The PSD2 extends the list of payment services with account information service providers (AISP’s) and payment initiation service providers (PISP’s), together called third party payment providers (TPP’s) (see the box for the official definition of these services).
These entities may provide access and services similar to the online and mobile banking banks offer to their own clients today. While banks will continue to be responsible for managing the deposit or credit account, the private or business customers may choose to use another bank’s platform (online bank) or a third party provider or to view and manage these accounts and maybe even connect it to the business’s own ERP system. Account holders will have a choice of platforms that allow them to view, process and even share their account history (AISP’s) and initiate transfers from these accounts (PISP’s).
The major difference with today’s bank-specific online banking platforms is the opportunity to share this information across institutions and even outside the banking sector. This is a major force behind the development of client-friendly digital interfaces aimed at improving the user experience and one reason why we see FinTech incubators and labs mushrooming alongside banks. The smallest change that should be expected is an intensified competition between internet banking and mobile banking platforms, as there will no longer be restrictions for a payment account held in one bank to be managed from the platform operated by another bank – or third party provider.
Notice that these providers are not licensed to collect deposits; rather they provide access to these deposits or access to information about these deposits. Some may choose to obtain an electronic money license.
These changes also mean that the bank managing the client’s payment account will no longer have exclusive access to the information contained in the account histories – currently used by them alone for marketing and risk management modelling, for example. On the other hand, a bank may obtain access to information currently held by its competitors and use it for similar purposes at the client’s request. A client may decide to share their information with a bank (or creditor) to obtain a better offer for services. Whether “better” means “cheaper”, “more accessible”, “simpler” or “more complex” (tailored to the client’s specific needs) is likely to be different for each customer segment and much effort will be put into distinguishing these segments fast and automatically.
The new providers need a license from the national authorities to operate in the EU, based on the rules set out in the Directive and the related standards and guidelines. Existing providers will also be expected to comply. A European passport to provide such services elevates the competition beyond the national markets – favouring countries that are more receptive to these changes. Even countries that are more conservative are exposed, as their citizens and businesses may decide to purchase such services from abroad. Imagine a small business or even an individual that opens a payment account in a neighbouring EU country to benefit from a service they perceive to be better. In the digital age with online account opening and authentication it can even be a remote EU state.
As an example, in retail banking, a complex online service would include a shift from a product-based approach to a complex offering of savings, investment, payments, loan and credit products tailored to the needs of the individual customer or family seen as a whole – potentially from several providers – similar to a good face to face premium banking experience. This type of service is usually called personal financial management (PFM) and it is a major FinTech development area.
Banks with a successful business model in one country can decide to test and provide the same service in other European countries rather than developing new services in their current market. Non-bank start-ups are well funded for the explicit purpose to develop such services with a scalable business model and IT infrastructure and prove that it can be expected to provide reasonable returns at reasonable risk before their initial investor is replaced. In an even wider, more global scope, similar patterns appear.
Established banks can benefit from a good reputation and the trust of their clients. This provides them with an advantage over newly established third party service providers to enter the same market with an innovative service offering.
This image can and should be reinforced with a pre-emptive education program about the regulatory changes, preparing the clients to take advantage of the benefits while being aware of the risks offered by new entrants and services. In the domain of online authentication (confirming the identity of the user), states and social media platforms take a leading role. Banks are in a similarly good position to offer such services to third parties (e.g. online stores, business service, investment or news platforms) to allow the client to benefit from third party services or even enter into some contracts.