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Banks rethinking business models as PSD2 looms - Finextra research

12 May 2015  |  34843 views  |  5 EU building, Brussels

Europe's banks are engaged in a do-or-die effort to prepare for the 2016 introduction of new payments regulations that are expected to usher in a wave of fresh competition and innovation across the sector, according to research conducted by Finextra

The revised Payment Services Directive (PSD2) is being introduced by the European Commission to further open the markets to non-bank competitors and foster innovation in mobile and internet payments.

Finextra's poll of over 100 banks, conducted on behalf of FIS, found that 54% of all respondents agreed or completely agreed that they are in the process of rethinking their retail banking customer relationship and revenue/business model, with an aggregate positive score for this of 78%.

However, only 37% of European banks felt that understanding of the full implications of the new rules was high across all of their IT, payments and retail banking units and at board level.

This is a particular concern around the provisions for mandatory access to bank accounts via APIs, or 'XS2A' in PSD2 terminology.

As David Birch, director of innovation at Consult Hyperion observes in the report: "It is vital for strategic planners to understand that even though it appears to be some obscure European Commission directive about application programming interfaces, it’s not about technology. It’s about the future of banking and it’s really important for banks to take advantage of it."

Few of the survey participants expect to be able to offer API access from day one to external parties and innovators. Exact deadlines and therefore the timing of “day one” are unknown at this stage, but only 14% agreed or strongly agreed that they would be open and ready for access. A further 32% slightly agreed, while 54% indicated negatively.

While security is a primary concern for 88% of respondents, the impact of legacy infrastructure is likely to be more pressing, with only five percent of poll participants expressing confidence that their core banking systems will not be a barrier to becoming an 'Open API bank'.

"My observation is that it is important for banks to see the API framework, their API strategy and their APIs as business issues," says Birch. "It may be hard for traditional banks providers to come to terms with the idea of opening up in this way but it seems to me to be an inevitable restructuring in organisations that are going to survive in the new environment."

The full report is available for download here.

Comments: (5)

Roger G LeBlond
Roger G LeBlond - Roger G Leblond - Corpus Christi | 12 May, 2015, 15:18

I don't understand why banks take challenges from the competition lightly. Customers will give their business to the vendor that provides security and convenience. I have heard the same arguments from bankers for the last 5 years that you have heard in your survey. Bankers are just afraid to attack a challenge head on. Bank management is not very supportive to be a leader of new products. Bank management still believes a bankers life is loan business. Very sad

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A Finextra member
A Finextra member | 13 May, 2015, 16:35

The content of this article, whilst not unexpected at all, is disappointing.  

"only five percent of poll participants expressing confidence that their core banking systems will not be a barrier to becoming an 'Open API bank'."

The discusson around XS2A seems to be about cost and technical difficulty, where it should be about the business case.  

PSD2 -much like real-time payments initiatives- is about opening up the market. To new services from banks but also to new services from payment banks and non-banks.

Banks have the chance to compete.  Now.  Not in 5 years.

As for the technical difficulty and security threat of opening account access and become an OpenAPI bank?  Give me a call.   It's not that difficult.

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Tom Hay
Tom Hay - Icon Solutions Ltd - London | 14 May, 2015, 08:11

It should be around the business case, but as so often happens, many banks have not engaged in that thought process and dialogue. Instead they have waited until the legislation is pretty much finalised and will now have to scramble to achieve mere compliance, which does come down to a technical challenge and a pure cost to the bank, rather than an opportunity to invest in creating a new revenue stream.

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Barry Kislingbury
Barry Kislingbury - ACI Worldwide - London | 14 May, 2015, 13:07

I agree with both Tom and Rik, yes this is a difficult time for banks, immediate payments and PDS2 will change the fundamental nature of financial services.  This is a massive opportunity for banks to take back the central role in financial services, which for many they have already lost. But it requires action, they need to embrace these changes and engage with partners on their terms, not just regulatory compliance.  The alternative is rather obvious.

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Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune | 14 May, 2015, 13:36

Security and Convenience? That Holy Grail has not yet been cracked although many have tried and failed. (Banks Have Nothing To Fear From TELCOs). In recent times, Apple Pay has come closest to cracking this Holy Grail. With latest research showing that only 6% of iPhone6 users have ever used Apple Pay, it's not clear whether customers have really given their business to a vendor that provides security and convenience. Until they offer not only security and convenience but also inspire trust and roll out their own (nonbanking) rails, all wannabe competitors are either picking on business that banks have rejected or operating as resellers for banks. Either way, banks have no great reason to worry.

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