Europeans spent May 2018 dealing with email pleas from companies begging them to stay friends. Thanks to the General Data Protection Regulation (GDPR), over half a billion EU citizens now wield more power over who holds data on them and what companies can do with that valuable information.

At the same time, the second Payment Services Directive (PSD2) is making its presence felt. It aims to encourage competition by allowing non-bank players to access customer bank account information and to initiate payments.

According to an Economist Intelligence Unit survey, the European banking industry remains remarkably relaxed about the upheaval. Data protection was cited by only 24% of respondents as one of the trends that will have the biggest impact on the industry over the next few years. European bankers are far more concerned about changing customer behaviour, with 56% of respondents identifying it as the top trend to impact retail banks. Bankers are far less concerned that new entrants will gain a foothold via PSD2 (cited by only 14% of European bankers). However, bankers do feel the threat from payment players including PayPal and Apple Pay, as 61% think these will be their biggest rivals by 2020, aided by disruptive tech and e-commerce giants, cited by 35% of respondents.

Navigating the digital revolution

The European banking market is highly developed. In the Eurozone area, 95% of adults have accounts, 87% already have debit cards and 69% used the internet to pay bills or buy online in the past year.1 Much of the migration from branch to online, and from cash to card, has already taken place or is in the process of this. Migrating client usage to digital from physical channels is the top priority for 42% of European bankers. The bankers are now focused on finessing the interaction between personal contact, online and mobile.

Convincing customers to go completely digital may be tougher than in previous banking innovation cycles. Digital wallets and robo-advice may not induce the same feelings of freedom as Barclays’ ATMs did in 1967, or Nottingham Building Society’s Homelink online service in 1983.

PSD2 open banking requirements weigh on strategic priorities too. European bankers know their mobile apps may not be niche propositions, with only 46% seeking to develop a niche proposition for their customers versus 61% globally. This may be because open banking will allow third-party apps to offer the same features. This may account for why 55% of European bankers are opening services to third-party developers.

To compensate for any losses from PSD2, it seems banks want to build in rich functionality to make their apps indispensable. To do this they are developing two different models: either becoming aggregators, as suggested by 39% of respondents, or maintaining their own product offerings and becoming an aggregator, a model pursued by 55% of respondents. If not, others may assimilate their customers, leaving banks as mere product manufacturers and suppliers of balance and transaction data.

But banks also need to be careful about who they partner with as they build their multi-service platforms on the back of payment functionality.

36% of respondents believe that existing IT infrastructure needs upgrading. Nearly 40% also say customers need educating about data security as banks open up their data fortresses. Yet, The Economist Intelligence Unit survey revealed that only one in ten European bankers is concerned about who is liable if a third-party link goes wrong. PSD2 rules have yet to be tested in court.

The GDPR is clearer on the misuse of data. It imposes fines of up to 4% of global turnover for poor processing or transfer of customer data. No wonder banks are more concerned about reputational damage, cited by 24% of respondents as their main concern, after a serious cyber-attack occurs. But if internal and third-party vulnerabilities cannot be exploited, a primary concern for 18% of bankers, then nobody’s reputation need suffer. What emerged as the absolute spending priority, agreed to by 81% of respondents, was spending on cyber-security.

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