A report by management consultancy firm Roland Berger outlines some of the challenges that the second Payments Service Directive (PSD2) poses to financial institutions.
2018 will be a year of change in European payments, driven by the implementation of PSD2, which will affect one billion current accounts in Europe and, crucially, 25-40 per cent of net banking income will be at stake, according to Roland Berger's study, Successfully navigating changes to payments regulations.
Banks currently derive much of their profit from payments through cross-selling opportunities. But PSD2's introduction of API open banking regulations means that third-party non-banks will be able to provide payment services to retailers and consumers. Here are some ways the payments world will change next year, putting pressure on banks:
- One of PSD2's central pillars (see graphic below) is that it puts control of financial data firmly in the hands of consumers, who will be able to decide whether or not to give third parties access to their financial information. Third parties providers (TPPs) will then be able to access bank account data to initiate payments, thereby disintermediating acquirer banks and card schemes from the payments equation. This will also enable consumers to access their financial information through third-party applications, so they can manage all financial accounts through one platform. Roland Berger's report points out that there's nothing stopping banks from providing their own one-stop financial management platform for their own clients: “By doing so they will be able to use the information held by other financial institutions on their existing clients, subject to the latter's consent, to build portals offering their clients enhanced PFM capabilities, with a range of additional services as they seek to differentiate themselves from other TPPs.”
- PSD2 will address the issue of reducing payment costs in the EU. The report states: “PSD2 is intended to address this issue by forcing incumbent banks to provide third parties access to customer account information as well as forbidding the same banks from discriminating against payments made through third parties in any way.”
- PSD2 also aims to improve consumer protection and the security of payment services.
- Banks will see more competition from third-party providers after the introduction of PSD2. The TPPs will not need a banking licence and won't have to fulfil all banks' capital requirements, while at the same time requiring less initial capital.
CTMfile take: PSD2 promises to bring a lot of advantages for retailers and consumers, especially if it succeeds in pushing down the cost of payments. It will also be up to banks to see where they can provide value and differentiate themselves from the TPPs.
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