# PSD2: Customer data privacy and the reinvention of banking
Author:  Pal Sinha, Barnali 
Author URL: https://financedigest.com/author/pal-sinha-barnali
Published: 2018-03-13
Category: BANKING
Category URL: https://financedigest.com/category/banking
Meta Title: The Importance of Customer Identity in the Mobile World
Meta Description: Discover how customer trust and data protection are crucial for companies in the digital age, especially with the rise of open banking and new competitors.
Tags: featured
Tag URLs: featured (https://financedigest.com/tag/featured)
URL: https://financedigest.com/psd2-customer-data-privacy-and-the-reinvention-of-bankinghtml

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By **Ismet Koyun**, founder and CEO of [KOBIL Systems](https://www.kobil.com/)

Customer identity has become one of the most precious values in the mobile world. Customers trust intrinsically that companies will protect their personal data. After all, with the handing over of names, addresses and especially bank data, customers are already demonstrating a great deal of trust in the companies. For many companies, this is both a blessing and a curse.

On the one hand, this data is used for the benefit of both customer and company, and is necessary to drive new, [competitive sales and service channels as well](https://www.financedigest.com/uk-says-baker-hughes-altus-deal-may-hurt-competition-in-oil-well-services.html "UK says Baker Hughes-Altus deal may hurt competition in oil well services") as better customer experience. But a loss of trustworthiness and security will undoubtedly tarnish a company’s reputation, and damage their business long-term.

**The arrival of** [open banking](https://www.financedigest.com/why-open-banking-is-safe.html "WHY OPEN BANKING IS SAFE?")

Against a global backdrop of increasing data security, the new EU guidelines on open banking – which require [banks to share their customers’](https://www.financedigest.com/the-bank-of-me-why-banks-need-to-be-totally-customer-centric.html "The bank of me – why banks need to be totally customer centric") financial information with other authorised providers – are particularly interesting. With open banking, [banks can no longer prevent FinTechs from acting on behalf of account holders and using their data](https://www.financedigest.com/banks-struggle-to-harness-big-data.html "BANKS STRUGGLE TO HARNESS BIG DATA") for this purpose – as long as they have met the requirements for strong authentication. The ability to make already digitised information available to third parties with [customer consent increases the efficiency with which financial services](https://www.financedigest.com/transforming-to-customer-centric-service-in-financial-services.html "Transforming to customer centric service in Financial Services") can be offered and processed, but it doesn’t come without its challenges.

The [benefit for customers is clear](https://www.financedigest.com/clearing-out-your-garage-benefiting-from-corporate-simplification-2.html "Clearing Out Your Garage – Benefiting from Corporate Simplification "). Thanks to [open banking](https://www.financedigest.com/four-years-of-open-banking-2022-may-be-the-best-year-yet.html "Four years of Open Banking: 2022 may be the best year yet "), customers will have better access to their own data, making it easier to control their finances and manage multiple accounts with different providers. But they will also expect a new and improved [customer journey](https://www.financedigest.com/how-to-navigate-a-seamless-journey-from-cio-to-chief-customer-officer.html "How to navigate a seamless journey from CIO to Chief Customer Officer"). This means that financial service providers, especially traditional banking institutions, will soon have to offer their customers uncomplicated and [smart digital](https://www.financedigest.com/sales-of-smart-antenna-to-rise-at-8-5-cagr-through-2031-digital-transformation-of-vehicles-computers-factories-fuels-market-growth-tmr.html "Sales of Smart Antenna to Rise at 8.5% CAGR through 2031, Digital Transformation of Vehicles, Computers, Factories Fuels Market Growth: TMR") and mobile services for easy financial management and payment transfers – all in a secure environment. This is also [key when preapring for the infiltration of large tech companies into the financial sector](https://www.financedigest.com/is-automation-key-to-esg-success-in-the-banking-and-finance-sector.html "Is automation key to ESG success in the banking and finance sector?"). Internet giants such as [Amazon or Paypal are beginning to offer](https://www.financedigest.com/amazon-offers-shoppers-10-to-pick-up-purchases-as-it-targets-delivery-costs.html "Amazon offers shoppers to pick up purchases as it targets delivery costs") more and more services to challenge traditional financial institutions.

**The new** [role for banks](https://www.financedigest.com/bank-of-england-names-former-goldman-economist-pill-to-top-economics-role.html "Bank of England names former Goldman economist Pill to top economics role")

In this context, it is necessary for banks to reposition themselves. One [way they can comply with PSD2 is by being a ‘bank as a service’](https://www.financedigest.com/four-ways-data-and-ai-can-transform-financial-services.html "Four ways data and AI can transform Financial Services"). This means establishing a secure environment and providing strong customer authentication, authorisation and secure [communication for customers](https://www.financedigest.com/a-ccm-platform-is-crucial-to-your-customer-communication-plans-heres-why.html "A CCM platform is crucial to your customer communication plans: here’s why") – all within a brand new playing field populated by new competitors and changing dynamics.

The second role that PSD2 presents to [banks is to become](https://www.financedigest.com/becoming-more-than-a-bank-adding-value-through-financial-solutions-as-a-service.html "Becoming more than a bank: adding value through financial solutions as-a-service") a ‘bank as a platform’. By taking advantage of the trust that customers already place in them, [banks can create exciting new business models that strengthen their customers’](https://www.financedigest.com/insight-into-tomorrows-retail-banking-customers.html "INSIGHT INTO TOMORROW’S RETAIL BANKING CUSTOMERS") loyalty and improve their own performance. Banks can then simultaneously position themselves more strongly than before in other [open ecosystems](https://www.financedigest.com/open-finance-can-help-unlock-innovation-across-the-financial-ecosystem.html "Open Finance can help unlock innovation across the financial ecosystem"), and are able to offer their services and products there. But the banks will have to be particularly forward-looking as they build their own ecosystems: they could start partnerships with related companies in order to create a new [digital environment, which provides different advantages to different parties, but they should also ensure that their business will be the main instrument of all digital identities](https://www.financedigest.com/transparency-and-decentralisation-the-remedy-to-our-digital-identity-fears.html "Transparency and decentralisation, the remedy to our digital identity fears") in this ecosystem.

**Customer** [data and the struggle for security](https://www.financedigest.com/cyber-security-data-re-assurance.html "Cyber Security: Data ‘Re’-Assurance")

[Open banking is fundamentally changing security](https://www.financedigest.com/open-banking-as-a-means-to-enhance-social-commerce-security.html "Open banking as a means to enhance social commerce security") requirements, as multi-factor authentication is a requirement for electronic payment transactions. This is intended to ensure greater customer security. Today’s banking systems still depend on direct [interaction with the customer](https://www.financedigest.com/ai-will-power-95-of-customer-interactions-by-2025.html "AI will power 95% of customer interactions by 2025"), which means that the banks themselves have all the information they need to determine whether a transaction is counterfeit.

Banks must above all create confidence. According to a _Which?_ Survey, 92% of the public do not know what open banking is or how it affects them. Moreover, over half (51%) of respondents said they would be unlikely to [share their financial data](https://www.financedigest.com/chipmakers-weigh-on-european-shares-focus-on-u-s-jobs-data.html "Chipmakers weigh on European shares; focus on U.S. jobs data"), even if it meant that the products and services offered were more suited to them. Security concerns and anxiety about hacks, identity theft and passing on data without consent are likely the main reasons behind this.

So alongside developing new financial services, [banking institutions have to inform their customers about open banking and the benefits](https://www.financedigest.com/online-banking-benefits-and-risks-of-managing-your-finances-online.html "Online banking: benefits and risks of managing your finances online") it will bring – namely providing a secure environment and ensuring accountability and consumer protection against fraud. In order to take care of these [privacy concerns and build](https://www.financedigest.com/building-privacy-into-ai-is-the-future-federated.html "Building privacy into AI: is the future federated?") a ‘core of trust’ in times of open banking, banks must consider different levels of IT security.

**Finding the solution**

The answer to the [challenges is an end-to-end security](https://www.financedigest.com/education-security-in-2022-hybrid-cloud-device-management-drives-it-challenges.html "Education Security in 2022: Hybrid-Cloud, Device Management Drives IT Challenges") platform that provides strong customer authentication and authorisation – using trusted identities for continuous, engaging and reliable communication between banks, third parties and their customers. Moreover, it’s important to employ public key infrastructure (PKI) solutions that utilise advanced screening, protection, prevention, [detection and reporting](https://www.financedigest.com/odor-detection-equipment-market-research-report-overview-with-geographical-segmentation-by-revenue-with-forecast-2028.html "Odor Detection Equipment Market Research Report: Overview With Geographical Segmentation By Revenue With Forecast 2028") mechanisms.

Experts refer to multiple levels of security, as in order to ensure a ‘core of trust’, there are a number of issues that [need to be taken into account](https://www.financedigest.com/retirement-accounts-how-to-choose-the-right-retirement-account-for-your-needs.html "Retirement Accounts: How to Choose the Right Retirement Account for Your Needs"). These include [secure application](https://www.financedigest.com/embedded-security-for-internet-of-things-market-2021-by-global-key-players-types-applications-countries-industry-size-and-forecast-to-2027.html "Embedded Security For Internet Of Things Market 2021 by Global Key Players, Types, Applications, Countries, Industry Size and Forecast to 2027") shielding, onboarding of existing and new customers, using trusted identities from users for strong customer authentication, digital signatures, secure release processes, trusted communications, and collaborative environments.

Greater security is at the heart of the open banking revolution, as [banks must above all ensure trust to reassure their customers](https://www.financedigest.com/how-close-can-banks-get-to-their-customers.html "How close can banks get to their customers?"). In order to compete and win over customers new and old, banks should [incorporate new business](https://www.financedigest.com/truic-evaluates-the-biggest-business-incorporation-companies-in-the-us.html "TRUiC Evaluates The Biggest Business Incorporation Companies in The US") models with their existing basis of trust, repositioning themselves as institutions with security, loyalty, and new technologies at heart. Being at the [forefront of change](https://www.financedigest.com/uk-at-forefront-of-fx-management-change.html "UK at Forefront of FX Management Change") will be good for traditional banks – but they must not leave their customers behind.


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