EUROPE BANKING
WILL PSD2 BE THE NAIL IN THE COFFIN FOR BANKS?
At present, traditional banks hold a monopoly over the banking industry and have exclusive control over consumer financial data. Being in this position has led to a degree of complacency among banks, but in 2017 this is all set to change thanks to the Second Payment Service Directive (PSD2). PSD2 is a fundamental piece of legislation that will force banks to open their data to third party providers. This will open the door to young and innovative FinTechs who will pose a direct threat by capitalising on weaknesses and gaps left by the banks. With no choice but to adapt to the legislation, it will be important for the banks to collaborate with these companies in order to stay afloat in this significantly evolved market and avoid potentially forfeiting any meaningful presence in the payments industry all together.
42 | Issue 7
What is PSD2? PSD2 is a revised version of The Payment Services Directive, a piece of legislation administered by the European Commission to regulate payment services throughout Europe. PSD2 was adopted by the European Parliament in October 2015, and provides member states two years to meet the regulations, meaning that 2017 will see the payments sector changing significantly as it incorporates the directive into its services. In a nutshell, these new regulations aim to better protect consumers when they pay online, promote the development and use of innovative online and mobile payments, and make cross-border European payment services safer. The most significant change as a consequence of the directive is that it will allow consumers and businesses to use third-party providers to manage their
finances. The banks will be legally obliged to provide these third-party providers access to their customers’ account data through open APIs (application program interface), which will allow them to build financial services on top of banks’ data and infrastructure. So firstly, banks will have to spend money and resources building an API. Then – as a result of the API they’ve been forced to build – they will be in direct competition with any firm offering additional financial services. This fundamentally alters the payments value chain and will likely force banks and FinrTechs to compete on a wider range of services and the customer experience they deliver. It’s not surprising then, that in 2017, we will see banks desperately trying to collaborate with young FinTech start-ups either in exclusive partnerships or harnessing the latest innovations.