Banks in the eye of the storm: PSD2 is both a threat and an opportunity
PSD2, or the Revised Payment Services Directive, will unleash a perfect storm, by transforming banks’ operating models more radically than any change in the past.
Perspective: Johanna Andersén ja Marko Hykkönen
Through PSD2, customers can give any company providing payment services permission to obtain account details or start up payments from their accounts. This will be done by forcing banks to open up their application programming interfaces.
The intention is that PSD2 will bring both better-tailored services, in areas such as financial management, and services between different bank groups, since customers tend to use more than one bank. At best, PSD2 will also bring contextual services in which the payment transaction is made invisible within the actual purchase transaction. These will naturally require more than just a piece of legislation, but PSD2 will open the door to developers and innovators.
The opportunities provided by PSD2 have brought several new players into the financial sector. I think that these players are united by three factors: they are not weighed down by baggage from the past; they know how to develop user friendly services; and they have lighter capital requirements than retail banks. Many banks have grasped the new opportunities and the global technology giants are expected to launch a range of irresistible services with new goodies like Apple Pay. In addition, most of the large chain stores are coming in: while majority of the innovations currently appearing were designed to ease the everyday lives of consumers, retailers also need seamless, fast and cost-effective flow of goods and funds.
PSD2 will clearly lead to many change needs for banks. In addition to systems, changes will be made to agreements, processes, reporting, risk management, authentication and security solutions. The banks will also have to think about their future operating models. They can meet the threat presented by external actors through denial, or by adapting. The banks too can adopt expansion-driven operating models.
The banks have four alternatives in the operating environment being opened up by PSD2:
- Adopting a mandatory focus, by opening interfaces to accounts and payment transactions in line with the minimum requirements only.
- Seeking earnings opportunities beyond the minimum requirements, by opening interfaces to loans, customer information, aggregated data and corporate services, and/or offering such opportunities beyond Europe’s borders and charging for these.
- Offering customers new services, which also make use of account details from other banks and other services that become available.
- Creating an ecosystem by providing customers with an extensive range of your own and collaboratively developed services, including non-financial services.
Pioneer banks are pushing ahead
PSD2 will enter into force in January 2018. The whole picture is not yet clear, despite the fact that we are just a few months away. Standards and guidelines for the easier interpretation of PSD2 have long been under development by public authorities and organizations in the sector, but are not yet ready. A full set of national laws have not yet been passed in line with the directive. A delay in standards for the identification of customers alone is causing a transition period of up to 18 months.
On the other hand, many banks have been proactive and opened interfaces to accounts and payments already. A few large banks have also opened interfaces to loans, data and corporate services, while building their own services across bank boundaries. Instead of payments services, many smaller players have chosen to focus on other services like wealth management, assuming that the era of universal banks is over. While there are huge differences between approaches, all are correct and just as valid – the key issue is initiative.
A recent study by Deloitte suggests that banks in the EMEA region mainly view PSD2 as an opportunity, despite the fact that only 25% have plans ready. Watch out for our next blog to find out how the banks are doing!
Johanna Andersén leads a Nordic payments practice at Deloitte serving the financial sector and everyone interested in the payments business. Johanna has specialized in business development, strategies, product & service development and innovation.
Marko Hykkönen is a Director in Deloitte's Technology Consulting. He has over 28 years of experience in different technology tasks at financial industry. Throughout his career, Marko has participated to significant change making like creation of national book-entry-securities system, market structure consolidations, developing first e-brokerage services, and renewal of national card payment platforms. Marko’s specialties include software development, service operations, vendor management, and leadership in expert organisations.