September 3, 2018

PSD2: Game changer or not?

Kaarle Honkamaa

Head of Offering Development, Open Banking, Tieto

Sweden is already a leader in digital payments. Account aggregators, such as Tink, have 500k users. In Finland, Siirto enables you to make payments on accounts you have in other banks than your wallet provider. Some might say that PSD2 as such will not be a huge game changer. But in fact, the impact of PSD2 goes way beyond the mandated APIs towards open banking.

Game gets real

With PSD2, operating in an Account Information Service Providers (AISP) / Payment Initiation Service Provider (PISP) role requires a proper license and puts you under regulation. This means it's no longer a Fintech playground and we are likely to see banks entering this area with their own services. So far, the banks, with the heavy regulatory and legal burden have felt this to be a “grey area”. Now many traditional ASPSPs (i.e. banks) will join the party and start offering multibank services to their customers via accessing the PSD2 interfaces of other banks. This also means we are likely to see more new entrants from outside the financial sector adopting Payment Initiation Service (PIS) and Account Information Service (AIS) functions in their business processes.

Must move for banks

From the banks’ perspective, providing AIS and PIS services is about defending your position as a primary customer facing point for everyday banking. It is expected that most banks will react and start offering multibank services to their own customers by integrating this functionality into existing services. Banks are challenged because if they don't act, someone else will offer these services to their customers.

At first, end customers will likely get the similar kind of services from their existing bank that the fintechs have offered thus far. Even though banks are slower movers with their legacy systems compared to a fintech, they have one major advantage over fintechs and other new entrants: trust. After all it’s about people’s money and with today’s security breaches and vulnerabilities, trust is a big thing.

In longer term, as dust settles and PSD2 progresses towards open banking, banks can choose different roles for service production; staying 100% in control of both production and distribution of products and services, distributing own services via third parties or distributing products and services created by third parties by providing a platform for Third Party Providers (TPPs) - resulting in a more diversified service offering for customers.

Opportunity to differentiate and go beyond PSD2

Banks also have a good opportunity to take services enabled by PSD2 to the next level via contextuality to the transaction data. Contextuality means for example enriching the transaction data with information such as e-invoice and e-receipt. This will multiply the use case possibilities compared to raw PSD2 data and might give competitive advantage over other players in the market.

Many banks are now thinking about possibilities beyond PSD2. They have understood that the change is evitable, and to stay alive, you need to look beyond. With PSD2, banks will adopt the necessary level of competence working with open APIs and seeking competitive advantage will push them to leverage this beyond PSD2. In fact, in many banks, other product teams are closely following the progress of PSD2. This movement will be bank driven, not regulatory.

End customer expectation and trust leading the way

The big question is how fast customer expectations towards the new financial services will change and how big a role the trust factor will play. Customer demand does not change overnight but the expectation level is already set by other industries that have undergone a similar change over the last decade. One thing is for sure: the wait-and-see strategy is very risky.

Read more about the impact of PSD2 on banks and their strategies in our whitepaper How to make the most out of open banking

Read more about Tieto Open Banking Ecosystem

 

Any questions or comments, don't hesitate to contact me.

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