Patrick Tans, Senior General Manager, Banking Products, at KBC Bank was a panellist at The European Payment Summit 2017, and stated that banks were facing the biggest upheaval to their industry for over 600 years. But how does the industry feel about the shift in regulation? We spoke to senior figures from across banks and fintechs, as well industry experts, to gauge their views on whether the regulation will be the biggest shake-up to banking in six centuries.
Chris Skinner, Author and Editor, The Finanser
I think 600 years is slightly overstating the case. Most banks haven’t been around for 600 years, and it’s just a change to the technology structure of the bank. Banks claim that it’s a massive change as they’re being forced to open up their data to third parties, but on the other hand, I would expect that it will not be such a revolution, it’ll be more of a evolution towards more collaborative banking because banks are being regulated to work with third parties in partnerships, and that’s actually a good thing because it will be create a better customer experience.
By their nature, banks have historically done everything themselves, end to end. But with technology, particularly the open sourcing structures of apps, APIs and analytics, is creating a much more open marketplace where many different players can be involved in delivering the capabilities to the client and as a result, banks are going to have to work in partnership with many different technologies providers, not just doing things themselves.
Rob Hodgson, Offering Manager, IBM Cloud for Financial Services
Implementation of PSD2 will undoubtedly trigger a major change for the banking industry. However, PSD2 is neither the first step nor the last in what is and will be a technology driven evolution occurring across industries. For an increasing number of years, technology has been driving a major shift in how individuals, businesses and other organisations interact with each other.
PSD2 will undoubtedly be a defining moment in the evolution of banking and payments whether it will be ‘the’ defining moment in five or ten years’ time is less certain.PSD2 will accelerate the formation of ecosystems of fintech applications from which to evaluate and select relevant APIs, data and content as well as availability of open, secure, cloud development platforms on which to develop applications quickly, securely.
Alexandra Foster, Head of Insurance, Finance & Post trade, Global Banking & Financial Markets, BT
The PSD2 starting gun has been shot – there’s now less than 30 weeks for EU member states to implement this regulation on a domestic basis. For banks and fintechs alike, effective preparation is crucial to navigate this game-changing regulatory mandate. At its heart, PSD2’s objectives are to promote competition and ensure a level playing field for European payments.
Some participants have criticised the fact that the current PSD2’s scope may hamper fintech innovation, highlighting that smaller fintechs may be forced to become technologically dependent on banks. However, PSD2 actually presents an opportunity for fintechs and banks to work collaboratively by creating unique, tailored solutions and services for their customers. It’s important to recognise that PSD2’s end-goal is not only to promote competition and de-monopolisation of data, but also to optimise the protection and experience of the end-customer. The functionality and adoptability of the APIs
and a guarantee of a consistent focus on the end customer is what will ultimately validate the ideas behind this regulation.
Anne Boden, CEO and Founder, Starling Bank
The future of banking is an invisible one and this will be driven by PSD2, so yes I agree that it is set to transform banking. It is already posing a challenge to traditional banks because it means they no longer compete solely with other banks, but with financial technology companies. However, in the future, this will challenge will also come from other sectors, not least lifestyle brands.
Right now we’re seeing a shift as banking becomes an increasingly digital experience, and much less of a physical one. Now, around 60% of UK adults say that they prefer to interact with their bank through digital methods – online and apps –compared to around 23% who still attend prefer visiting bank branches. But this is the tip of the iceberg. PSD2 and the UK’s Open Banking initiative create a clear motion towards customer-centricity, because at the heart of PSD2 is the sharing of financial data and the creation of an ecosystem where customers benefit from access to multiple platforms, services and opportunities that use that data. It means that access to money will soon become inextricable from health, fitness, travel, time management and every other aspect of our day-to-day lives. Banking will become invisible.
Sophie Guibaud, VP of European Expansion, Fidor Bank
Not only does PSD2 challenge existing banks, as it could see them pushed out of their customers’ sight, but it presents them with a brilliant opportunity to win the hearts and minds of competitor’s customers too. How well a bank adapts to PSD2 will dictate how successful they are for many years to come.
James Morton, Country Head UK & NL, MangoPay
It will be interesting to watch the introduction of PSD2 unfold. I think it has the potential to instigate a significant shift in the payments landscape. PSD2 helps instant payments between bank accounts to develop, potentially at the expense of traditional card payments. In order for this to work, integration must be achieved within the banking system. Currently, banks are working hard to achieve this, but it is not an easy task. Everything is still very manual in the correspondent banking industry, i.e. cross-border payment reconciliations.
Furthermore, greater numbers of companies will enter the tri-party payments space in order to continue their growth, as according to the incoming regulation, marketplaces will not be able to escrow funds for third parties without a licence.
Christian Schaefer, Head of Payments, Product Management, Corporate Cash Management, Deutsche Bank
PSD2 has the potential to revolutionise payments: introducing innovation and enhanced flexibility. Certainly PSD2 will encourage collaboration between the varied players across the financial landscape by recognising and regulating third-party providers – creating a secure and transparent environment for the creation of disruptive payments technology.
While PSD2 includes many developments, the three most significant changes work to expand scope, enhance security, and regulate third party providers. The changes reflect some of the major developments across the European payments landscape over the past decade.
Bragi Fjalldal, CMO and VP Business Development, Meniga
PSD2 is driving European banks to a defining moment in 2018. PSD2 signals a significant shift in the balance of power in European retail banking, opening the door to innovative fintech companies and setting the financial services industry on a journey towards open banking.
Specifically, PSD2 aims to drive increased competition, innovation and transparency across European payments and account information markets by granting thirdparty providers (TPPs) regulated access to a customer’s online account data and payment initiation. With PSD2, the consumer decides who can access their data and authorise payments from their accounts. At its core PSD2 will impact two things: the flow of payments and how we access our finances.
Michael Plimsoll, Senior Manager, Industry Strategy, Adobe
PSD2 will shake things up, that’s for sure. But, as it’s still early days, it’s hard to tell how the industry will be affected as a whole. That being said, I believe we’re going to see a lot of partnerships borne by Connecting buyers and sellers of financial technology globallyfrom the regulatory changes coming into force. Banks will build partnerships with fintechs, instead of competing against them, and work together collaboratively to leverage their scalability.
The importance of data, customer behaviour, user experience and personalisation will all be accelerated trends that will be prevalent when PSD2 comes into effect. If traditional banks aren’t forming partnerships, they should heavily focus on the customer and base their strategies with the customer at the core.
The regulation will force traditional banks to catch up with the modern day. Where industries such as retail and media have typically led customer experience in the past, it’s now the banks’ turn. As consumers start to feel the effects of the changes born out of the regulation, it will be a relief, a moment of “at last,” and for banks it will be revolutionary.
This article was originally published in Payments [R]Evolution magazine, which is available to download now.