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.
Daniela Eder, Cash Management Business Development Manager, Treasury Services, BNY Mellon
PSD2 is not only set to bring about huge change in the industry; it has the potential to trigger a monumental shift in the payments space. A key purpose of PSD2 is to foster competition, and banks will be obligated to share customer account details (at a customer’s behest) with third party payment providers (TPPs) to help support the payment operations being offered by those new entrants. And with that information, they could potentially build and scale up their business operations with speed, create additional servicesand products, and begin to establish a substantial client base.
Although this may present challenges for banks, PSD2 will also fuel significant opportunities for partnerships and innovation. For example, the sharing of information with TPPs will likely occur through APIs, meaning the new legislation will play a key role in encouraging the use of APIs across the industry. APIs facilitate the effective, efficient exchange of data and, importantly, their flexibility and ease of integration allows banks and clients to work more collaboratively on new solutions – helping banks to adopt truly client-centric strategies, which is crucial in this competitive, fast-evolving landscape.
Will Beeson, Head of Operations & Innovation at Civilised Bank
The last 600 years? Surely not. The biggest change in banking in the last 50 years has without a doubt been the move online, to desktop and then mobile. However, the opening of bank APIs to third parties to create fundamentally new experiences has the potential to shape the next century of banking. As devices become increasingly contextual and platforms increasingly integrated, customer experiences in “banking” will start to extend well beyond the current confines of the bank.
Frictionless payment for services on apps like Uber are early examples of what this evolution will look like. Expect similar integrations to extend beyond payments into personal finance, investments, invoicing, accounting and much, much more. Open APIs will support seamless, contextual experiences and power us into a new era of experience.
Ruth Wandhofer, Global Head of Regulatory & Market Strategy, TTS, Citi
PSD2 is ushering in significant change to the payments market. In the 600-year time frame, a lot has happened in banking, which fundamentally got us to where we are today. But what is different now is that the sheer growth of data and the speed with which data can be shared across increasingly digitised economies has reached exponential heights in recent years.
Combine this with new technologies and innovative business models, and you get to a very different perspective on payments. A legislation that opens up this space is therefore a big step when looking across the past 600 years. The way this is done is interestingly still under negotiation at EU level, with some players preferring direct access to customer login credentials and underlying accounts, versus the option of leveraging
Whilst PSD2 is not the biggest change in banking over the last 600 years (deposit taking is still an activity restricted to fully licenced banks) it reflects a fundamental paradigm shift as it opens up the data assets of banks to a broader set of bank and non-bank service providers. This in turn will trigger innovations, which we may not even imagine today.
Tony Craddock, Director General, Emerging Payments Association
PSD2 should shift power from the banks to the consumer. Big banks will get smaller and a host of new organisations will be created to provide consumers with access to enhanced products and services, and to support those providing this access.
It’s a complex piece of regulation, so nobody quite knows what its effects will be, but it should bring certain changes. More companies will become regulated, including new types of company such as third party payment service providers, meaning more competitors for banks.
Consumers will pay less for their current services and benefit from new, value-adding financial services that do not exist now. The costs of launching new API-enabled products should fall, and as a result, the innovation cycle is shorter, meaning more innovation occurs. Security will be enhanced through the adoption of Strong Customer Authentication.
Of course, success is not guaranteed. The current fear is that if ‘screen scraping’ is outlawed, where companies currently extract information about a consumer’s account with their permission, but which seems to be disallowed by the new regulation, then many of the benefits of PSD2 will disappear. But we think this and other hurdles will be overcome, and that PSD2 will change the shape of the banking industry forever, to the benefit of its users, and by enabling innovation, the paytech industry too.
David Song, Payments UK’s Manager of European Developments
PSD2 will set out a common legal framework for businesses and consumers when making and receiving payments within the European Economic Area (EEA) – which comprises the 28 European Union member states plus Norway, Iceland and Liechtenstein – and outside the EEA.
The PSD2 text makes it clear that customers have a right to use what are termed Payment Initiation Service Providers (PISPs) and Account Information Service Providers (AISPs), where the payment account is accessible online and where they have given their explicit consent. These changes reflect the market growth in e-commerce activities and use of internet and mobile payments as well as the rise of new technological developments and a trend towards customers having relationships with multiple account providers. This will make internet and mobile payments easier and help customers to manage their accounts and make better comparisons between them.
Created by the European Commission, PSD2 represents a significant, Europeanwide shift in terms of the accessibility of customer data to third parties. Enabling those customers to use third-party providers for a range of added value financial services.
For more expert opinion on the impact PSD2 will cause to banks read Part One and Part Two of this article.