The Payment Services Directive 2 (PSD2) is an update to the EU rules put in place by the 2007 Payment Services Directive. It came into effect on January 13th 2016 and will be applicable after a two-year transition period, on January 13th, 2018.
The reactions to PSD2 among bankers vary wildly but financial institutions need to start revisiting their strategies now in order not to miss the possibly short window of opportunity to respond.
Sopra Banking predicts daily banking and payment revenues to decrease as much as 20% for certain institutions over the next five years, especially for the smaller banks that apply a purely defensive strategy. As a result, new players might take advantage of the new opportunities that PSD2 offers as soon as it comes into effect, that is, at the start of 2018.
In essence, the PSD2 separates the distribution of banking services from their production. This opens the door for new entrants to provide almost any kind of banking products and services under lighter regulation. In effect, PSD2 is a gateway to open banking and to Banking-as-a-Platform.
Therefore, when PSD2 comes into effect, the distribution of financial services will become open to non-banks and retail banking revenues could decrease by as much as 20-25%. We should not forget that banks possess core functions and capabilities that bundled together provide strong added value but still, maintaining full proprietary service in-house activities will become unsustainable. As a result, banks will remain indispensable but their roles and business and operating models will evolve and the battleground will shift from service delivery to maintaining loyal customer relationships.
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