Why PSD2 is a game-changer for European Banking?

The revised Payment Services Directive (PSD2), coming into effect in January 2018, will transform European banking landscape forever. In its essence, PSD2 will establish the legal foundation for full openness of customer and product data across all providers of financial services in the Union. Customer data linked to deposits, payments, loans, and investments will be available to any firm that wishes to provide associated services – independently of which firm holds the customer account.

PSD2 will establish the legal foundation for full openness of customer and product data across all providers of financial services in the Union.

Having this in mind, PSD2 will accelerate the rise of non-bank aggregators and platforms that provide a single comprehensive view of all customer accounts across financial institutions. Hence, the experience of personal financial management will be taken away form the incumbent banks (which are doing a poor job!) and put into the hands of third parties that are not concerned with who provides the principal products. The third party providers will not only be focused on delivering the best customer experience, also they will strive to get the best deal for their customers by giving price transparency. And this will obviously be a win-win for the end user.

With reference to my earlier posts, PSD2 will mean that many incumbents may well be relegated to the role of pure component suppliers. With more transparency in place, they will be subject to fierce price competition, will have a limited impact of customer experience, while also having to comply with the risks and capital requirements. Therefore, to stay relevant, incumbents will need to make clear choices as to how they wish to position themselves to capture future value.

All in all, the future of European banking looks bright, but still rather unclear. One obvious thing though is that new regulation will force incumbents to transform. The critical thing is to choose the correct path.