While regulation of new fintech financial service providers is the primary aim of PSD2, an equally important objective is the promotion of competition in the sector, specifically to help create a more level playing field for these new non-bank players.
The impact of any new regulation is hard to anticipate in advance. Some turn out to be damp squibs either due to weak enforcement or consumer apathy. Others lie relatively dormant for a number of years before some other supporting factor, or renewed enforcement vigour comes in to play.
While PSD2 is a lightning rod for discussion because banks must comply, it is, in a sense, a nuts-and-bolts expression of a broader drive to open and, potentially, collaborative banking.
It would be naive to think that banks have suddenly become convinced evangelists for working cooperatively with competitors, but PSD2, and the discussion around it, has raised the fear that failure to respond could lead to loss of market share. And so perhaps it is better to manage that proactively than act too late.
We have previously written about the new third party providers post-PSD2: the Account Information Service Providers and the Payment Initiation Service Providers, and so won’t speak about them in much detail here. The AISPs aren’t new as such, many exist already like Money Dashboard, but they will be newly regulated. PISPs also exist to a limited extent in certain European markets but there should be many new entrants as large retailers seek to minimise transaction fees.
There is much talk about revolutionary changes in banking and payments, but the biggest practical changes will be closest to home for banks. Yes, some banks are looking at blockchain and some have created digital innovation hubs but most are looking at simply pushing existing boundaries – and not too far from their comfort zone.
This is not to say that the changes will be insignificant for customers, but people are more likely see a modern twist on existing services that any revolutionary changes – in the short term at least. Banks have traditionally been good at payment systems, settlement, clearing etc. but a re-fresh is long overdue. And it is happening, in terms of Fast Payment, real-time payment, near-real-time payment and instant payments.
And yes, these are not strictly speaking PSD2 issues, but as stated above, PSD2 is bringing renewed focus on new entrants and banks are thinking at the highest levels about how to react. So one way is, of course, to make what they do better.
Swish, the P2P (peer-to-peer, person-to-person) money transfer app is an excellent example of what banks will increasingly do. This was created by a consortium of the 6 largest banks in Sweden: not a fintech company, not one of the giants like Facebook, but the banks themselves. It has been hugely successful with over half of the population using it. For banks, it’s important because it maintains their central position in money transfer, and does not surrender that to a new generation of fintechs. The customer gets a convenient, modern way to transfer money and yet with the security of the traditional banking system behind it.
Swish was not without its teething problems, technical and otherwise. And so fintechs have a role to play in the development in such new departures. But the future demise of banks is often hugely overstated. Customers are famously slow to change financial service providers and so by building effective, collaborative solutions, banks will maintain their strong position.
Talk to us about how we can help your business prepare for the post-PSD2 landscape.