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PSD2: a first step to a (real) open bank
More competition, efficiency and innovation when it comes to payments services. In a nutshell, that is the core of PSD2. This new European regulation makes it possible for new parties to enter the market and ‘the establishment’ (banks) will have to adapt to this new situation. What is the impact of PSD2? Which new players benefit from most and was does it mean for the business model of banks?
In the past years, e-commerce and mobile payments have made a considerable and rapid advance. In 2015, 142 million online purchases took place in the Netherlands alone. iDeal is the most frequently used platform (56 per cent) and grew with 22 per cent compared with the previous year (source: eCommerce Payment Monitor). Within Europe there are numerous other parties and solutions, such as Klarna (European provider of services for invoice based payments to web shops), SOFORT Banking (international payment method enabling direct payments through banks) and Afterpay (market leader in the Benelux in the field of online post-payments).
The swift advance of mobile transactions was reason to re-evaluate the regulations that are being enacted since 2007 for payments services within Europe (PSD - Payment Service Directive). In 2013, the European Commission introduced an update for PSD and PSD2 was the result. At the end of 2015, PSD2 was approved by the European Parliament. PSD2 focuses on more competition, more efficiency and more innovation related to payment transactions.
The amended guideline pays specific attention to so-called Third Party Service Providers’ (TPP’s). These parties are allowed to offer payment services to consumers and have two capacities:
- PISP - Payment Initiation Service Provider: apart from banks PISP’s can initiate payment transactions as well;
- AISP - Account Information Service Provider: a party that is allowed to use data from one or more bank accounts in its communication with consumers.
Regulation is also expected for TPP’s. This will be a less strict than the regulations that apply to banks. Moreover, banks are able to function as a TPP as well. In order for TPP’s to operate, they need access to individual bank accounts. In this context, PSD2 refers to Access to the Account (XS2A). XS2A is based on several important principles:
- Banks should enable XS2A in order for TPP’s to offer their services.
- For XS2A (i.e. the services of a TPP) approval of the customers (the account holder) is always required.
At the beginning of 2018, PSD2 will come into force. In the meanwhile, the European Banking Authority (EBA) develops the Regulatory Technical Standards (RTS). These are the standards for implementation of PSD2 by banks and TPP’s. The first concept of RTS has been drafted and is open for feedback from the market. The final version is expected to be published at the start of 2017 and should be included in national legislation of EU member states at the start of 2018 at the latest.
PSD2 for the bank: legal obligation or chance?
For many years now, banks have been confronted with enormous challenges: customer behaviour has changed significantly, new technologies have been implemented, costs had to be reduced and banks were confronted with a heavy regulatory burden. These challenges are at the basis of a far-reaching transition. How does PSD2 fit within this agenda? Are banks focusing on what is minimally required or do they consider PSD2 to be a commercial chance?
It is only a matter of time that new players (TTP’s) will enter the market as a consequence of PSD2. And it is a fact that they will appeal to banks for XS2A. Therefore, banks have to prepare their systems and processes for XS2A. The Regulatory Technical Standards will give them guidance. Notwithstanding the fact that these standards are not final as yet, banks can start preparing and adapting their systems and processes. This is not an easy task, given the complexity of these operations.
Business model banks is under pressure
Due to the intervention of TPP’s banks have less direct interactions with customers. This relation goes from customer to TPP and from TPP to the bank (and vice versa). For the bank this will result in a reduction of customer data. If banks are no longer directly involved in a transaction, they will naturally not receive all related data. Contact with the customers as well as customer data are crucial in order to build a strong relationship. PSD2 can have a negative impact on the relationship between customers and banks, with the risk that the position of the bank is marginalized into an administrative ‘account manager’. This poses a big threat for the business model of banks.
In order to counter these threats, banks should do more than just complying with XS2A regulations. Contemporary consumers consider it as logical that banks innovate and digitalize services. Most banks follow this road that has ‘no way back’ (with examples, such as apps for payments and savings, online mortgages and several diverse pilots with Blockchain). PSD2 is part of this trend of innovation and digitalization. A bank might consider to fulfil a role of TPP itself and enrich the statement of accounts of its customers with account information of other financial organizations. Moreover, banks could already exchange data with innovative parties before PSD2 comes into effect in order to offer customers a better service. Apart from account information, the German Fidor Bank gives the opportunity to show bitcoin credits.
First step to ‘open banking’ model
Initially, PSD2 will result into a liberalisation of the market in payments and probably its impact will not be reduced to the payments system. The enforcement of PSD2 will be the starting-point for the exchange of data in different areas (including other areas than banking). An example is the integration of Frequent Flyer Miles with the online banking tool of the customer or a financial institution that enables its customers to invest directly in a P2P platform. Atos considers PSD2 as the first step to the so-called ‘open banking’ model. Within this model, the bank functions as an advisor and access-point to a range of external product specialists (see visual).
In this new model the bank focuses on advising and supporting customers. Moreover, the banks should estimate in which product-niches they want and can compete with their products. Essentially, this trend heralds the end of the universal banking model as we have known it for decades.
In short, PSD2 is the beginning of a new era. An era in which new players will enter the market and banks will have to re-invent themselves. More important is that this trend will result into new services and solutions for consumers. We will explain in a following article what this means for the consumer.
Tom Berbee (Executive Business Consultant) and Jurgen Balink (Associate Partner)
Both are working at Atos Consulting and share a focus on the financial sector
Tom Berbee (Executive Business Consultant)
Jurgen Balink (Associate Partner)
Progression in banking practice