi, a Finnish startup thathelps companies track cashflow andinvoices. Yet for all their complaints,customers still trust bankswith their money. In Britain only3% of customers move current accountseach year. Familiarity, hugecustomer bases and low fundingcosts are all attributes entrantswant to gain by association, just asbanks want to exploit newcomers’technology.
In Britain alone millions of people make formal complaints each year about their banks. For them,new European rules, will open thedoor to a host of innovative servicesthat analyse transactions, so anapp could tell you there’s a cheapermortgage available and start theswitching process for you. Appscould warn account-holders if theyspend more than a predeterminedamount or are about to becomeoverdrawn, or even nudge them tosave more. Customers need barelyever interact with their bank.
To date, despite dire warnings,European retail banking has beenremarkably unscathed by technology-driven disruption. Customers stayloyal, and banks still do the most ofthe lending. Financial-technology(“fintech”) companies are beginningto mount a challenge, most conspicuouslyin the online-payments industryin northern Europe : Sofort,iDEAL and other fintech firms conductover half of online transactionsin Germany and the Netherlands, forexample. But their reach is more limitedelsewhere in Europe. Physicalpayments are still overwhelminglymade with cash or bank cards.
One reason incumbents haveproved so resilient is that fintechfirms lack the customer-transactioninformation they need to providemany financial services. Banks canbe slow to respond to requests foraccess to such data, or may blockthem altogether for security reasons.It is often either cumbersome or insecurefor customers to share theirown information. Banks, on the otherhand, have easy access to transactiondata, which they can use tosell their customers other services.Regulators, however, are about totransform the landscape. The PaymentsServices Directive 2 (PSD2),due to be implemented by EU membersin January 2018, aims to kickstartcompetition while making paymentsmore secure. Provided thecustomer has given explicit consent,banks will be forced to share customer-account information with licensedfinancial-services providers.
None of this is good news forestablished banks. Profitability isalready threatened by rock-bottominterest rates. In a survey conductedlast year by Strategy &, a professional -services firm, 68% of respondingbanks believed that PDS2 wouldleave them in a weaker position. Thesame proportion feared that theywould lose control of interactionswith customers. Perhaps predictably,resistance is manifested as aconcern about data protection: morethan half of respondents to the PwCsurvey voiced concerns about securityand liability. Such concerns arelegitimate but also, argue fintechsupporters, offer a convenient excusefor banks to block competition.Newcomers will be regulated, afterall, and will have to convince theauthorities that their data-protectionsystems are robust. As they arealso required to be insured againstfosses from fraud, they will need toconvince insurers, too. They will notbe subject to the same capital andstress-testing requirements banksface: but nor will they be licensedto undertake the riskier business oflending.
So PSD2 is “perfect on paper”.But as implementation approaches,the rules will be watered down.Banks could also interpret themsubjectively: they might delay sharingdata or make them too confusingto be useful. But regulators havealready bared their teeth: last yearGerman competition authorities,citing the changes proposed inPSD2, ruled that banks were illegallyrestricting customers’ onlinebankingactivities. Banks will haveto improve, in other words.Santander’s British arm, for instance,has teamed up with Kabbage,an American startup, to offersmall companies working-capitalloans; BBVA, a Spanish bank, acquiredHolvi, a Finnish startup thathelps companies track cashflow andinvoices. Yet for all their complaints,customers still trust bankswith their money. In Britain only3% of customers move current accountseach year. Familiarity, hugecustomer bases and low fundingcosts are all attributes entrantswant to gain by association, just asbanks want to exploit newcomers’technology.
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Question : 91
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