The 13th of July, 2017 marked six months to go until PSD2 comes into effect. The Directive requires all banks to open their account systems to third parties. Banks in the single euro payments area (SEPA) must allow licensed third-parties access into their systems for the purposes of retrieving and using consenting customer financial information, through a real-time API.
One of the primary aims of the Directive is the facilitation of a more open payments market, as allowing new entrants in will lead to more competition, greater choice and better prices for consumers.
Recently, there have been reports from industry experts citing a lack of banking compliance readiness due to legacy systems and technological barriers. These are all issues the banks have certainly had the last decade (at least) to address. There is, however, the bigger threat of disruption which should certainly weigh more heavily. A recent report from Accenture talks about the threat of banks losing customer insight and ownership - without which it is rather difficult to build lasting loyalty.
A quick snapshot of what tech companies are doing in the lead up to PSD2 reveals that Facebook already has an e-money licence and is dipping into payments with card companies and banking partnerships - that they won’t actually need after January 2018, that a few months ago, Google unveiled their first foray into payments and that Apple Pay has, reportedly, the highest number of customers compared to competitors using its technology to make payments, with Chinese payments giants - WeChat and AliPay - rapidly entering into regional deals to facilitate their expansion into new regions.
From a compliance point of view – and also from a monetisation and product perspective - Scandinavian banks are ready for PSD2. The bank-issued mobile payments schemes in this region are PSD2 compliant and used by 65% of the population. However, whilst there is much traction by tech and fintech companies in the payments space, in the lead up to PSD2, banks around the world are not yet prepared for PSD2-compliant, sticky payments solutions which can be used by any person or merchant in their region.
What the banks are doing reveals less action in the innovation stakes. It would appear, looking in, that most European banks are not prepared for PSD2, and there are a number of reasons for this:
Being internally-focused. Banks are not creating systems designed to be used by outside customers. This prevents them from attracting new customers, wider adoption and any kind of associated monetisation;
Having bad partnerships. Banks must create long terms-value partnerships in order to grow their business and adding value to their products and services ;
Focusing on the tech. It is not just about poor legacy technology and systems. Banks launching near field communication (NFC) reliant systems will fail. This technology directly replicates that of a person’s debit or credit card. There are no problems being solved or opportunities for new revenue streams;
Being exposed to risk (a.k.a innovation). Regulation has protected banks very well, up until now. This Directive exposes them to real competition. Operating in an uncertain environment where failure is a risk is a foreign concept - but it is a crucial element for reinvention;
Lacking investment. Today, payments and card issuing is a major revenue source for banks but this has recently been dealt a blow by MIF margin cuts. Banks are in cost-cutting mode, fearing anymore cannibalisation of existing revenues. But, as DNB CEO Rune Bjerke said it’s better to cannibalise our own services, rather than have someone else do it.
Traditional retail banks that wish to prevent the big tech companies from becoming tomorrow’s banks must go beyond compliance. In fact, compliance is but a gateway allowing third-parties to access customer data and financial information. Banking survivors will innovate, going beyond simply what is required to provide solutions that their customers (and other bank customers) need and want. The backbone of future banking success and revenue will be payments - the facilitation of the simplest ways to pay and get paid by anyone, anywhere, anyhow.
About Daniel Döderlein
Daniel is CEO and founder of Auka. He is a serial tech entrepreneur with several successful startups under his belt. In 2010, he founded mCASH, the first mobile payments platform in Norway and the worlds first payment company to run 100% on Google Cloud. In 2014 he was awarded ‘entrepreneur of the year’ in Norway by the Norwegian Venture Capital Association. Today, Daniels company offers its cloud-based mobile payment solutions to banks wishing to fight the tech giant disruption globally under the name Auka, which means to increase and intensify in old norse, Viking language.
About Auka
Auka was the first company to launch a mobile wallet in Norway and now provides its white-label mobile payments services to banks globally. 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.
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