Tom Hay – Head of Payments at Icon Solutions
PSD2 brings a seismic shift in what it fundamentally means to be a bank. It’s no longer enough to be a trusted custodian of consumer transactions and the traditional bank position as the de-facto holder of the banking relationship is being eroded.
New rules require banks to open their payments infrastructure and their customer data assets to other third party financial service providers. This paves the way for the likes of Google, Apple, Facebook and Amazon (GAFA) to roll out account-based payment services to millions of users across the continent. Payment from a bank account has several benefits over a card payment, especially when combined with instant payments.
New roles for Banks
Banks that embrace PSD2 as an opportunity have the potential to expand their role in the wider ecosystem, driving new revenue streams from services and partnerships. Building on top of instant payments and using their scale, trust equity and brand, they can become front-runners on a much wider and more lucrative stage.
Undoubtedly, tough decisions will have to be made about how retail banks go to market – and their relationship with the customer. Therefore, investing in instant payments infrastructure now can help open the door to future customer offerings, driving new revenue streams, innovation and commercial growth.
Preparing for the spotlight
PSD2 is more than just a revamping of services, it’s also about the whole future of retail banking, from operational models to technology architecture. To transform themselves into ‘Open API Banks’ of the future, capable of providing bank-led instant payments to both service providers and consumers, banks will have to support an instant payments / Open API end-to-end architecture alongside cumbersome, legacy infrastructure.
Without significant investment, the right solutions and specialist help, they could struggle. Banks that get this right at the outset will steal a march on the competition, establishing themselves at the hub of new markets and cementing their place in the consumer value chain.
Putting consumers centre-stage
Post-PSD2, consumers will benefit from more choice, faster service and more invisible technology. People will transact more, but with much less effort. Using next generation instant payments to remove barriers and reduce payment friction, banks will be able to add value and deliver consistent, quality experiences irrespective of channel. Banks must do this if they want to retain their user-relationships and drive the revenue that staying close to the customer delivers.
The combination of PSD2 and instant payments could cause a quick and dramatic shift from card payments to account payments. Fundamentally changing the payments value chain and redefining what business models are profitable and what customers expect from their banks. But how do banks plan for this? How do they rewrite their rules of engagement for the future?
In truth, much depends on the impact of PSD2 and on how customers choose and use financial services.
Icon has commissioned independent research from Ovum to predict if card payments will be a thing of the past. You can pre-register for the whitepaper here.