The words regulation and innovation are not often mentioned in the same sentence.
But in the banking world, new regulations around digital banking are actually one of the main driving forces behind some of the biggest developments currently taking place across the industry – an industry which is increasingly going digital.
It is well accepted now that online and mobile will play a major role in the future of banking, whether it is with contactless payments, smartphone apps that are effectively digital wallets, the advance of biometric security measures such as touch ID and voice recognition, or even whole new digital currencies like BitCoin.
Sync NI asked Kris Thompson, Digital Channels Manager at Danske Bank, for his views on the shifting banking landscape and how Danske is adapting to those changes.
Q: Are changes to banking regulations forcing banks to innovate and, if so, how is Danske keeping up with those changes?
I’m not sure forcing is the right term, but certainly the European Banking Authority’s new Payment Services Directive 2 (PSD2) has accelerated the plans some banks had regarding the adoption of new standards in banking. These regulations start to come into force in 2017 and the aim is that they will provide consumers with more secure and easy to use financial services. One of the really interesting measures is the stipulation that banks have open Application Programme Interfaces (APIs). Essentially that means customers will have the option to allow third party providers (which will include other banks) access to their banking information. So, for example, instead of having multiple Banking Apps with varying security log on requirements, customers could use one App that aggregates all of their bank account details in one place, which is a very attractive user experience. A lot of work is being done within Danske to get ahead of these changes and we will be working hard to ensure that we leverage this opportunity to enhance our customer relationships through our highly recommended digital services.
Q: That sounds really useful, why hasn’t this been adopted before now?
It really comes down to security concerns. The directive will require banks to rethink their security models and how this can be done from a technical standpoint. The January 2017 deadline to have developed the technical standards is written in stone and this will form the basis of how we want to develop a solution for our customers.
Also, as banks share more of their data, security measures will have to move to the next level and it’s likely we’ll see some big advances in the use of biometric technology in the next few years. PSD2 acknowledges this evolution with the introduction of a three step verification that’s based on something a customer knows, such as a pin code, something they possess, for example a token or card reader, and thirdly, something the user ‘is’. Whether that means retina scans or fingerprint scans or some other form of biometrics I’m not sure. There is no clear winner yet, but we’re looking at all the options.
Q: Do you think we’ll continue to see a move towards mobile banking?
We certainly expect that trend to continue. We passed 3 million transactions on digital channels for the first time last month, and for the past year more than 80 per cent of those transactions have consistently been done on mobile devices. I think that partly reflects the way in which customers have embraced our App. We don’t see that trajectory changing, mobile will continue to be the most dominant form of digital banking with add-ons such as smart watches and other devices enhancing the experience.
Q: Danske Bank has contactless cards but are you looking at some of the new payment technologies that are in the market?
Industry statistics have shown a big rise in contactless payments, with contactless card transactions now accounting for roughly one in 10 card payments. Spending on contactless cards increase threefold in 2015 to almost £8bn and we see it increasing this year. Beyond cards, we are constantly analysing the different technologies that come into the market such as the systems offering smartphone payments to see if adopting them will really make life easier for our customers. For us, it’s less about the technology and more about the value to customers. We know our apps are hitting the mark because our most recent customer satisfaction survey shows a 98% satisfaction rate for them. Paym – the service that allows you to pay friends using just a mobile number - has also been a huge success. There are so many options in the payments technology space we can’t back them all, but we are thoroughly evaluating the right medium for our customers.
Q: We have recently seen the launch of a number of “digital only” banks. Does Danske see these as a threat?
We welcome healthy competition! There is probably a place for digital only banks but for the most part they’ve really only been targeting millennials, the mobile generation. We still favour the multi-bank environment, which combines all that is good about digital banking with a bricks and mortar presence that gives our customers the option of coming into a branch. Sometimes that is to get face to face advice but for other customers it could be to use one of our ever increasing self-service options. The nature of how people use our branches is changing and we are always adapting to what our customers want. About 50 per cent of our customers in Northern Ireland use digital banking, but equally, half of our customers still require the traditional touchpoints.
This article was originally featured in our Sync NI summer magazine
