On January 13, the second payment services directive (PSD2) came into force. PSD2 stands for the second payment services directive. It followed on from the first payment services directive which came into force in 2007 and lays down rules for all payment services such as credit transfers, direct debits and card payments. The biggest change arising from this directive is the fact that banks have to open up and provide API access to approved third-parties seeking customer account access.
When we first started talking about PSD2 in April 2016 there was a distinct lack of awareness about the ramifications of the directive by many in the financial community. Apart from the few obvious exceptions, such as the big card companies and third-party payment technology providers, banks had few partners.
Since April 2016, this has changed dramatically. You now can’t talk about banking or fintech without also discussing the impact of 2018’s regulatory changes - both PSD2 and the soon-to-be effected GDPR. Secondly, banks are starting to realise the true value of partnerships - the term “fintech partnership” is no longer jargon.
Auka recently ran a survey across 1,500 bankers across Europe. More than four in five, 82%, had a plan in place for becoming PSD2 compliant. However, most bankers were at the same time fearful of disruption. There is a clear gap between becoming compliant and leveraging on the opportunities of PSD2. Read about further results of this survey in our report: PSD2 - turning compliance into opportunity.
The only viable option for banks is to either improve or replace existing digital channels, such as the mobile banking application, in order to withstand the competition.
2018 will be the year that bank/fintech partnerships become extremely ordinary.
Two of the biggest shake-ups facing banks are occurring in the same year. PSD2 facilitates a myriad of choice for customers when it comes to financial services and ways to pay. Third-parties realise the value of customer data and will be competing to offer new mobile-driven payment functionality with the goal of getting as many people using their solutions as possible. Data = power. Once there is a mass of people using a service, the operating company can turn that user data into money.
In addition to ensuring they’re complying with new regulations, banks must also find ways to stay relevant and compete with looming competitors. On the face of it, it hardly seems possible that banks can staff-up in house enough to cope with the ensuing regulatory and innovation overhaul. It’s no surprise that a recent survey by PwC found 82% of banks will look to increase the number of partnerships they have with fintech companies over the next three - five years.
Timely partnerships between a bank and a third-party specialist can help alleviate the stress of what’s to come for bankers. In the past, “fintech partnerships” have seemingly been merely a buzzword term of phrase that banks and consultancies used to sound innovative or drive publicity. Often these “partnerships” have simply been a public handshake as opposed to a profitable union.
There’s no point in publicity-partnerships anymore. In order to succeed long-term, the question around who to partner with for banks is really simple: what do we need to do to remain relevant and grow customers/revenue? Then, once that’s answered, the next question is: who can we partner with that will help us achieve this objective as quickly as possible.
We know that GAFA (Google, Amazon, Facebook and Apple) are all creating their own mobile payment solutions. They’re following a model which worked for Chinese mobile payment giants, Alipay and WeChat Pay. In 2016 the value of mobile payments in China had exceeded USD 5.5 tn - 50 times the size of the US’s USD 112 bn mobile payments market.
That’s all well and good for these large tech companies but what about banks? Firstly, it’s worth taking stock for a moment to consider how Alipay in China has managed to starve banks of big transactional data and challenge the dominance of the biggest state-owned bank.
In Scandinavia, multiple bank-owned solutions used the exact same blueprint to saturate the market and reach up to 70% mobile payment adoption across the whole population in the past five years. In fact, Scandinavia is the only region in the world where mobile wallets have become one of the most important revenue channels for banks. What’s even more remarkable is that brand recognition for the Scandinavian mobile payments apps are close to Facebook or Google in their domestic market. As a result, Apple has not yet launched Apple pay in Norway.
Banks across Europe and beyond are in a very good position to work with fintech partners to challenge third party initiatives and come out on top.
The benefits and revenue sources for banks launching mobile payments are many. Some examples include getting back lost transactional based revenue, being able to leverage customer data like never before to offer lower-risk product extras - such as a small loan or line of credit - at the right time and place, digitised invoice services and so on.
A profitable partnership works best when both parties equally share the risk. If a fintech just sells a bank a licence and then gets the hell out, the bank has a much lowered chance to see commercial success.The mobile payments competitive landscape is heating up. Banks have a limited window of opportunity to retain and strengthen their own payments relevance.
Download the guide from Auka to read how banks in Scandinavia have managed to become the only banks in the world to make money, increase their customer base and gain true success with mobile payments.
About Sara Rasmussen
Sara is responsible for international sales and customer relations in Europes Fastest Growing Fintech 2016 (Deloitte Fast 500 EMEA). Before venturing into fintech, Sara was an IT and management consultant in one of Sweden’s fastest growing companies, Netlight. Previous experience includes extensive IT projects in state authorities, product management in the gambling industry, continuous improvement in the oil and gas industry and change management in the telecoms industry. Sara has a Masters in Industrial Engineering and Management from KTH Royal Institute of technology in Stockholm and Nanyang Technical University in Singapore.
About Auka
In light of PSD2, bank business models are seriously challenged. Third parties are taking over the consumer interface while returns on card payments are diminishing. Auka offers a new channel for recruiting customers and creating new revenue streams through its proven mobile payments platform. All this is realised through the Auka white label consumer and merchant apps that is branded and owned by the issuing bank on a SaaS model. That means no more legacy IT.
Auka are mobile payments pioneers and believe in making life as easy as possible. Auka was the first company to launch a mobile wallet in Norway and now provides its white-label mobile payments services to banks globally.The Auka payments infrastructure connects banks with merchants and consumers through the Google Cloud Platform (regulated by the FCA).
Auka was recently awarded Fastest Growing Fintech by Deloitte Fast 500 EMEA and European mobile payments platform of the year by CFI magazine.
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