PSD2 Strategy and Innovation (Continued)
Some providers have already committed themselves to developing their commercial strategies early on, notwithstanding implementation problems and delays relating to SCA throughout the EU. For example, Vipps in Norway, Mobilepay in Denmark, Keks in Croatia, and Blik in Poland, have all started implementing strategic solutions, and even banks in the United States (US) are strategically evaluating opportunities and threats that may arise owing to PSD2 APIs (Koić, 2019). Some commentators believe that the majority of banks have treated PSD2 as an exercise in minimum compliance instead of looking for customer-led outcomes (Dunlop, n.d.). This means that many banks have foregone the opportunity to create slick applications to relaunch the authentication experience (e.g. by leveraging technology such as fingerprint ID), and have instead opted to conservatively redirect customers to a multipage web browser to authenticate (Dunlop, n.d.).
From a strategic perspective, it has been argued that:
“Whilst development remains ongoing, it is increasingly difficult to make a business case for committing resources to development of an API product on a grand scale when the size of the market is undeterminable…
In the current Open Banking environment, the lack of scalability and certainty of direction of travel means that there is no advantage in being an early adopter of PSD2.
For established fintechs there is always a desire to not be caught behind the innovation curve, but at the same time a business case needs to be evident before a commitment can be made to developing or modifying any product or payment service.”
Given the huge amount of time needed to develop, test, refine, and perfect new PSD2 technologies and offerings; the huge amount of market research that still needs to be undertaken in order to more accurately identify consumer sentiment across multiple EU markets and consumer segments; the huge amount of time and effort that is needed in order to pre-educate potential markets and consumers; and given the highly differentiated, nuanced, and carefully orchestrated marketing and promotional activities required by PSD2 firms in the build up to widespread acceptance of new PSD2 technologies – to which many customers are already resistant to (owing to strong security and convenience preferences) – it is argued here that the belief that there is no advantage in being an early adopter of PSD2 is a highly flawed argument based on very little strategic knowledge behind PSD2 strategy and innovation.
Deloitte (2018) has identified that there has, to date, been little evidence regarding the emergence of any clear PSD2-based business models, although more ASPSPs are now looking beyond the narrow confines of PSD2 and seeking to invest and develop new “ecosystems” of partnerships with TPPs. This is undertaken by leveraging premium APIs in order to provide customers with a carefully organised marketplace experience that caters to their wider financial needs, across national and international markets (Deloitte, 2018). In addition, ASPSPs have been working on proofs of concept and pilot programmes that focus on Account Information Services (AIS) use cases (e.g. account aggregation services; PFM applications; loyalty programmes; credit risk underwriting; Small and Medium Sized Enterprises (SMEs) services) (Deloitte, 2018).
What has become clear is that PSD2 and Open Banking frameworks are highly complex areas that do not follow the developmental timelines previously established by historical EU legislative initiatives within the banking and financial services sectors. The frameworks that they usher in are both ground breaking and disruptive, notwithstanding the fact that their originally envisaged implementation timeline has been elongated. Contrary to certain market commentator beliefs, early adoption of PSD2 compliance programmes as well as strategic initiatives is imperative if PSD2 firms are to ensure that their propositions remain viable in the forthcoming paradigm shift of payment services within the EU. Indeed, for many firms, a lack of focus on strategic initiatives, market research initiatives, and educational market initiatives, means that many may find themselves struggling to develop market share, and at a loss to explain why they face such troubles. As summed up by Virdi (2016):
“PSD2 has the ability to force banks into a metamorphosis or be left behind as other visionary providers innovate, create closer customer relationships and develop new revenue streams. Simply being tactical is not enough; banks need to think strategically and differently if they are to remain relevant to their current customers and attract new ones.”
Deloitte (2018). Baby steps, but no giant leap: PSD2 at six months old. Deloitte LLP.
Dhami, I. (2018). Open Banking and PSD2: Disruption or Confusion? (31stJanuary), Security Intelligence, [Online], Available at: https://securityintelligence.com/open-banking-and-psd2-disruption-confusion/.
Dunlop, A. (n.d.). Open Banking and PSD2: A confused roadmap to innovation. PaysafeGroup.
FICO (2018). Risk & Compliance. (5thJune), [Online], Available at: https://www.fico.com/en/newsroom/swedes-confused-about-psd2-changes-to-payments.
FICO (2019). FICO Survey: UK Consumers Could Thwart Strong Customer Authentication. (31stJanuary), [Online], Available at: https://www.fico.com/en/newsroom/fico-survey-uk-consumers-could-thwart-strong-customer-authentication.
Finextra (2019a). 41% of banks missed PSD2 deadline says survey. (21stMarch), [Online], Available at: https://www.finextra.com/newsarticle/33569/41-of-banks-missed-psd2-deadline-says-survey.
Finextra (2019b). Sweden's Tink aims for pan-European coverage with €56 million in funding. (7thFebruary), [Online], Available at: https://www.finextra.com/newsarticle/33334/swedens-tink-aims-for-pan-european-coverage-with-56-million-in-funding/retail.
GoCardless (2019). Security vs. convenience in the payment experience. What matters most to online shoppers.
Koić, M (2019). Breaking the bank: how financial institutions can embrace disruption. (5thMarch), The New Economy, [Online], Available at: https://www.theneweconomy.com/strategy/breaking-the-bank-how-financial-institutions-can-embrace-disruption
Tink (2019). What a missed PSD2 deadline says about the challenge of implementation. (21stMarch), [Online], Available at: https://tink.com/blog/2019/3/20/psd2-sandbox-status.
Touchtech Payments (2019). European citizens and banks still unclear over PSD2 provisions. (8thFebruary), [Online], Available at: https://medium.com/@touchtech/european-citizens-and-banks-still-unclear-over-psd2-provisions-f62daeb4220a.
Virdi, T. (2016). PSD2: One of the biggest disruptions in banking for decades. (26thJanuary), Global Banking & Finance Review, [Online], Available at: https://www.globalbankingandfinance.com/psd2-one-of-the-biggest-disruptions-in-banking-for-decades/.