A rapidly changing payments industry is threatening incumbent banks’ payments revenues and customer ownership. To add to that, the revised Payment Services Directive (PSD2) is driving European banks to a defining moment. The directive is set to accelerate the digital disruption that is reshaping the financial services industry. Banks will have to decide whether they want to become a banking “utility” or an “Everyday Bank” playing a central role in customers’ daily lives.
PSD2 is set to regulate new forms of payment institutions, introduce new interaction models and mandate the opening of banks’ APIs to third parties.
PSD2 is a data and technology-driven directive that aims to drive increased competition, innovation and transparency across the European payments market, while also enhancing the security of Internet payments and account access. At the core of PSD2 is the requirement for banks to grant third-party providers (TPPs) access to a customer’s online account/payment services in a regulated and secure way. This “Access to Account” (XS2A) rule mandates banks or other account-holding payment service providers (PSPs) to facilitate secure access via application programming interfaces (APIs).
PSD2 presents significant opportunities to grow new revenue streams, capture customer ownership and progress toward an extended ecosystem centered on the Everyday Bank. The imperative for banks is to leverage API integration and their existing customer relationships to develop a customer value ecosystem centered on their own banking portals.
Key features of PSD2:
Access to customer accounts via APIs enables the provision of entirely new types of services that will now be regulated under PSD2—namely third-party payment initiation—provided by payment initiation service providers (PISPs) and account information service providers (AISPs).
Through PISPs, third parties will be able to initiate online payments to an e-merchant or other beneficiary directly from the payer’s bank account via an online portal.
Accenture estimates PISP services could account for up to 16 percent of online retail payments by 2020.
Through AISP’s, third parties will be able to extract a customer’s account information data, including transaction history and balances.
With PSD2 in effect, the threat to banks from Access to Account by TPP’s may be loss of fees from card-based transactions and loss of customer ownership and insight.
Four primary strategic options are available to banks to respond effectively to the threats and opportunities of PSD2, while deciding whether to become a banking “utility,” or an “Everyday Bank.”
Comply with PSD2: Banks that seek to achieve minimum compliance with PSD2 risk disintermediation and a loss in volume and quality of customer interactions.
Facilitate and monetize access: Banks have a choice of extending their API development beyond the minimum requirements by creating standing orders and direct debit mandates, or the completion of product applications via API. In doing this, banks stand to monetize these additional APIs as well as to collaborate with third parties to create new products and services.
Offer advice and new services: Leveraging customer insight empowers banks to provide a highly customer-centric, digital banking portal, and create a customer value ecosystem consisting of symbiotic or mutually beneficial relationships between the bank and TPP that create value for the customer.
Expand the ecosystem and aggregate value: Investment in open APIs could present opportunities for more integrated partnerships between banks and third-party companies. Such partnerships could manifest themselves either through consolidation of services or data.