Banks after PSD2 open banking

PSD2 open banking is a good start for banks and fintechs to cooperate. Read about how this collaboration can improve the online banking experience.

Patrick Drexler

VP of DACH and Friendly Fraud

16 April 2020


5 min read

There are many reasons and benefits for financial institutions to cooperate with fintech companies - Commerzbank increased conversion for customers who sought and downloaded the app by 50% through collaboration with IDnow fintech. PSD2 open banking requirements for Strong Consumer Authentication are a good start to think of this collaboration in the wider context. Banks already have credibility, stability and consumer knowledge and what they need from young start-ups are their speed and innovative technology not only to battle SCA. AI-based fintech firms might open new paths for financial institutions to intelligent offerings by using data and Machine Learning to truly understand users’ motives and needs.

SMS does not give you a competitive advantage

Despite the PSD2 open banking assumptions about increasing the innovation and safety of online banking services, most banks choose to send SMS as an additional layer of security in the SCA process. Nevertheless, text messages provide neither integrity nor confidentiality of information. Over the past few years attacks known as SIM swapping have been increasing and Metro Bank case showed the concerns are still legitimate. German banks are already withdrawing from this form of authentication.

This form of authentication is also full of friction, it’s not user-friendly and in the digital reality user experience is the key ingredient to making clients satisfied. 92% of consumers demand a fast, frictionless experience while also getting one that is as trustworthy and secure as possible. It is then critical for banks to use identification methods that do not cause a negative UX, and at the same time, guarantee top-tier security. The good news here is that the extra layer of the authentication itself is not an obstacle for users - studies show the opposite. 28.3% of respondents would be more likely to use their banking apps if their financial institutions added authentication options for specific transactions, and 33.2% of respondents would be more likely to use their banking apps if their FI covers potential mobile app fraud.

The problem then lies in the speed and the quality of this process and it all comes to selecting the correct method and technology that can be provided by fintech companies.

Behavioral biometrics – intro to the power of data analysis

One of the most innovative identification methods that many Fintech firms offer is based on behavioral biometrcs – the new quality of fraud prevention. It is considered a solution that covers the Inherence factor introduced by SCA in 2FA’s. By the end of this year, $1.9 billion bank customers will be using biometrics for different financial services. Moreover, this year the global biometrics market is estimated to grow up to $35.5 billion, and by 2025 to $55.5 billion. What’s great about this technology is that, if implemented the right way, it does not cause friction in the transaction process, it works in real-time in the background of the transaction -not affecting the purchase process, making it totally user-friendly. There is no need for sending SMS or writing down PINs or passwords.

It collects a massive set of individual, physical interactions between the user and his/her device. That includes, among others, keystroke dynamics – a piece of detailed timing information describing when each particular key was pressed and released as a user was typing, including such data as flight time (the period between releasing a key and pressing the next one) or dwell time (duration of a key being pressed) to recognize whether it’s an imposter or a real user.

All the gathered data, which is the heart of behavioral biometrics, needs to be analyzed by Machine Learning algorithms to create and spot those specific connections and patterns of each user. ML with behavioral biometrics as a whole can set totally new standards for banks, merchants, and customers not only as a fraud prevention method. The big picture here is the precise user profiling, thanks to all gathered data, allowing banks to truly understand the user’s behavior, needs, and what there are doing with the money, and as a result to customize the offer to each customer. So, while adjusting to SCA banks can at the same time gain an additional competitive advantage for future purposes. Unfortunately, only one-third of CIO’s state that they see the implementation of digital capabilities such as AI/ML-based banking solutions as the most important technology area to be focused upon.

Turn data into opportunities with machine learning and behavioral biometry

Data enrichment that comes with combining behavioral biometrics and Machine Learning is an extremely powerful tool that fintech firms bring to the table. It’s a first step that requires banks to realize that using and analyzing available data with ML might start a new era of intelligent customer data offerings. But only quality fintech companies can turn those data into opportunities – growing revenues, dealing with SCA, recognizing customers’ needs and helping banks succeed for decades to come.

Also as Benny Boye Johansen Senior Director & Head of OpenAPI, Saxo Bank said: “Every bank that wants to stay on the market until 2030 must already start developing its own open banking strategy". With PSD2 which demands a new approach to banking, the timing is perfect to introduce the strategy, which includes cooperation with fintech firms. The sooner banks see the advantage of this partnership, the better for their future. With the right mixture of fintech companies and banks, it’s a win-win game for both sides.

If you are interested in finding out how to improve your service through the implementation of PSD2 open banking principles, book a call (at the top of this page) to discuss it further. You can also contact Patrick directly via email at or via LinkedIn.

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