By 2020, more than 50% of all UK retail sales could be ecommerce and contactless, growing by more than 2.5 times from 18% currently.
At least 30% of these will be mobile assisted. This has significant implications for banks and the roles of payment initiation services (PISP’s) and AISP’s – retailers want alternatives to the card networks to reduce cost, get a better service and improve the customer experience. The strong growth in ecommerce makes this an imperative, and as a PISP they can achieve it, by initiating payments directly from bank accounts without touching the card networks.
This significant growth is an example of how rapid changes to the payments landscape are creating challenges for UK banks, who could be poised to lose up to 43% of their retail payments based revenues by 2020, which accounts for approximately 2-3% of total bank revenues, according to new research from Accenture.
European banks are at a critical juncture in their history – a defining moment at which changes in the payments industry are forcing them to make a key strategic decision: whether to become a banking ‘utility’ supporting other providers’ customer-facing solutions, or an ‘Everyday Bank’ playing a central role in customers’ daily lives.
The driving force behind this imperative is the revised Payment Services Directive (PSD2) which is set to accelerate the competition and digital disruption that are already reshaping the financial services industry across and beyond Europe.
Regulations, emerging technologies, changing consumer behaviour and competitive dynamics are
fundamentally altering the payments landscape. These changes are already posing major threats to the traditional competitive advantages,customer relationships andrevenues enjoyed by banks. Now PSD2 is set to heighten and accelerate these disruptions.
Industry participants need to strike a fine balance between their desire to move forward quickly and the uncertainties that are still present with PSD2 and Open Banking. This requirement raises many questions. For example:
- Do banks and industry participants wait for the EBA standards or move forward now, making assumptions as to what these standards will cover?
- How does an institution manage its APIs for external access, and how many APIs
are required? - For UK banks in particular, does Open Banking compliance lead PSD2—or is it
the other way round? - How will the competent authorities, legislators and regulators in each jurisdiction interpret and apply PSD2? For example, will all payment and banking APIs need to be approved and
regulated?
Despite the uncertainties and challenges, there are significant opportunities for banks and other financial institutions to redefine their business and operating models to unlock new value and provide innovative customer propositions.
These opportunities will be realised primarily by forward-looking companies who gain a first mover advantage – but achieving this will require clear decision-making now over the different strategic options that Accenture have set out in this paper.
Is basic compliance with PSD2 enough? Or does the institution want to become an ‘Everyday Bank’ to gain the maximum competitive advantage and protect its revenue streams and customer base?
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