PSD2: new payment initiation services potentially highly disruptive - report

PSD2 was finalised earlier this year and must be written into national laws across EU countries by 13 January 2018.

Banks could face competition from mobile wallet (m-wallet) providers, technology companies, financial technology (fintech) providers and major retailers in the new market for payment initiation services, according to a new report.

Under PSD2 banks and other payment service providers (PSPs) must give so-called payment initiation service providers (PISPs) access to their customers accounts so as to facilitate transactions ordered at the customers request. However, in return, PISPs must observe a number of data security obligations and takes on certain liabilities in relation to any unauthorised transactions it is responsible for.

Banks and credit and debit card providers in particular risk experiencing competitive pressures as a result of PISPs, according to the study.

Experts in fintech say that banks need to continue to think about how they can perform the service of the payment initiator effectively in a way that incentivises customers to not only trust them to store their money in the future, but also to initiate transfers of it.

Banks and other payments market businesses are likely to seek to establish market-leading positions in payment initiation services before the PSD2 reforms are given effect in national legislation.
In order to deliver the desired customer experience, banks need to have significant investment in technology and the user interface.

Main competitors include the m-wallet providers and technology giants (such as Apple and Samsung), fintechs, large merchants or merchant consortia, and the banks themselves. The authors of the report expect to see players launching PISP-like propositions in the medium term in an attempt to establish market position, pre-empting PSD2 implementation and launching additional functionality as its provisions are written into law and regulation.

According to the report, PSD2 might serve as an enabler of the growth of m-wallet services. However, mobile payments will only really take-off if they are combined with peer-to-peer instant payments and other value-added services.

Additionally, the report claims that the European payments market is currently worth EUR 38 billion in annual revenues. It predicted the market will grow to be worth approximately EUR 55bn in 2020.

The report concludes that payments market is dynamic but remains a scale industry. At-scale players participating in all areas will perform well, but many players are not at scale. They either need to have specific value-added services or consider participating in consolidation. Banks where payments serve as a non-core activity, for example, will need to decide either to become more committed or pull out altogether.

The report was conducted by the management consultancy Oliver Wyman.