PSD2. a directive of possibilities. Whitepaper by

Transcription

1 PSD2 a directive of possibilities Whitepaper by

2 INTRODUCTION European banks are facing a game-changing With the new PSD2-directive from EU banks need to rethink their business model and how they do banking. This whitepaper aim to explore the possibilities banks are facing and how they can position themselves as the bank of the future in retail banking. This whitepaper is divided in of two parts. First part will give a brief introduction to PSD2, the key advantages and disadvantages that follow with the directive. Second part will present possible solutions on how banks of the future can take advantages of their history and current position. And what the benefits could be of being one of the first-movers in this revolution. The importance and value of a great customer experience and how this could be achieved with open banking, external collaboration or partnerships with fast-paced fintech (Financial Technology) startups. Not in the scope This whitepaper will not focus on related topics like how to become compliant, how to do bare minimum and continue on with the same show. This whitepaper assume that in the real world, a consumer experience is best if the experience seems to be coming from one and the same company, even if there are multiple legal entities providing services together. PSD2 is so much more than we could fit into this particular whitepaper that s related to the topic of how banks can improve consumers retail-banking experience together with third-party providers.

3 what is PSD2? Consumers expect the companies they do Part #1 business with to know their preferences and SAS INSTITUTE, 2016 understand their needs

4 4 What is PSD2? In short, a directive from EU that will enable bank customers to manage their finance by using third-party service providers. This means that other companies than the customer s bank will be able to access their information all possible with customer s consent. Potentially this means that giant companies like Google, Apple or Facebook will be able to support consumers to pay their bills, transfer money to their friends and refine their models for ads by analyzing people s spending habits. All without having to establish their own bank. All this will be made possible when PSD2 is put in motion since the directive will make banks obligated to provide third-party access to their customers data via open Application Program Interface (APIs). Simply put anyone will be able to build value-adding services on top of banks infrastructure and data. The glory days when banks would only compete against other banks are soon over. With PSD2 in place the value chain and business model of banking will fundamentally change. And if this wasn t big enough customer expectations will drastically evolve. The European Commission aim with the directive to reinforce consumer protection, improve security of online payments and open up the traditional finance space for more innovation.

5 5 Why PSD2? The main objective for why PSD2 will be implemented in the EU and EEA is: Make the European payment market more streamlined and efficient Set the foundation for stronger customer authentication system for making payments more safe and secure Reduce unnecessary costs for consumers. Increase space for fintech-innovation

6 just one part of the revolution Consumers expect the companies they do Part #2 business with to know their preferences and SAS INSTITUTE, 2016 understand their needs

7 7 Consumers expect the companies they do business with to know their preferences and understand their needs SAS INSTITUTE, 2016

8 7 PSD2 is just part of the revolution The fundamental change that follows with the PSD2-implementation is just one perspective on how the financial landscape will evolve. Customer needs and expectations on banking also change rapidly. Customers expect their banks to offer financial services that are cheap, faster, more personalized and easy accessible from their mobile device. 1, 2 These customers slowly gain more and more trust in third-party providers that help them manage their private finances. Some examples of these third-party providers are Danish Billy and Swedish Tink who ve gained great trust and market share without any traditional banking licence. According to a study done by Fujitsu in 2016, every fifth European consumer see themselves using financial tools and services from technology giants Google, Facebook and Amazon. 3 And the trend doesn t seem to stop if you combine this insights with a study by Goldman Sachs regarding the next generation consumers millennials. 4 A generation who expect to quickly access and manage everything through their smartphone, this include private finances. This generation is the first digital natives that will most likely accelerate what s being called the subscription economy. This subscription generation expect their digital experience to be seamless, consistent and personalized. And regarding banking services there is no difference. According to a study by SAS Institute the modern consumer expect companies they engage with to understand and know their preferences. 5 What s still certain though is that the majority of people, no matter what generation they belong to, will still feel that managing their private finances via their bank is the most secure option. Even if competing thirdparty services could offer a more intuitive way of doing it. This is just one advantages for the first-movers. 1. EVRY (2015): Engaging The Millennials. 2. Deloitte (2015) Payments disrupted - The emerging challenge for European retail banks 3. Fujitsu (2016): The Fujitsu European Financial Services Survey A new pace of change. 4. Goldman Sachs, 5. SAS Institute (2016), Mobility, vunerability and state of data privacy

9 8 Will there be banks in the future? So what will banks be able to do when the competition in the financial landscape increase. When it becomes easy for anyone to create financial tools and access the data they need in order to create a great user experience? And when consumers have the option to choose their own collection of providers to suite their financial needs, instead of choosing one bank that fulfill all their needs. As many as 46% meet their financial needs through multiple brands today. 6 It s a clear indication that banks will have to redesign how they do banking, to not lose more market share to quick fintech-startups. Some banks have already started to redesign their value proposition. N26 (Number 26), a German bank are already shifting towards serving their (and future) customers with one single platform after acknowledging that by leveraging third-party service provider they can respond to the new needs of the market. 7 When PSD2 is fully implemented it s likely that the opportunity for companies without a banking license will increase and lead to increased trust for these fintech companies among consumers. Which means lost market share for banks but at the same time this will only be possible with open APIs for the fintech companies. 6. Fujitsu (2016): The Fujitsu European Financial Services Survey A new pace of change. 7. PwC Strategy (2016): Catalyst or threat? The strategic implications of PSD2 for Europe s banks

10 Threat or possibility? PSD2 is estimated to be fully effective and implemented during Sep 2018 Apr , 9 But banks don t need (and shouldn t) wait until then. They can start today rethinking and redesigning what their future value-adding services and business models could look like. Investigate the specific value that their customer s seek which could also lead to new revenue streams. While third-party providers need to wait for the APIs to be opened in 2018 the banks can use this first-mover advantage without stress choose their strategic path. 8. EUR-LEX: Directive 2007/64/EC of the European Parliament and of the Council of 13 November 2007 on payment services in the internal market amending Directives 97/7/EC, 2002/65/EC, 2005/60/EC and 2006/48/EC and repealing Directive 97/5/EC 9. EUR-LEX: Directive (EU) 2015/2366 of the European Parliament and of the Council of 25 November 2015 on payment services in the internal market, amending Directives 2002/65/EC, 2009/110/EC and 2013/36/EU and Regulation (EU) No 1093/2010, and repealing Directive 2007/64/EC

11 10 POSSIBLE SOLUTIONS So how can banks get a head start on their competitors if the traditional business model for banks is soon history? Here are a few suggestions that could be executable before PSD2 is fully implemented. Collaboration Partnership or Acquisition

12 11 Collaboration - let external creativity in By establishing relationships and partnerships with outside innovative projects banks can harness ideas and inspiration on agile growth within the fintech startup scene. Over time, participating in the processes of startups can potentially lead to great insights into how markets evolve, fruitful collaborations or even acquisitions of the best and fast-paced startups. Which could accelerate the growth of market share or even technology advantage. Together with focused fast-paced collaborations banks can focus on what partially caused their success running stable processes and services that they ve established an expertise within. While keeping a high-level perspective on what their agile fast-paced startup is up to. With a setup like this, letting startups do what they re good at, creating innovative financial solutions, every party in the collaboration is left to do what they re best at.

13 Partnership or Acquisition A more efficient way for banks to innovate could be to first establish partnerships with fintech companies. Which eventually can lead to successful acquisitions that s rewarding for both the parties, in the aspect much like recent mentioned both parties could focus on what they do best and gain advantage through shared data and costs. This approach has become a common strategy for banks in Scandinavia. Where BBVA acquired both fintech startup Simple and Holvi, whereas Sparebank1 acquired mcash. And in Denmark where Nets, who offer digital payment solutions partnered up with Coinify. In Sweden, SEB partnered up with Tink and Swedbank s partnered with us at Minna Technologies, to add a piece to their value chain. More specific, a tool for managing any subscription based service, like Netflix and electricity supplier. All these examples share commonalities that through the partnership or acquisition the deal expand the value in an already existing (or non-existing) service offering or value chain.

14 WAIT or MOVE So, should banks wait or seize the opportunities that s been presented in this whitepaper.

15 13 While waiting for even more PSD2 details, this would steal time from preparing for new competition and strengthening existing business or explore new ones. In this whitepaper we presented some factors to consider when choosing strategy. One conclusion to round up this whitepaper with is the benefits of being a first-mover. By initiate early contact with fast-paced startups banks can put themselves in competitive position before the race starts in Still uncertainty left Even though most parts of PSD2 directives are getting finalized there is still some uncertainty on how the financial industry will look like after the complete implementation. How banks will tackle the challenges is still a question for history. But what s certain is that the banks who start early and use their first-mover advantage will most likely be the ones who will stay in the game. From the material we ve been studying there s a clear trend fintech startups and banks need to collaborate. Startups as the fast-paced innovators who create value-adding services to the traditional banks infrastructure. Where banks can invite and utilize APIs to add on value-adding services to their value chain for their customers. Figure 1: Illustrate the level of influence a bank could have if they utilize their first-mover advantage.

16 SOURCES 1. EVRY (2015): Engaging The Millennials. 2. Deloitte (2015) Payments disrupted - The emerging challenge for European retail banks 3. Fujitsu (2016): The Fujitsu European Financial Services Survey A new pace of change. 4. Goldman Sachs, 5. SAS Institute (2016), Mobility, vunerability and state of data privacy 6. Fujitsu (2016): The Fujitsu European Financial Services Survey A new pace of change. 7. PwC Strategy (2016): Catalyst or threat? The strategic implications of PSD2 for Europe s banks 8. EUR-LEX: Directive 2007/64/EC of the European Parliament and of the Council of 13 November 2007 on payment services in the internal market amending Directives 97/7/EC, 2002/65/EC, 2005/60/EC and 2006/48/EC and repealing Directive 97/5/EC 9. EUR-LEX: Directive (EU) 2015/2366 of the European Parliament and of the Council of 25 November 2015 on payment services in the internal market, amending Directives 2002/65/ EC, 2009/110/EC and 2013/36/EU and Regulation (EU) No 1093/2010, and repealing Directive 2007/64/EC

17 ABOUT A FinTech startup based in Gothenburg, Sweden creating value adding features for banks. We make private finances easy for the modern consumer. Launched it s first subscription management platform in 2016, under the brand Mina Tjänster (My subscriptions). A standalone application for consumers to manage their subscription based services, like streaming, gym memberships, phone contracts, insurances and electricity supplier etc.. Currently working with Swedbank, offering a white label solution for Swedbank s 4 million customers. CONTACT JOAKIM SJÖBLOM CEO & Head of Partnerships joakim@minatjanster.se SWEDEN Kungstorget Gothenburg