PSD2 regulation could act as a massive disruptor for client-banking relations and various other implications.
As the long term consequences or the probable business models for the banks cannot be judged yet, the extent of the complexities is not easy to determine. But one thing is for sure, PSD2 is not just another regulation and will open doors for more and more startups and even force the conventional and traditional banks to innovate.
PSD2 is not just another regulation and will open doors for more and more startups and even force the conventional and traditional banks to innovate.
It all started with the adoption of PSD in 2007, the aim of which was to provide legislation to create a single market for Payments within the European Union. PSD helped in:
In 2013, the PSD regulation was reviewed to reform it in order to consider new types of payment services and PSD2 came into picture. PSD2 regulation puts a focus on creating a levelled platform for a broader range of services, existing and new service providers. The highlights of PSD2 are:
The implementation of the regulation is divided into phases, which can be seen in the timeline below*:
As mentioned PSD2 has created space for new market entrants and services. The two types of service providers would be:
1. PISP (Payment Initiation Service Provider)
The PISP’s are the payment initiators that allows the users to make payments from their bank accounts directly to an online merchant . For example, iDeal in Netherlands or Trustly in Sweden provides these services.
2. AISP (Account Information Service Provider)
The AISP’s act as aggregators of information, they collect financial data from multiple sources and consolidates the same. We can see in the below figure the user has to access their multiple accounts separately but with the help of AISPs, the users can see details from multiple accounts on a single page.
The change in the AISP process can be seen the picture below:
For instance, Konto Pilot launched by Deutsche Post in Germany creates an overview of all the accounts and credit cards across various banks, Paypal accounts etc. for a user. The aggregated account balances and expenses can then be viewed on a single screen through their mobile application.
Since the banks will have to release data to third party providers as a part of PSD2, with the consent of the user, Access to Accounts (XS2A) will be in place to do the same. The Regulatory Technical Standards (RTS) for implementing XS2A will be put in place by European Banking Authority (EBA). XS2A will play an important role in two ways:
To sum up, PSD2 is going to open a lot of gates for third parties but also create a difficult scenario for banks. Banks will not only need to change their business models but will have to do it effectively in a short period of time and compete with various startups at the same time. As per a survey conducted by KPMG, 78% of respondents believe that by 2025 FinTech startups will have managed to operate faster and more efficiently outside of the existing regulatory frameworks than traditional works. However, various commercial banks are already investing heavily in developing APIs and their application store, to provide various services to their clients.
This post gives the reader a simplistic overview of the PSD and PSD2 regulations. In the next post we will highlight the strategies the banks might implement, their implications as well the role of APIs. The big question will be ‘Can the banks act as Third Party providers themselves?‘
 Next Generation Banking Survey, KPMG. October, 2015
*Our next blog will highlight the timeline for Standard Technical Regulations to be released by EBA.
Jaap van Beek, partner, KPMG The Netherlands
Martijn Berghuijs, senior manager, KPMG The Netherlands
Shashank Batra, senior consultant, KPMG The Netherlands