The adoption of the revised payment services directive (PSD2) in Europe is changing the relationship between banks and FinTechs, specifically around open access to customer account data and the payments infrastructure, dubbed Open Banking. In turn, this is expected to stimulate the development of new integrated service models for consumer and business customers.
Open Banking presents challenges for banks and FinTechs
So far, the general response of Europe’s banks to the PSD2 and Open Banking has been one of uncertainty. Many banks fear that the regulation will cause them to lose control of the direct interface with their clients. They remain unsure how to respond and are pursuing a defensive, wait-and-see course – writes Joyrene Thomas, Editor, Payments Cards and Mobile.
In contrast, a few innovative banks, including new digital challenger banks and FinTech firms, have pre-empted the implementation of PSD2. They are pursuing strategies aimed at capturing a leading role in the future.
The new challenges will bring about a new way of working for both banks and FinTech firms. Banks have realised that they need to transform into digital service organisations to prosper in the new digital-first era. Whereas FinTechs firms have realised that while banks have disadvantages relative to start-ups, they also have advantages. These include historic data, scale, a banking licence and a head-start in compliance activities.
The PSD2 will come into effect in January 2018. It will replace the existing Directive in place since 2007, which will be repealed with effect from 13 January 2018. However, there is a so-called ‘grey area’ where particular rules may seem undefined or unclear. The European Banking Authority (EBA) is currently working on a range of technical and regulatory standards.
These set out in more detail how those subject to PSD2 can comply with rules within the Directive. There are overlaps between different regulatory technical standards and with other European legislation, particularly around security, privacy and
data protection.
Whatever the timescales, banks are recommended to evaluate their strategy and the impact of the PSD2, especially with regard to their digital relationship with customers. They should decide whether to use one of the shared APIs or launch their own. Furthermore, they should consider whether to become a third-party processor (TPP) to create new business models and services to customers, potentially through collaboration with FinTech firms.
FinTech firms also have decisions to make. They are recommended to consider the impact of PSD2 on their current business models, particularly around registration requirements. They should determine their approach to APIs, and expect to modify this as banks implement the full requirements of the regulatory technical standards. And they should identify new services which can be offered to both businesses and consumers, perhaps even through new collaborations.
Further analysis of the implications of the PSD2 for the European banking and FinTech industry can be found in a PCM Research report in association with NCR. PSD2 and Europe’s Open Banking Mandate — Challenges for Banks and FinTechs is available for download HERE
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