The EU’s Directive on Payment Services 2 (PSD2) is set to accelerate the fragmentation of Europe’s retail banking industry following the global financial crisis, according to financial services research and insight firm Verdict Financial.
The company’s latest report reveals that opportunities rendered by PSD2 will incentivise banks with strong brand awareness and advanced digital offerings to push the boundaries of open banking. Increased competition from card issuers and non-bank third-party providers will prompt the steady mid-cap players to fundamentally re-evaluate their strategies. Banks that are competing on price may see a future in collaborating with third parties but, in doing so, will relinquish control over their customer relationships.
Sean Harrison, Retail Banking Analyst at Verdict Financial, says banks which have established a presence in the financial technology (fintech) ecosystem through incubators and accelerators will be in a strong position to capitalise on the opportunities brought about by PSD2 and open banking.
Harrison explains: “While PSD2 is likely to standardise the technical aspects of the regulation, banks wishing to go further by providing additional innovative products and services to their customers will be in a stronger position if they have sponsored or established incubators and accelerators.”
Verdict Financial also highlights the fact that banks will need to take tactical steps to ensure they are compliant with PSD2.
As Harrison states: “While the first-movers will be thinking about how to change their business models to compete in the new environment, the rest need to see this as a compliance issue and make some tactical decisions fast.”