London, 12 January 2018 – Just a few days ahead of the PSD2 implementation on 13 January 2018, a new study “PSD2: A Strategic Game-Changer With A Long-Term Impact” released by CA Technologies (NASDAQ: CA) unveils only 58% expect to achieve the minimal PSD2 compliance requirements on time. The survey, conducted by Finextra among more than 200 European payment services professionals from 89 banks in 14 countries, investigated European market readiness for PSD2.
Despite this apparent lack of preparedness, 86% of European banks that participated in the survey strongly/somewhat agree PSD2 is an opportunity to innovate, differentiate and create new products and services. Some 84% also somewhat/strongly agree that their starting point for change is the customer.
The European Union Payment Services Directive 2 (PSD2) legislation provides a legal framework for digital payments made in Europe, with the objective of increasing innovation and transparency across the European payments market, while enhancing the security of Internet payments and account access. The deadline for national governments to transpose PSD2 into law is 13 January 2018.
“While many banks currently plan to meet only the minimum PSD2 requirements for January 2018, their long-term view is that the legislation heralds a new era of open, innovative banking,” says Ian Clark, Vice President, Solution Sales EMEA, CA Technologies. “To capitalise on this opportunity, banks need to take a strategic outlook: modernising their application architectures, building new collaborative partnerships, accelerating open banking and streamlining digital payments innovation – whatever stage they are at in their PSD2 maturity.”
PSD2 perceived as a strategic driver for innovation – not just compliance
There is evidence that European banks are approaching PSD2 as a long-term strategic enabler of change. Only 24% of banks strongly agree that PSD2 is primarily a compliance activity, while 58% strongly agree that they have a strategic objective to leverage it. The trend is also confirmed by the fact that 91% of respondents indicate the ‘Digital Transformation’ function within their organisation is either leading or involved in the implementation of PSD2. This reflects the transformative nature of the change PSD2 presents and banks’ recognition of payments innovation as an intrinsic part of their digital strategy.
Banks are also embracing the experimental, ‘fail fast’ approach so essential to innovation. According to the survey results, 30% of organisations have now implemented one or more new services inspired by PSD2 and 10% have already abandoned one or more such projects that failed to meet their criteria for ongoing development. Some 19% have opted for an agile methodology for their PSD2 preparations. This approach enables banks to ‘kick start’ their innovation, build new customer facing services and adapt as the standards solidify, thereby rapidly delivering new banking services in the shape of a repeatable ‘software factory’.
Steps banks are taking for successful PSD2 implementation
In terms of the business models that banks are targeting in their PSD2 environment, the two most popular are the account information
service provider (AISP) and the payment initiation service provider (PISP) model: 75% intend to adopt the former and 66% the latter model.
According to the Finextra study, technology sits at the heart of a successful PSD2 strategy: 94% of European banks strongly or somewhat agree they will need new technology to deal successfully with PSD2 and Open Banking. And when it comes to sourcing technology solutions to support their PSD2 implementations, almost 60% express a preference for working with a ‘one-stop-shop’ provider.
Application programming interfaces (APIs), which connect software processes, are also a priority. Some 32% of banks put APIs as their first or second priority to enable customers to apply for products – 23% to create customer-driven ecosystems with fintech partners.
Challenges to PSD2 implementation remain
An overwhelming 87% of European banks strongly/somewhat agree that PSD2 readiness presents major challenges, including a lack of skills, budget concerns, technology challenges, legacy systems and security concerns.
Building the business case for PSD2 is a major challenge for almost a third of the respondents, and 37% do not think customers are ready for Open Banking. This may also justify why 81% of banks strongly/somewhat agree they are resigned to a minimum two-year return on investment.
Threats to banks’ future competitiveness
In a post-PSD2 environment, 38% of European banks agree that the biggest threat to their business will come from the so-called GAFA group (Google, Amazon, Facebook, Apple). This could explain the banks’ measured approach to compliance so far: the challenge from these consumer tech giants will evolve over time and does not represent a direct threat on the January 2018 deadline.
A quarter of European organisations surveyed perceive the established banks themselves as the biggest threat arising from PSD2. This acknowledges the fact that their core attributes – customer relationships and the data they hold on customers – offer a vital competitive advantage. It also helps explain the survey respondents’ focus on payment initiation and aggregation business models, where they anticipate assaults not just from new entrants but from established players.
Some 16% of banks believe the biggest threat in the competitive PSD2 landscape will be from new digital challenger banks. These organisations are uniquely positioned to embrace the opportunities of PSD2, being more agile and unencumbered by the legacy applications that hamper their established rivals. The changes required by PSD2, which are designed to encourage greater competition in the sector, can be more easily applied, as can the adoption of APIs.
“The conversation among European banks is moving from one about competition to collaboration and partnerships,” Clark concludes. “CA Technologies is already working with banks to enable this collaborative future. Our API Management solutions enable banks to connect third-party payment aggregators with their own systems, while our security solutions provide the strong authentication and payment security demanded by PSD2 to validate users and the transaction.”
The survey of more than 200 European payment services professionals from 89 banks was sponsored by CA Technologies and conducted by industry analyst firm Finextra in June and July 2017. It includes respondents from 14 European countries: Austria, Belgium, Denmark, Finland, France, Germany, Ireland, Italy, Norway, Portugal, Spain, Sweden, The Netherlands and the UK. For full survey methodology details, please see the full report.