The Payment Services Directive 2 (PSD2) represents the biggest change in banking for 700 years, says Patrick Tans, senior general manager banking products at KBC Bank. Speaking at the European Payments Summit in the Hague, Tans said under PSD2, banks will lose the monopoly on customer experience and interaction that they have enjoyed since the 1400s.
“Since they were established, banks have always distributed products and services through their own channels and distribution equalled power. With PSD2 they will have to share customer content with new entrants and there are many initiatives coming that are designed to seduce customers to give up their data.”
There is, however, an upside for banks, he added. “Under PSD2, banks can win new customers. A bank could consider becoming a third party payments service provider itself, offering mobile applications, multi-banking products and building overlay services in order to gain a competitive advantage over other banks,” he said.
Fellow panellist Philippe Lepoutre, deputy head of global transaction and payment services at Societe Generale, disagreed, saying that PSD2 “imprisoned” banks because they “cannot say no to payments” if they want to remain credible with their customers. Financial institutions need to figure out what is key to them in payments and what they could consider as “accessories”. Lepoutre advised that banks cannot fight all the fights and should therefore focus on their areas of expertise and liaise with fintechs for services they consider peripheral.
In the same panel discussion Michael Salmony, executive adviser at Equens Worldline, said PSD2 was a “fantastic opportunity to unleash the creativity of third parties” who will have access to data and can initiate payments. “Clever people with clever ideas will emerge once the infrastructure is open,” he said.
The clever people may not necessarily come from Europe. In a later session, Pascale Brien, senior policy adviser, payments and digital at the European Banking Federation, warned that there was “an elephant in the room” in the shape of companies such as China’s Alibaba. “We should not do in payments what we did in the cards market by leaving it to non-European players to dominate,” she said.
Zennon Kapron, managing director of Shanghai-based Kapronasia, later told delegates that Chinese fintechs were on the move, initially expanding into countries where Chinese expatriates were present but now going further afield.
In China, the numbers are impressive: Alipay does 170 million transactions per day and 800 million people use the We Chat application at least monthly. Mobile phones are low cost but very functional and China’s 4G network serves 70% of the population.
The big trend in China is towards “situational finance”, a market that is being served by third party platforms rather than banks. In essence, situational finance is providing “any financial product a consumer needs at the time they need it and how they want it”. These products include investment, purchase of movie tickets, ordering and paying for taxis and buying movie tickets. Kapron warned that the payments relationship is moving away from the banks.
Heading off competition from China may require thinking like Switzerland’s PostFinance. David Kauer, head product management, value added services, at the bank said his institution focuses on the experiences its customers have that trigger a banking experience. “We don’t talk about open banking because that limits us as a bank to offering only financial services. We don’t believe our customers think in silos - they think in terms of need. So we talk about an open economy and believe as a bank we should become a networker and integrator.”
One of the clear trends during the discussions was that the banking industry has moved away from discussing the minutiae of PSD2 technicalities and towards the opportunities that reside within the Directive.