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PSD2 may drive fundamental shift in banking

The introduction of PSD2 may change banking over the next five years

With the introduction of PSD2, many bankers across Europe think there will be a fundamental shift in banking over the next five years. This has been found in a survey commissioned by Auka, the Nordic mobile payment technology provider. The survey covered key banking decision makers across 19 European regions and asked them about their future digital channel strategies, especially the mobile payment technologies.

Many of those surveyed believed that tech giants such as Google, Apple, Facebook and Amazon will increasingly take the role of the bank or at least the payment channels. While 26 per cent of the respondents admitted that tech giants will take the role of the bank, 14 per cent did not think so and 61 per cent were not sure.

Regarding the payment channels, 78 per cent did not believe or did not know if the current digital banking channels will be able to compete with the tech giants.

Under PSD2, banks are compelled to provide API access to licensed third-parties. This means that any licensed company with a payments solution can go direct to the customer and get their permission to aggregate their bank account data.

Daniel Döderlein, CEO and founder of Auka, says that companies such as Google, Apple, Facebook and Amazon who already have billions of engaged users, know the power of user data. He said that in late 2017, there was a rapid adoption of Tez, Google’s payments solution, in India. They were able to launch it there because similar legislative changes to PSD2 were implemented in the region. When they’re able to offer flexible and innovative payment solutions to their customers in Europe, post the regulatory technical standards (RTS) implementation phase of PSD2, there will be a landgrab for most customers as quickly as possible by the tech giants.

Once a company has hundreds of thousands or millions of customers using their payments solution, they can easily make a lot of money by charging third-party fees, launching and upselling other financial services and providing loyalty and marketing insights to other companies.

Although many respondents admitted the impact of the upcoming regulation on their organization, 66 per cent did not believe they will have to adapt or significantly alter their business model to stay relevant. On the overall impact of PSD2, CEOs were the least worried (66 per cent) regarding the impact of PSD2, while CTOs (44 per cent) and fintech officers (46 per cent) were the most worried.

Döderlein believes that the results of the survey suggest a lack of readiness regarding the future of banking across the EU. He said that the results indicate a collective cognitive dissonance amongst those who’ll be the most affected by PSD2. On the one hand, there is a consensus that change is coming, on the other hand, there seems to be a general belief that no organisational change is required. He added that this bi-polarity seems to be a result of the lack of vision, lack of belief that their organisation has what it takes to change, turn around and utilise the opportunities that they clearly believe Facebook will be able to. This cannot be further from the truth.

In order for banks to compete against the likes of third-party disruptors, they will need to pick apart their models and create innovative payment solutions that people want to use. He said that banks have a great advantage over Facebook. They know how to handle payments and they know security. What they lack most right now is an understanding the opportunities. Nordic banks have shown it’s possible for banks to own brilliant payment systems. They’ve already saturated the market with mobile payments apps, built into bank driven eco-systems much like that of AliPay. In fact, they have surpassed the success of AliPay in terms of market adoption. A blueprint has been made. A recipe for success is available.

He further said that it’s dangerous to dismiss these findings as banks in some parts of the world have already proven that change is possible and that the rewards of adaptation for doing are greatly underestimated. What most banks have been doing until now hasn’t been cutting it. It’s this same complacency that sparked the need for PSD2 in the first place and if banks don’t adapt, they will eventually be replaced and die.

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